Roche & Cie

France-Luxembourg Tax Treaty: Postponed implementation in France

19 Jan 2016

The law allowing the approbation of the fourth amendment of the France-Luxembourg tax treaty, signed on September 5, 2014 was voted on December 2015 by the National Assembly and the Senate.

Historical background

France and Luxembourg are linked since 1958 by a treaty to avoid the double taxation and to organize the rules concerning the mutual administrative assistance for the income and wealth taxes. Three amendments have already modified this treaty.

In principle, in virtue of this treaty, the capital gains on French properties are subject to a levy of the third, in accordance with the article 244 bis A of the tax Code.

However, because of a conflicting interpretation of the France-Luxembourg treaty by the jurisdictions of both countries, the capital gains on properties realized in France by Luxembourgian companies have always been exempted of taxes.

An amendment signed in 2006 allowed France to recover his right to tax the capital gains on property if the buildings are directly held by the company.

But Luxembourg has refused to enforce these new regulations to the share transfer of company with a majority of real estate assets.

In order to answer to the France wish, a fourth amendment was signed on September 5, 2014 and gives to France and Luxembourg the exclusive right to tax the capital gains on property in the State where the properties are located.


After this amendment, the share transfers of company with a majority of real estate assets (real estate companies or public limited company) held for the most part by Luxembourgian companies (Soparfis), become taxable in France. These capital gains will be taxable in France in accordance with the common law and be subject to the article 244 bis A of the tax Code on the levy of the third (with an actual rate of 34,43%).


The amendment had to come into force on January 1st, 2016 only on the double condition that both French and Luxembourgian Parliament ratified it and exchanged their instruments of ratification before the November 30, 2015. These conditions have not been filled and the amendment will not come into force until the January 1st, 2017, subject to the fulfillment of all required formalities before the November 30, 2016 (joint ratification).

In practice, during one year, the capital gain realized by a Luxembourgian company, for the share transfer of French company which is owner of real estate assets located in France, will be taxable in Luxembourg, where the capital gain will be exempted.

Be careful, the tax administration will be able touse the litigation procedure in case of internal restructuring with the sole purpose to make fail the application of the new regulations forecastedby the amendment.

For more information : Cabinet Roche & Cie, Chartered Accountant in Lyon, France.