France: Renegotiation of the double tax treaty concerning real estate

France and Luxembourg are currently renegotiating. France requested for a renegotiation of the double tax treaty concerning capital gains coming from a real estate oriented company.

France would like to avoid taxation under Luxembourg Law for operations relating to real estate located in France. Under the current double tax treaty capital gains from real estate companies were considered as common capital gains. It permits the set-up of companies in France which own the properties and then sell them, with the further allocation of dividends to a Luxembourg holding. By this method dividends are considered as common and are taxed under the double tax treaty by Luxembourg.

The aim of this renegotiation is to create a new category of capital gains if they are mainly coming from real estate operations.

France is renegotiating all of its double tax treaties to include a clause of differentiation.

The question is which criteria will be used to distinguish a real estate company from a non-real estate company.

The concept of “prépondérance immobilière” could be used in the future. This means that capital gains where at least 50% of revenues are coming from the real-estate sector will be considered “à prépondérance immobilière”.

This would then lead to France having the right to tax these capital gains.

We would strongly advise clients with real estate located in France to contact us to discuss their individual circumstances.