A new Tax Treaty incorporating the latest international tax standards was signed by France and Luxembourg on 20 March 2018.
Please note that the new Tax Treaty is based on the latest version of the OECD model tax treaty includes the BEPS minimum standard.
The most significant features of the new Tax Treaty are the persons covered, the definition of permanent establishment, the withholding tax rate on dividends pay by real estate investment funds, the taxation of cross-border payments such as dividends, interest and royalties, and the method to be used by France to eliminate double taxation.
It has to be highlighted that French regulated real estate investments funds (so called in French “Organismes de Placement Collectif Immobilier” or “OPCIs”) might be substantially affected by this new amendment.
Indeed, OPCIs are currently exempted from French Corporate Income Tax on real estate income and gains, subject to certain burdensome distribution obligations.
Additionally, the distribution of dividends by OPCIs to their Luxembourg shareholders holding more than 25% of the OPCIs’ capital are currently subject to a maximum withholding tax of 5%.
The provisions of the treaty would become applicable at the earliest on 1st January 2019 (the year following its ratification by both countries).
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Nicolas Trucco: n.trucco@rosemont.mc