The Amendment to the France-Luxembourg tax treaty will still not be applicable in 2016!
The new provisions of the 4th Amendment to the France/Luxembourg double tax treaty on profits deriving from sale of real estate assets signed on September 5, 2014 will not be applicable in 2016.
Currently, the right to tax the capital gains realized by a Luxembourg company upon the transfer of shares in a French real estate oriented company is conferred to Luxembourg. The Amendment modifies this situation by giving the right to tax these transfer of shares to France. However, real estate investors who have invested in France through Luxembourg will not be concerned by this new provision before 2017.
Indeed, as a result of the Agenda of the French National Assembly, the law approving the Amendment would in principle be discussed by the members of the Parliament on 10 December 2015. Then, its should be voted by the Senate, and adopted definitively by both assemblies. But according to Article 2 of the Amendment which deals with the entry into force, the reciprocal ratification process between the two countries should be finalized no later than 30 November 2015 in order for the new provisions to be applicable as from 2016. This would not be technically possible. Furthermore, the Chamber of Deputies of the Grand Duchy of Luxembourg adopted the law approving the Amendment on 18 November 2015. This law should be now enacted by the Grand Duke and published to the Luxembourg official journal before being notified to France.
As a result, if the French ratification process in front of the two assemblies continues its course, the ratification should take place in December 2015 at the earliest. Therefore, the Amendment provisions should be applicable to the financial years opened as from 1st January 2017.
For companies which have a non-calendar fiscal year, transfer of shares that would take place during the fiscal year beginning in 2016, will be subject to the current rules, even if they are realized after 1st January 2017. For example, for a 12-months fiscal year beginning from 1st July 2016, a transfer of shares of a French real estate oriented company realized by a Luxembourg company in March 2017 should not be taxable in France.
