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New amendment to the France-Luxembourg tax treaty: capital gains on sale of real estate entities will be taxable in the State where the real estate assets are located

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Vignon Mathieu
Mathieu Vignon

Partner

Paris

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Schaffner Jean
Jean Schaffner

Partner

Luxembourg

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Image of Patrick Mischo
Patrick Mischo

Office Senior Partner

Luxembourg

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11 September 2014

A new amendment to the Luxembourg-France tax treaty was signed on 5 September 2014 by the French and Luxembourg Finance Ministers.

Based on the press release issued by the Luxembourg Ministry of Finance (MoF), the amendment allocates the right to tax capital gains realised upon the sale of stock, shares or other rights in companies, trusts or any other entities whose assets are predominantly composed of real estate assets to the State where these assets are located.

This is a major change since under the current tax treaty Luxembourg investors are generally not taxed (in France or in Luxembourg) on such capital gains.

We will send an update when the exact wording of the amendment is made public. The date this amendment will enter into force will depend on the ratification process. As an example, the previous amendment was signed in November 2006, entered into force in December 2007 and applied to income realised as from year 2008 (or fiscal year starting after 1st January 2008).

According to the press release (and previous –oral- communication by the French tax authorities) the amendment does not seem to include other changes (e.g., re. the definition of “residence”). But it is indicated that “France and Luxembourg will continue working together with a view to updating the tax treaty”.

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