France and Germany have recently signed amendments to the existing treaty on income tax and wealth tax. The amendments include changes for pensions, income from certain investment vehicles and the clauses on the elimination of double taxation. The new protocol will most likely enter into force as of 2016. For detailed explanations about how these changes can influence your business in France, our French lawyers can provide specialized counseling.
Changes related to the taxation of income
The reduced withholding rate on dividends
paid by real estate vehicles is no longer applicable under the new protocol. The provision allows France to apply the 30% withholding tax on distributions from SIICs (French Listed Real Estate Investment Companies) and OPCIs (Undertakings for Collective Investment in Real Estate). The 15% treaty rate should remain unchanged for the distribution made to minority shareholders.
The new amendments also bring changes to the gains resulting from the alienation of securities in predominantly real estate companies. A new article stipulates that the capital gains derived from the alienation of shares, units or rights that are derived in a percentage of over 50% from their value from immovable property situated in the contracting state (Germany) can be taxed in that other state. Capital gains produced by German residents after the transfer of securities in companies, that have over 50% of their assets made up from properties in France, will be taxed according to a new tax with rates at 19% or 33.33%.
Changes to the clause concerning double taxation
The article concerning the practical ways to avoid double taxation
was amended in order to avoid double exemptions. In Germany, the exemption method that is adopted as the general means for avoiding double taxation is the one that takes exempt income into account for determining the effective tax rate. To avoid double exemptions, the new protocol allows only Germany to use the offsetting method instead of the exemption method for certain French-source income.