Luxembourg-France Double Tax Treaty amended: capital gains on the disposal of shares in companies ultimately invested in French real estate assets by Luxembourg resident companies will become taxable in France - newsflash - 08.09.2014

On Friday 5 September 2014, the Luxembourg and French Finance Ministers signed a 4th amendment to the Luxembourg-France Double Tax Treaty. Our tax team remains at your disposal to assist you with any queries related to these changes.

08/09/2014

On Friday 5 September 2014, the Luxembourg and French Finance Ministers signed a 4th amendment to the Luxembourg-France Double Tax Treaty (“Treaty”) dated 1 April 1958. According to the amendment, capital gains derived from the alienation of shares, units or other rights in a company, fiduciary or any other institution or entity whose assets consist for more than 50% of their value – directly or indirectly through one or more companies, fiduciaries, institutions or other entities - of real estate situated in the other contracting State are taxable only in that other State. The same treatment applies to rights on said real estate. The current version of the Treaty does not cover capital gains derived by a resident on an indirect alienation of real estate held through one or more interposed entities. Accordingly, capital gains derived by a resident through the alienation of shares in a company owning real estate in the other Contracting State do not currently qualify as real estate income and are hence not taxable in the source State (location of the real estate) but in the residence State (residence of the alienator). The amendment is in line with the current OECD Model Tax Convention on Income and Capital and puts an end to a potential double non-taxation in cases where the capital gain realised on the disposal of the interposed entity was exclusively taxable in Luxembourg and benefited from an exemption. The amendment of the Treaty had been expected for some time since a first protocol dated 24 November 2006 clarified the taxation rights on real estate between source and residence State but omitted to cover indirect transfers of real estate through interposed entities. The amendment enters into force on the first day of the month following the reciprocal notifications of its ratification in both States. The new provisions will apply (a) as regards income taxes levied as a withholding tax, to capital gains taxable in the year following the civil year in the course of which the amendment entered into force, (b) as regards income taxes not levied as a withholding tax, to income realised during the entire civil year or any financial year that had commenced after the civil year in the course of which the amendment entered into force and (c) as regards any other taxes, to taxation triggered after the civil year in the course of which the amendment entered into force. Accordingly, the new provisions may possibly be applied as from 1 January 2015 at the earliest. Our tax team remains at your disposal to assist you with any queries related to these changes.

Contacts

Thierry Lesage

Partner

Tax, Tax advisory, Tax Litigation

Alain Goebel

Partner

Tax, Tax advisory, Transfer Pricing

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