Luxembourg

In Luxembourg, the Transfer Pricing principles are set out in Article 56 and new Article 56 bis of the Luxembourg Income Tax Law. In 2011, the Luxembourg tax authorities issued the first circular on the tax treatment of entities engaged in financing activities (Circular Income Tax Law No. 164/2 of January 28, 2011).

On December 27, 2016, the LTA issued new guidelines reforming the Transfer Pricing framework for entities carrying out intra-group financing activities in Luxembourg.

Arm’s Length Principle

Under the Arm’s Length Principle, the transactions entered into between associated enterprises are compared with similar transactions between unrelated entities to determine acceptable transfer prices.

As a member of the OECD, Luxembourg adopts the Transfer Pricing Guidelines, which reflect the consensus of OECD member countries towards the Arm’s Length Principle application according to Article 9 (1) of the OECD Model Tax Convention.

Related Parties

Art. 56 incorporates the definition provided by Art. 9 (1) of the Model Tax Convention on Income and Property: “Two enterprises are considered to be associated if one thereof directly or indirectly participates in the management, control or capital of the other, or if the same persons directly or indirectly participate in the management or share capital of both enterprises.”

Transfer Pricing Methods

The Luxembourgian Transfer Pricing framework does not provide any preference or hierarchy for specific methods and supports the application of the most appropriate method, according to the OECD Guidelines.

Transfer Pricing Documentation

Currently, Luxembourg does not impose any obligation to prepare the Master File and/or Local Report as prescribed by the OECD Guidelines and BEPS Action 13.

There is a documentation requirement for any transaction related to the taxable income determination. This documentation requirement may also include intercompany transactions, i.e., every taxpayer subject to the Arm’s Length Principle in the Income Tax Act should keep the documentation.

The documentation may be filed in the following languages: French, German, or English.

Country-by-Country Report

From January 1, 2016, Luxembourg implemented the Country-by-Country Report applicable to multinational groups with revenues exceeding € 750 million during the fiscal year immediately preceding the reporting fiscal year.

Penalties

According to the Country-by-Country Report, € 250,000 could be imposed on the taxpayer for non-compliance arising from non-filing, late filing, or incorrect filing.

Source: Luxembourg Inland Revenue (LIR)

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