On 5 September 2014, the fourth protocol to the 1958 France-Grand Duchy of Luxembourg income and capital tax treaty (hereafter the “Treaty”) was signed in Paris by MM. Michel Sapin, the Ministre des Finances et des Comptes publics of France, and Pierre Gramegna, the Ministre des Finances of the Grand Duchy of Luxembourg.
Article 3 of the Treaty has been supplemented by a fourth point stating that gains, derived from the alienation of shares or other rights in a company, or any other legal person, the assets of which are composed, in value, for more than 50% - directly or through the interposition of one or more other companies or legal persons - by immovable property situated in a Contracting State, or by rights pertaining to such immovable property, are only taxable in that State. This provision applies whether the seller is a legal or a natural person. Immovable property allocated by such a company to its own business is however not taken into account in this respect.
This amendment ends potential situations of double non-taxation by granting France the taxation right of capital gains realized by Luxembourg companies on the direct or indirect sale of shares in French real estate companies, including shares in SCIs, sociétés civiles immobilières, the value of which is composed by real estate properties located in France for more than 50%.
Furthermore, the protocol states its provision should not conflict with the Council Directive 2009/133/CE on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States.
This new provision will be applicable to income pertaining to the year following the year in which the protocol has entered into force. Consequently, it may come into force on 1 January 2015, subject to the ratification process being finalized by the end of this year.
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