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Luxembourg: Tax credit method still applicable under tax treaty with France

Luxembourg: Tax credit method still applicable

A new Protocol (signed 10 October 2019) to amend the method of avoiding double taxation between France and Luxembourg appears to apply the tax credit method to avoid double taxation. According to the text of the new Protocol, the method used to prevent double taxation of French tax residents working in Luxembourg is a “tax credit equal to French tax.” Based on this language, Luxembourg taxable income earned by a French tax resident would be taken into consideration to determine French tax liability.

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To eliminate double taxation, the Protocol adopts two methods:

  • For certain income stated in the Protocol—including 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 tax applied to this income, but limited to the French tax on this income.

The effect of the “tax credit equal to French tax” method would be similar to the impact of the exemption with progression method.

To benefit from a French tax credit, the salaried income must actually be subject to Luxembourg tax. This treatment re-opens the discussion in Luxembourg about what supporting evidence would the French tax authorities accept.


Read an October 2019 report prepared by the KPMG member firm in Luxembourg

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