Key takeaways:

• 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.