International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Luxembourg: Luxembourg signs new protocol to treaty with France

fister.jpg

schmitz.jpg

Emilie Fister


Samantha Schmitz-Merle

The long awaited protocol to the France-Luxembourg double tax treaty (DTT) was signed on September 5 2014. The protocol amends the rules applicable to capital gains on the sale of shares or other rights in real estate companies and allocates the right to tax these gains to the source country. The protocol provides that capital gains derived by a resident of Luxembourg or France from the alienation of shares, units or other rights in companies, trusts or any other entities that derive directly or indirectly more than 50% of their value from real estate assets located in the other contracting state are taxable in the source country (the country in which the real estate is located). In other words, these gains are taxed in the same way as real estate income. Real estate assets allocated to the business activity of an enterprise are excluded from this clause.

So far, under the existing DTT provisions, capital gains realised on the sale of shares in real estate companies were taxed at the place of the residency of the seller. In other words, gains derived by a Luxembourg company from a French property company holding French real estate were exempt in France and only taxable in Luxembourg. In Luxembourg, they could possibly benefit from the Luxembourg participation exemption regime. With the new provisions of the protocol, capital gains derived by a Luxembourg company from a French property company will become taxable in France.

Furthermore, particular attention has to be paid to the wording of this new provision. The wording goes beyond the recommendations of the OECD in its Model Tax Convention. While the latter covers only capital gains on the alienation of shares or comparable interests, the protocol covers shares as well as any other rights.

The amendment to the France-Luxembourg DTT will require a careful review of existing investment structures in French real estate so as to mitigate any potential adverse tax consequences. If both countries manage to complete the ratification procedures before year-end, the protocol will enter into force on January 1 2015, which means that clients with real estate investment structures in France or which plan to invest in French real estate should seek advice from their tax adviser quickly.

Emilie Fister (emilie.fister@atoz.lu) and Samantha Schmitz-Merle (samantha.merle@atoz.lu)

ATOZ – Taxand Luxembourg

Tel: +352 26 940 263 and +352 26 940 235

Website: www.atoz.lu

more across site & bottom lb ros

More from across our site

The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.
With marked economic disruption matched by a frenetic rate of regulatory upheaval, ITR partnered with Asia’s leading legal minds to navigate the continent’s growing complexity.
Lawmakers seem more reticent than ever to make ambitious tax proposals since the disastrous ‘mini-budget’ last September, but the country needs serious change.
The panel, the only one dedicated to tax at the World Economic Forum, comprised government ministers and other officials.
Colombian Finance Minister José Antonio Ocampo announced preparations for a Latin American tax summit, while the potentially ‘dangerous’ Inflation Reduction Act has come under fire.
The OECD’s two-pillar solution may increase global tax revenue gains by more than $200 billion a year, but pillar one is the key to such gains due to its fundamental changes to taxing rights.
The solution to address the tax challenges arising from digitalisation and globalisation will generate more revenue than previously estimated.