Pierre Gramegna ended a niche tax exemption
By Prof. Robert Anthony, Anthony Cie
The fourth amendment to the Tax Treaty between France and Luxembourg, as signed by the Ministers of Finance for the Grand Duchy of Luxembourg Pierre Gramegna and for France Michel Sapin, will further restrict potential tax evasion schemes and abuses by French financial investor centres. After an amendment in 2006 ended the non-taxation of immovable property in France owned by Luxembourg companies, another tax exemption has now been eliminated.
This had made it possible to avoid tax on gains from the sale of securities of companies, trusts or other ntities,
predominantly real estate. For many years, Paris and Luxembourg have been negotiating the end of this loophole, which has made Luxembourg very attractive through the possibility of creating holding companies in the Grand Duchy which primarily invested in real estate in France.
Exemptions from both sides of the border
It must be said that the old text gave rise to considerable abuse on the part of investors. Paris sought to achieve this in Luxembourg in 2006, when an amendment was signed to the Convention of 1 April 1958 between the two countries. This was the second amendment to the original. From 1 January 2008, the agreement made gains taxable in the country of location of the property, real estate property income or capital gains, even if they are generated by a company subject to a tax equal to the tax on corporate income in the Grand Duchy. However, this did not resolve all the problems of non-taxation as had been intended.
Nevertheless, the signing of the second amendment marked the end of an era that was advantageous to a Luxembourg fiduciary based on this monolithic activity. It had only existed by virtue of this niche tax planning opportunity:
selling structures to French customers under Luxembourg law enabling them to hold property in their country without paying tax.
Only real estate
The result was a tax exemption on both sides of the border. Paris then pressed Luxembourgers to change the text, but the renegotiation of the agreement proved complex. The 2006 amendment did not take into account income from the direct ownership of real property or the income which passed through intermediaries. According to the statement from the Luxembourg Ministry of Finance, Paris and Luxembourg will continue their work focused on modernising the text of 1958, which still needs a serious facelift.
Prof. Robert Anthony
Anthony & Cie, Sophia Antipolis, France
T: +33 4 93 65 32 23
Anthony & Cie is an independent international family office, based on the French Riviera and in London. Since its creation in 1978, Anthony & Cie has orchestrated financial, real estate and tax advice as well as French legal advice.
Prof. Robert Anthony is the Principal Partner of Anthony & Cie and Co-Founder of Anthony & Co UK Ltd. He is a Professor of International Tax Law (Thomas Jefferson School of Law, California). He is a Chartered Certified Accountant (UK) and Certified Financial Planner (France).
published: November 2014