New protocol to enter into force in 2016 at the earliest
The fourth protocol to the France-Luxembourg income tax treaty (hereafter the “Treaty”) will basically be applicable to income pertaining to the year following the year in which the protocol enters into force. In his answer to the parliamentary question Nr. 631 of 16 October 2014, the Minister of Finance of the Grand Duchy of Luxembourg confirmed that the bill approving this protocol is foreseen to be lodged with the Luxembourg Parliament early in 2015. Consequently, the protocol should produce its effects at the earliest as from the 2016 civil or financial year.
Scope of the protocol
As a reminder, on 5 September 2014, the fourth protocol to the 1958 France-Luxembourg tax treaty was signed in Paris.
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%.
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