Double Taxation Removed via Exemption Method for French Cross-border Workers

Luxembourg's Minister of Finance, Pierre Gramegna, and French Minister of the Economy and Finance, Bruno Le Maire, today signed an amendment to the double tax treaty between their respective countries.

The amendment to the Franco-Luxembourg tax treaty of 20 March 2018 was made on the sidelines of the Economic and Financial Affairs Council (ECOFIN) held on Thursday 10 October 2019 in Luxembourg. It foresees a reintroduction of the "exemption method" in France, aimed at eliminating double taxation notably on income deriving from paid employment. 

This modification thus implies that cross-border workers residing in France but undertaking paid employment in Luxembourg will not be exempt from double taxation through the "imputation method", as provided for in the initial text, but through the "exemption method" (with progression). As such, cross-border workers will not be liable to pay taxes in France on their Luxembourgish net income.

The provisions of the new agreement and amendment will apply to taxable periods beginning on 1 January 2020.

Pierre Gramegna commented: "This amendment takes into account the comments made by Luxembourg and puts an end to the debate concerning the taxation of French cross-border workers working in Luxembourg under the new tax treaty. Thanks to the amendment, cross-border workers [who are] residents of France and who earn an income derived from paid employment in Luxembourg, remain in a situation of continuity with their current situation. [This] not only illustrates the good relations between France and the Grand Duchy, but also ensures a higher level of legal certainty for the employees concerned".