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New Germany-Luxembourg Tax Treaty

14 Aug 2012

First published in International Tax Review, 1 June 2012

On April 23, 2012, Germany and Luxembourg signed a new Double Tax Treaty (''DTT''). The aim of the new DTT is to replace the one signed in 1958, and follow the structure and, for the most part, the content of the OECD Model Tax Convention. Below follows an overview of the main provisions of the new DTT, which will particularly bring along important changes regarding real estate investments through German investment vehicles and hybrid funding into Germany.

This article, written by Taxand Luxembourg, covers the implications of the new Germany-Luxembourg DTT, investigating areas such as dividends, interest, and royalties. Taxand Luxembourg looks at the effects that this new leigslation will have on capital gains and real estate companies, and how financial instruments will be affected. Methods to avoid DTT and exchange of information policies are also explored.

Read our full coverage in International Tax Review

Taxand's Take

The new DTT is welcomed, as it will ensure that Germany and Luxembourg will now have a DTT which generally follows the OECD Model Tax Convention. The latter is good news as it generally simplifies questions of treaty interpretation and provides, in most cases, more legal certainty to taxpayers. Positive developments introduced by the new DTT are the new maximum WHT rate on dividends and the granting of DTT benefits (which becomes much clearer now) to CIVs.

The new DTT, however, will have an impact for German real estate investment structures, investments in German financial instruments and taxation of capital gains derived on participations in capital companies by individuals moving their residency from one state to the other. We recommend that taxpayers either carefully review the investment structures they have already in place with their tax advisers or reconsider any structuring of German real estate investments and financial instruments for the near future.

Read our full coverage in International Tax Review

For further information please contact:
Abigail Tarren, COO
T. +44 (0)207715 5243

Taxand's Take Author