On the other hand, the Franco-Danish tax treaty has been terminated…
On 10 June last, the Danish government notified the French authorities of its intention to terminate the Franco-Danish tax treaty of 8 February 1957 on the taxation of income and wealth. This termination came into effect on 1 January 2009 (OJ n°0012 of 15 January 2009, page 793).
This unilateral termination will have significant consequences for the structuring of real estate acquisitions and sales:
As we know, the Franco-Danish tax treaty had some of the features of the old Franco-Luxembourg treaty (that was in force before the amendment of 24 November 2006). In particular, it resulted in an exemption, in both France and Denmark, of capital gains on real estate resulting from the disposal by a Danish legal entity of French real estate or of rights owned in a preponderantly real estate company.
As well as the case of capital gains on real estate, henceforth, in the absence of a tax treaty, each State's domestic tax laws will be applied, with obvious risks of double taxation. It would appear however that a system intended to limit these risks is currently being studied in France, in line with the mechanism already in existence in Denmark.
Therefore, after Luxembourg: Denmark…and soon the United Kingdom! Once the new amendment to the UK/France Convention comes into force (in one or two years), the sale of French real estate by a British company will no longer be exempt from capital gains tax in France.
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