The France/Luxembourg double tax treaty has been amended, removing an often exploited loophole from French capital gains tax.
French law states that the sale of shares in a company whose assets are more than 50% French real estate is taxable in France as though the real estate itself was being sold.
Up until now the France/Luxembourg treaty provided protection from French taxation on the sales of such shares, sheltering structures where either a French property company (such as a Société Civile Immobilière) is owned by a Luxembourg resident or French property is held by a Luxembourg company. So individuals investing in France have often structured ownership via Luxembourg.
The new treaty completely alters this position so that these share sales are treated as sales of French real estate and are now taxable in France. Even though the new rule will apply to both countries, it is likelier to have a more significant effect on those with property portfolios in France.
Although passed it is the amendment is not likely to come into force until 2015.
Lawyers Sykes Anderson Perry recommend that anyone who has structured their French property ownership via Luxembourg should have their position analysed by a tax specialist to establish to what extent they may be affected
by the new change.
(Via Sykes Anderson Perry)