On 20 March 2018, Luxembourg and France signed a new income tax treaty and a new protocol, replacing the current double tax treaty signed on 1 April 1958. The Treaty contains a number of treaty-based recommendations including BEPS action 14 (making dispute resolution mechanisms more effective).
This new treaty incorporates the latest OECD/G20 base erosion profit shifting (BEPS) initiatives and responds to landmark French case law. It implements the new approaches developed at international level during the OECD/G20 BEPS Project, now reflected in the 2017 version of the OECD Model Tax Convention, and in the Multilateral Convention to Implement Tax Treaty Related Measures (“the MLI”), signed by both Luxembourg and France in June 2017.
The most significant features of the new DTT are the persons covered, the definition of permanent establishment, the withholding tax rate on dividends paid by real estate investment funds, the taxation of employment income, and the method to be used by France to eliminate double taxation (i.e., the credit method).
