In a Parliamentary Response of 4 July 2006, the French Ministry of Finance stated that a Luxembourg sociétés d'investissement en capital à risque (SICARs) could not benefit from the reduced withholding tax rate under the France-Luxembourg tax treaty and from the exemption from dividend withholding tax under the EC Parent-Subsidiary Directive ((90/435/EEC).
According to the Ministry, SICARs would only be eligible to the application of the reduced rates set out in Arts. 8, 9 and 10 of the France-Luxembourg tax treaty insofar it could be established that the income was effectively subject to tax in Luxembourg. Similarly, the exemption from withholding tax at source on dividends distributed to EU parent companies under the EC Parent-Subsidiary Directive would apply only if the beneficiary SICARs were subject to corporate income tax in Luxembourg, without being exempt.
The Ministry concluded that, as SICARs benefit from a tax regime that leads to a de facto exemption from passive income in Luxembourg, they are not eligible to the reduced tax treaty rates on passive income and to the exemption from the dividend withholding tax under the EC Parent-Subsidiary Directive.
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