Luxembourg Tax Alert 2019-14
Luxembourg Tax Alert 2019-14
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:
- 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.
- 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.
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