Double Taxation Agreement France Luxembourg

The Addendum puts an end to uncertainty: French residents whose income is taxable in Luxembourg must defer it in their French tax return and benefit in France from a tax credit equal to the French tax calculated on this income. This method is different from the tax exemption method in force until now, since Luxembourg income must now be deferred in France without compensation for the tax paid in Luxembourg. Therefore, French residents, who have other sources of taxable income in France, could see an increase in French tax. Even if the worst is avoided, the tax credit, equivalent to the French tax, will not be neutral for everyone compared to the current situation. This meeting followed many issues related to the taxation of French frontier workers and, in particular, their fear of double taxation. According to the Supplementary Convention, the method of eliminating double taxation is the tax credit method which corresponds to the French tax. This method is similar to the derogation currently in force, but it is not exactly identical. L`amendment clarifying the method to avoid double taxation is welcome. Nonetheless, several aspects of the new Double Tax treaty remain unclear. By adding the new Double Tax Agreement and the implementation of withholding taxes at source in France from 1 january 2019 makes the tax positions of german cross-border particularly complex.

These developments lead to additional difficulties for Luxembourg employers (obligation to exempt allowances related to foreign working days in the Luxembourg pay slip, obligation for Luxembourg employers to withhold deductions at source in France for French working days, etc.), while employers must at the same time adapt more and more to mobility requirements and flexible working practices (work). at home). As regards income from French GSI and certain other similar types of companies (taxable in France, but for which investors are personally taxable – see the “Residence” section above), paragraph 5 of the Protocol provides that Luxembourg is to grant a tax credit in order to eliminate any double taxation of income received by an enterprise established in Luxembourg through those companies. However, the comments made during the parliamentary process, combined with other provisions of the DTT and/or national law, raised several practical issues regarding this clause. In accordance with the amendment, the applicable method provided for in Article 22(1)(a)(i) of the new Treaty, in order to exclude double taxation of labour law income from Luxembourg received by French workers, is the tax credit method with a tax credit equal to the amount of French tax calculated on that income. To benefit from the tax credit, Luxembourg income from work must have been taxed in Luxembourg. On 6 April 2020, the Luxembourg law, signed on 10 October 2019, was adopted to ratify the Luxembourg law of 10 Amendment of the new double taxation agreement between France and Luxembourg and its protocol (respectively the “new tax convention” and the “protocol”), respectively signed on 20 March 2018 (the “law”), published in the Official Journal of Luxembourg. In essence, the amendment aims to weaken the tax credit method chosen by France to eliminate the double taxation of this income with regard to the labour income of French frontier workers, in order to achieve the same effects as the more usual tax exemption method with progression. . . .