Luxembourg: Luxembourg signs new protocol to treaty with France

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

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 & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article