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Luxembourg Tax Alert 2019-14

Luxembourg Tax Alert 2019-14

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Xavier Martinez

Partner, Global Mobility and People Services

KPMG in Luxembourg

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French u-turn: tax credit method is still applicable

On 10 October 2019, a new protocol was signed amending the method of avoiding double taxation between France and Luxembourg. Based on early media reports, France was returning to the “exemption with progression” method.

However,after reviewing the protocol’s official text published on Thursday 16 October 2019, the tax credit method can still be applied to avoid double taxation. According to the new protocol, the method used to prevent double taxation of French tax residents working in Luxembourg is "tax credit equal to French tax". On this basis, Luxembourg taxable income earned by a French tax resident is taken into consideration to determine French tax liability.

To eliminate double taxation, the protocol adopts two different methods:

  1. For certain income stated in the protocol — notably most salaried income — the tax credit is equal to French tax on this income if it is actually subject to Luxembourg tax.
  2. For other income, the tax credit is equal to the Luxembourg taxation applicable to this income but limited to the French tax on this income.


From a tax viewpoint, the impact of the “tax credit equal to the French tax” method is similar to the impact of the exemption with progression method.

It was also confirmed that to benefit from a French tax credit, the salaried income should actually be subject to Luxembourg tax. This will re-open the discussion in Luxembourg about what supporting evidence the French tax authorities will accept.

We are ready to discuss the impact of this tax credit method with you and to answer any of your questions at your best convenience.

 

For queries please contact:


Xavier Martinez 
| Partner
E-mail: xavier.martinez@kpmg.lu
Phone: +352 22 51 51 5345


Marisa Hosnar
 | Senior Manager
E-mail: marisa.hosnar@kpmg.lu
Phone: +352 22 51 51 5425
 

Marie Vintrou | Manager
E-mail: marie.vintrou@kpmg.lu
Phone: +352 22 51 51 5449

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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