Change for international sales of SPI securities

According to article 244 bis A of the French General Tax Code and subject to international conventions, foreign corporations are subject to withholding tax of a third on capital gains from sales of securities in French SPIs.

Article 13-4 of the OECD Model Tax Convention stipulates that "gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in another Contracting State may be taxed in that other State". Conventions drafted based on this model therefore authorise France to apply article 244 bis A.

Conventions containing contrary provisions, preventing the taxation stipulated in article 244 bis A, are gradually being renegotiated and amended in line with the OECD Model. One example is the tax convention between France and Luxembourg. We may recall that due to divergent interpretation of the convention by both countries' upper courts, capital gains realised by a Luxembourg company from the sale of immovable property located in France benefit from a double exemption, both in France and in Luxembourg.

The signature of an addendum on 24 November 2006, applicable from 1 January 2008, allowed France to tax real-estate capital gains from a French source, but only in the case of direct ownership of buildings, or ownership via "companies which, whatever their legal form, have no tax personality distinct from their members".

The double exemption therefore remained possible in the case of sale, by a Luxembourg company, of securities in a French non-trading company (société civile) or corporation (société de capitaux) owning a building in France.

The convention was therefore amended again by an addendum dated 5 September 2014, stipulating that "gains from the alienation of shares, units or other rights in a company, trust or other institution or entity, the assets or property of which consist, at any time during the preceding 36 months before such alienation, for more than 50 per cent of their value of, or derive more than 50 per cent of their value from – directly or indirectly through the interposition of one or more other companies, trusts, institutions or entities – immovable property located in a Contracting State or rights relating to such property, are only taxable in that State".

If France and Luxembourg finalise the ratification and exchange of diplomatic notifications before the end of 2015, the new addendum will apply from 1 January 2016 for sums subject to withholding tax and to any financial year beginning on or after 1 January 2016 for other income. A bill in this respect was submitted to the French National Assembly on 1 July 2015.

Luxembourg, meanwhile, began the ratification procedure on 9 June 2015.

In the future, real-estate capital gains realised by Luxembourg companies in France will no longer benefit from specific taxation and shall be taxable in France under the standard rules set out in article 244 bis A.

Furthermore, on 31 March 2015, France and Germany signed an addendum to the tax convention between the two countries introducing an article 7 relating to real-estate capital gains, stipulating that: "Gains derived by a resident of a Contracting State from the alienation of shares, units or other rights, deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State".

Finally, the Franco-Belgian tax convention is also in the process of renegotiation.