On 18 November 2015, the Luxembourg Parliament adopted Bill n° 6826 ratifying the fourth protocol (the “Protocol”) to the 1958 tax treaty, as amended, between France and Luxembourg (the “Treaty”).
However, the ratification process in France may not be completed before 10 December 2015.
As a consequence, the Protocol is not expected to produce its effects as from 1 January 2016, but rather as from 1 January 2017.
Nevertheless, the analysis needs to be fine-tuned for companies which do not have a calendar year end.
As per the Protocol, 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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