A new tax convention is to be signed between France and Luxembourg next week.
Luxembourg Minister of Finance Pierre Gramegna presented this morning to the Finance and Budget Committee the new Franco-Luxembourg tax convention that will be signed during the state visit to France on 20 March 2018.
This agreement will replace the tax convention that was signed on 1 April 1958 and incorporates the new international standards in tax matters. Therefore, the new text has been based on the latest tax convention model of the OECD, in the development of which Luxembourg participated actively, as well as the minimum standards of the Action Plan on erosion of base taxation and profit transfer (BEPS). It also contributes to increased legal certainty for the benefit of the tax authorities and the taxpayer.
With regard to the more than 95,000 French border workers working in Luxembourg, the new agreement provides important details, namely the retention of the 29-day tolerance rule regarding employment income. This allows the Grand Duchy to preserve the entirety of its right to tax wages as a state, in the case where a French resident working for a Luxembourg employer exercises his employment in another state (the state of residence or a third state) for a period not exceeding 29 days in total. In addition, the convention specifies that the right to tax legal pensions (first pillar) remains with the state from which it originated.
In view of the economic and financial links between France and Luxembourg, the new agreement aims to reduce the degree of participation required to benefit from the exemption of withholding tax on dividends. In the future, a 5% interest in the capital of the company paying the dividends, held over a period of 365 days, is sufficient to qualify for the exemption.
