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Amendment to France-Luxembourg Tax Treaty Affects French Real Estate Holding Company Structures
12 September 2014
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Under an amendment to the France-Luxembourg tax treaty that was signed on September 5, 2014, capital gains on a disposal by a Luxembourg resident of a company holding predominantly French real estate assets will no longer be exempt from French taxation.
This is a significant change. Under the current treaty, capital gains on a disposal by a Luxembourg resident of a company holding French real estate are taxable only in Luxembourg, where they generally benefit from a favourable tax treatment. As a result, foreign investments in French real estate frequently have been structured through Luxembourg.
This amendment could potentially be effective as early as January 1, 2015. Because existing structures are not grandfathered, investors holding French real estate assets through a Luxembourg structure should consider realizing gains before the treaty amendment becomes effective and implementing alternative structures.
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