Tax update: France and Luxembourg change rules for real estate companies

Tax update: France and Luxembourg change rules for real estate companies
29-12-2015
vastgoed

On 16 December 2015, the French Senate approved a protocol to amend the France - Luxembourg Double Tax Convention (‘DTC’). The protocol concerns the sale of shares of a company holding immovable property. Specifically, it states that gains arising from the disposition of shares in a company whose assets constitute more than 50% of their value from immovable property in one state, shall only be taxed in that state. For example, a Luxembourg resident selling the shares of a Luxembourg company, whose assets consist for more than 50% of French immovable property, shall be taxed in France instead of Luxembourg.

On 16 December 2015, the French Senate approved a protocol to amend the France - Luxembourg Double Tax Convention (‘DTC’). The protocol concerns the sale of shares of a company holding immovable property. Specifically, it states that gains arising from the disposition of shares in a company whose assets constitute more than 50% of their value from immovable property in one state, shall only be taxed in that state. For example, a Luxembourg resident selling the shares of a Luxembourg company, whose assets consist for more than 50% of French immovable property, shall be taxed in France instead of Luxembourg.

The protocol also applies to indirect holdings of immovable property. Thus, the result in the previous example would be the same even if the Luxembourg company would not directly hold French immovable property, but through the shares of a French (or foreign) company. Furthermore, the protocol states that the application of this provision will not contravene with the application of the Merger Directive. This refers to exemptions from taxation in the case of a certain company mergers and splits.

As a Belgian resident, capital gains on shares of Luxembourg or French companies remain only taxable in Belgium (unless they are part of a permanent establishment in the other state). As Belgian internal law still often provides for a full exemption, the capital gain is not taxed in either state. However, the adoption of the protocol by France and Luxembourg shows a clear trend in giving taxing rights to the state where the immovable property is situated, regardless of the company put on top. Belgium already adopted a similar clause in the DTC with Spain in 1995, and it is likely that other countries will follow this example in the future.

Cazimir,

29 December 2015.



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