ATOZ Tax Alert - Luxembourg And France Launch The Ratification Procedure Of Their New Tax Treaty – Will The New Treaty Become Applicable As From 2019?

Luxembourg and France have started the ratification process of the new double tax treaty ("DTT") they signed on 20 March 2018. For the new DTT to become applicable as from 2019, the two ratification procedures would need to be finalised and the instruments of ratification exchanged before the end of 2018. What are the chances of this happening in such a short time frame?

On 24 October 2018, France launched the ratification process of the new Luxembourg-France DTT. The French Parliament is expected to vote on the ratification law in December of this year, meaning that from a French perspective, an implementation of the new DTT as from 2019 could be achieved.

As far as the ratification by Luxembourg is concerned, today, the interim1 Luxembourg Government adopted the text of the draft law ratifying the DTT. It is true that many steps would need to be taken2 within a very short time frame in order for the new DTT to be applicable as from 2019 and that the Luxembourg future government will also have other pieces of legislation on its agenda which are high priority (such as the implementation of the Anti-Tax Avoidance Directive) in a context where a new government is yet to be officially formed following the 2018 October elections. However, one should bear in mind that ratification procedures can be finalised very quickly since their very purpose is only to approve a text (the DTT in this case) which is already final as it has already been heavily negotiated by the relevant governments prior to being approved, and therefore not subject to any amendments, unlike other pieces of legislation.

Therefore, even though the date as from which the new DTT will become applicable still remains uncertain at this stage, the chances that the new DTT will be applicable as from 2019 are rather high.

The aim of the new DTT is to replace the existing treaty that was signed in 1958, and amended 4 times in subsequent years. The DTT follows the structure and, for the most part, the content of the 2017 OECD Model Tax Convention.

Given the significant changes introduced, especially for real estate investments in France, Luxembourg taxpayers with investments in France or that plan to invest in France should seek advice from their tax adviser as soon as possible in order to analyse the potential impact of the new provisions on their investments.

You will find below an overview of the new DTT and its main provisions.

New Preamble and Principle Purposes Test

In line with...