LUX-FRANCE DTT: CLARIFY BEFORE YOU RATIFY
Alfi speaks out on the double taxation treaty signed between Luxembourg and France on 20 March 2018. Although it appreciates that it is the product of bilateral negotiation, it calls for more clarity before it is ratified.
The Association of the Luxembourg Funds Industry (Alfi) has added its voice to those calling for further clarity on the recent double taxation treaty (DTT) signed between Luxembourg and France. At the time of signing, finance minister Pierre Gramegna hailed the DTT as, “…an innovative instrument that will benefit both citizens and businesses in both countries.”
In a recent article in Delano, however, Jean Schaffner, tax partner at the law firm Allen & Overy said, “It does not appear that the new double taxation treaty really benefits the residents of Luxembourg or investors that have set up investment vehicles.”
In a statement published on 24 April, Alfi expressed its concern over several points of the DTT, encouraging the Luxembourg government to, “work with French authorities to provide clarification.”
Although Alfi acknowledges that the protocol introduces limited access to the DTT for investment funds, which is an improvement on the fact that they had no access before, it claims that, “the conditions are restrictive and complex.”
An important clause in the DTT allows Luxembourg funds treaty relief in the form of a reduction in French withholding tax for certain French dividend income. This relief is granted in direct proportion to the percentage of the fund held by Luxembourg residents, French residents or residents of another country that has concluded a similar DTT with France on combatting tax avoidance.
Alfi’s concern with this clause lies in its use of the term “equivalent beneficiaries” as it does not include guidelines on its implementation. It therefore calls for, “the introduction of clarifications, in particular regarding the meaning of “…collective investment vehicle established in a Contracting State and assimilated to the collective investment vehicles according to the legislation of the other Contracting State…” as well as implementation guidelines in relation to the proportional calculation, such as the frequency of checks to be performed, potential statistical approach and/or any other relevant guidance, through either a memorandum of understanding or an additional protocol to be agreed and signed between France and Luxembourg before the ratification of the DTT by the respective parliaments.”
Alfi’s statement echoes that voiced by Jean Schaffner, who said much of the DTT, “…opens the doors for administrative interpretation and creates insecurity for investors.”
To read the full version of the Alfi statement entitled, “Double Tax Treaty between Luxembourg and France. Considerations relating to investment funds” click here.