Arsene Taxand - M&A Private Equity

France – Luxembourg: the Addendum is now ratified

The Addendum to the French – Luxembourg tax treaty has just been ratified today by the French Parliament. On its side, Luxembourg published a law transposing the said Addendum last December 7. The provisions of this Addendum should therefore enter into force as from January 1st, 2008.

Let’s remind that this Addendum puts an end to the contradictory interpretations of the French and Luxembourg judges which led to the double exemption of income and capital gains carried out by a Luxembourg commercial entity owning directly a real estate asset in France (the so-called “La Costa” loophole).

From now on, such income and capital gains should be taxable in France. This Addendum heralds the end of direct investment from Luxembourg. However, the tax treatment of share deals is not modified. Luxembourg remains therefore a privileged place of location in Europe to hold shares in French real estate companies.