UK: A New Double Tax Treaty Between The United Kingdom And France

Last Updated: 8 March 2010
Article by Mark Nichols and Agathe D'Aubigny

Following the treaty rewrite in 2004 which was never ratified, it is something of a relief to report that a new double tax treaty ("DTT") between France and the United Kingdom was signed on 19 June 2008 and finally entered into force last December. In the UK, its provisions first apply to income and gains arising on or after April 2010 (6th April as regards UK income tax and capital gains tax, 1st April as regards UK corporation tax).

The new double tax treaty contains several changes amongst which the following are, in particular, worthy of attention:

  • French social taxes are now within the scope of the new DTT putting to an end situations of double-taxation;
  • Specific provisions for partnerships have been included in an attempt to provide more clarity and avoid situations of double-taxation or double-exemption;
  • The double-taxation rules relating to dividends are more favourable with respect to certain distributions;
  • An anti-abuse provision as regards interest, dividends, royalties and other income has been added;
  • Loopholes relating to real estate capital gains have been closed;
  • A new arbitration procedure is provided in cases where the mutual agreement procedure failed;
  • Favourable provisions with respect to French wealth tax for individuals have been included;
  • Loopholes used by UK non-domiciled for French income taxable only under the UK remittance basis rules have been closed.

As a whole, the new DTT represents an improvement as compared to the previous one. The French and UK tax authorities have obviously looked to bring more clarity through this new DTT, hence, improving tax certainty for the taxpayers, in particular by adhering more closely to the OECD Model.

Apart from the fact that this allowed them to justify the closing of several loopholes, e.g. loopholes based on the application of the remittance basis rules, the clarity objective does not appear to have been wholly achieved, unfortunately! For instance, while new anti-abuse provisions relating to interest, dividends, royalties and other income have been included so as to cover various situations where an abuse could be made, the broad sense of the terms used may lead to confusion. Moreover, while certain areas have been dealt with thoroughly, others have been left in the shadow (see provisions relating to partnerships which are extremely complex).

To view the article in full, please see below:

Full Article

French social taxes within the scope of the new DTT

French social taxes (contribution sociale généralisée, contribution pour le remboursement de la dette sociale, contribution sociale sur l'impôt sur les sociétés) are within the scope of the new DTT. This is a major change since those taxes did not exist when the former DTT was put into place and since, as a result, the mechanism of double-taxation avoidance could not apply to them. From now on, the French social taxes are covered by the provisions of the DTT. Therefore, for example, in case of rental income from the UK received by French individuals, the tax credit attached to the UK income tax paid may now be offset against the French social taxes levied on the same rental income.

Specific provisions for partnerships

New long and complex provisions have been included in Article 4 "Residence" of the new double tax treaty. They concern partnerships and aim to reflect the new French position regarding those entities. Indeed, contrary to the UK which has adopted the principle of transparency for partnership supported by the OECD, France had taken the view that, like its sociétés de personnes (the French most usual form of partnership), foreign partnerships were to be regarded as opaque although the income or gains realised by the entity is taxable in the partners' hands. By so considering, France prevented partnerships and their partners from benefiting from the application of double tax treaties. Since 2007, France now agrees to admit the principle of transparency to foreign partnerships for the application of the double tax treaties, however still denying it to the French sociétés de personnes. This difference of tax treatment led to potential conflicts of qualification in the application of the double tax treaty between France and the UK and, as a consequence, to double taxation (or double non-taxation) risks.

The new provisions have been introduced in an attempt to resolve those issues. They are organised on the same model as that of Article 4 of the DTT between the USA and Japan and provide that:

  • French source income received by a UK partner through a UK partnership is eligible for the benefits of the DTT as if such income was directly received by the UK resident partner.
  • UK source income received through a French partnership, wherever the residence of the partners is, benefits from the DTT. However, this is applicable only if the French partnership has its place of effective management in France, is subject to tax in France and if all its partners are, pursuant to French tax law, personally liable to tax in respect of their share of the profits of the partnership.
  • French source income received by a UK partner through a French partnership can be taxed without any restriction in France.
  • UK source income received by a French partner through a partnership established in the UK or in a third-party country is not eligible for the benefits of the DTT if France regards the partnership as non-transparent.
  • French source income received by a UK partner through a partnership established in a third-party country is eligible for the benefits of the DTT as if it was directly received by the UK partner provided that France has concluded with the third-party country an agreement containing a provision for the exchange of information with a view to the prevention of fiscal evasion.

Being in one of the particular situations that are considered in these new provisions, the taxpayer should therefore be able to determine what taxation will be charged to them by both states.

However, the DTT provides with no rule in case the taxpayer is confronted to a situation which has not been specifically addressed. The only general rule to apply, in certain cases only, is that, providing certain conditions are satisfied, a French partnership, group of persons or similar entities are to be regarded as French resident. Left with that, the taxpayer has to deal alone with the differing interpretations of the tax treatment applicable to partnerships in France and in the UK.


Distributions of dividends by a company situated in one country to its corporate shareholder which is resident of the other country, previously subject to a withholding tax that could not exceed 5%, are now exempted from the withholding tax provided that the shareholder holds, directly or indirectly, at least 10% of the capital of the distributing company.

Specific provisions are included regarding dividends distributed by real estate investment vehicles such as the French SIIC (société d'investissement immobilier cotée), OPCI (organisme de placement collectif immobilier) or the UK REIT. Beneficial owners holding less than 10% of the capital of such vehicle can benefit from the DTT withholding tax rate of 15% on dividends received. In other cases, dividends distributed by such vehicles are taxed at the rate provided by the domestic law of the country in which the dividends arise.

Anti-abuse provision for interest, dividends, royalties and other income

An extended anti-abuse provision has been introduced as regards dividends, interests, royalties and other income. Pursuant to this provision, an abuse is constituted when it was "the main purpose or one of the main purposes" of any person concerned to take advantage of the provisions of the DTT by means of the creation or assignment of the debt claim, shares, property or other rights in respect of which the income is paid. This definition is broader than the definition of abuse of law under the French tax rules under which the transaction may be regarded as an abuse of law only if the sole purpose of which was to avoid or reduce taxation. In the previous DTT, the anti-abuse provisions only covered cases where the creation or assignment were realised "mainly for the purposes of taking advantage" of the provisions of the DTT.

The compatibility of these extended anti-abuse provisions with ECJ case law is questionable. Indeed, according to ECJ case law, a national measure restricting the freedom of establishment may be justified where it specifically relates to wholly artificial arrangements aimed at circumventing the application of the legislation of the member state concerned (e.g. Case C-324/00, Lankhorst-Hohorst [2002] ECR I-11779). However, the ECJ concept of abuse of law is not yet settled and, in this matter, the ECJ case law is likely to further evolve.

Capital gains

The changes introduced by the 2008 DTT provisions lead to the closing of several loopholes relating to capital gains.

For example, pursuant to the previous DTT between France and the UK, in the right circumstances, French residents could realise capital gains on the sale of UK real estate without suffering any tax charge either in the UK or in France. Specifically, while the UK does not tax capital gains resulting from the sale of a UK property by a non-UK resident, the 1968 DTT provided that the gain could be taxed in the UK and that, as a consequence, it would be exempted in France. According to the 2008 DTT, the French exemption does not apply anymore. Any gain realised by a French resident upon the sale of its UK real estate will be taxed in France and in cases where he is subject to UK tax on the gain, he will be entitled to a tax credit against French tax.

Another loophole in the previous DTT allowed UK companies to sell French real estate without being taxed in France on the gain realised providing that the UK company had no permanent establishment in France. This loophole has now been closed through the new DTT.

It is also worth noting that the sale of a substantial holding in a company (Article 13 (4) of the former DTT) no longer constitutes an exception to the general rule under which gains from the alienation of property are taxable only in the state of the alienator. However, such a sale could still be subject to tax under the domestic law of the source state when the alienator was a resident of this source state at any time in the fiscal year during which the substantial holding was sold or during the six previous fiscal years.

New arbitration procedure

The mutual agreement procedure Article (Article 26) now provides for an arbitration of issues that remained unresolved after two years of a mutual agreement procedure. A similar procedure already exists with respect to transfer pricing issues (pursuant to the EC Arbitration Convention). According to the DTT, the arbitration procedure will now be compulsory for other matters.

French wealth tax for individuals

Although wealth tax is not within its scope, the new DTT provides that the French wealth tax liability of UK nationals will only be based on French assets, instead of on the net value of their worldwide assets, for the first five years after becoming a resident of France. This rule is already provided by French tax law. However, if, in the future, the domestic law changes, the DTT provision will still protect UK nationals.

UK non-dom & remittance basis

Previously, UK non-domiciled individuals could benefit from a double exoneration in situations where DTT provisions were giving the UK an exclusive right to tax but the French source income was not remitted to the UK and, consequently, was neither taxed in France nor in the UK.

Under Article 29 (1) of the new DTT, in such situations of double non-taxation, the provisions of the treaty allowing the exclusive right to tax to the UK will apply only to the amount of the income that is taxed in, i.e. remitted to, the UK. Article 29 (1) does not apply to dividends and business profits.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 08/03/2010.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.