LuxembourgLuxembourg

Legal ReferenceArt. 56 and 56bis of the modified law as of 4th December 1967 concerning income tax (“LITL”). Art. 56 LITL Chapter 9 of the corresponding bill and the related commentaries (which explicitly refer to the TPG); N° doc. parl. : 6722 (www.chd.lu) Art. 56bis LITL Art. 3 of the budget law 2017 and the related commentaries (of the draft budget law) cover the latest amendments in TP regulation in Luxembourg; N° doc. parl. : 7050

Explicit references to the TPG can be found in the parliamentary file deposited in the legislative process. The documents can be retrieved in the electronic archives of the parliament. Article 56 LITL, entitled “Arm’s length principle”, states that profits of enterprises that are linked by conditions that differ from those between independent enterprises shall be determined in accordance with the conditions that prevail between independent enterprises and taxed accordingly. It thus explicitly confirms the OECD benchmark. The legal provision has been introduced into LITL by the “loi du 19 décembre 2014 relative à la mise en oeuvre du paquet d’avenir”. Article 56bis LITL has incorporated into Luxembourg law the relevant criteria of the revised TPG (Actions 8-10 of the BEPS Action Plan) which the taxpayer is obliged to comply with. This legal provision has been introduced by the budget law for the year 2017.

Legal ReferenceArt. 56 and 56bis LITL Refer to section 1

The OECD TPG are the base reference in domestic legislation. They constitute the framework for any TP analysis.

Legal ReferenceArt. 56 of the modified law as of 4th December 1967 concerning income tax (“LITL”). Refer to section 1

Art. 56 incorporates the definition provided by Article 9 (1) of the OECD Model Tax Convention on Income and on Capital.

As domestic legislation reflects the principles of the OECD TPG, the transfer pricing methods as outlined in the guidelines are required to be used. “Other methods” may be acceptable within the limits of paragraph 2.9 of the OECD TPG.

• CUP (not provided)
• Resale Price (not provided)
• Cost Plus (not provided)
• TNMM (not provided)
• Profit Split (not provided)
• Other (not provided)

The basis for any TP related analysis being the OECD TPG, the method to apply is the one determined as being appropriate, with regard to the guidelines provided by the OECD TPG.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (not selected)

Legal ReferenceArt. 56 and 56bis LITL Refer to section 1

Domestic legislation does not contain any domestic specific guidance on commodity transactions, but refers to the arm’s length principle in accordance with the OECD TPG.

Legal ReferenceArt. 56bis LITL Art. 3 of the budget law 2017 and the related commentaries (of the draft budget law) cover the latest amendments in TP regulation in Luxembourg; N° doc. parl. : 7050

This legal provision has been introduced by the budget law for the year 2017.

Legal ReferenceArt. 56bis LITL

Luxembourg follows the guidance of the OECD TPG.

In the case where no suitable direct comparables can be found, comparability adjustments might eliminate material differences for the purpose of the determination of the arm’s length price. Such comparability adjustments have to be done in compliance with the TPG.

Luxembourg’s domestic legislation or regulations do not contain specific guidance on the pricing of controlled transactions involving intangibles and tend to rely on the OECD TPG.

Please refer to question 12.

Luxembourg has at this stage introduced into national legislation the general principles described in the Chapters I – III of the OECD TPG. No specific guidelines have been implemented so far on the remaining chapters of the OECD TPG. Therefore, the HTVI approach defined in Chapter VI is to be considered as not implemented in domestic legislation. Nonetheless, the general provision of Chapters I-III can be used for audit purposes with regard to transactions on intangibles.

Luxembourg’s domestic legislation or regulations do not contain specific guidance on intra-group services and tend to rely on the OECD TPG.

Luxembourg follows the guidance in the OECD TPG, and thus the simplified approach for low value-adding intra-group services (as outlined in Chapter VII) could be accepted, depending on the facts and circumstances of each case.

Please refer to section 16.

Legal ReferenceAdministrative Circular LIR 56 – 56bis/1 as of 27th December 2016

Specific guidance on financial transaction is provided under the form of an administrative circular. The mentioned circular incorporates the clarifications provided by the BEPS Action 8-10 revised Chapter I of the OECD TPG (i.e. control and assumption of risks). It is thus in line with the OECD guidance on financial transactions. It also contains the safe harbour provisions explained in question 28 below.

Legal ReferenceLaw of 21st December 2018

Article 2 of the Law of 21st December 2018 (transposing the EU Anti-Tax Avoidance Directive of 12th July 2016 (ATAD 1)) has introduced a measure to limit interest deductions into national law. In accordance with Article 168bis LITL, corporations are only allowed to deduct a limited amount of interest for tax purposes for a given year. The net amount between interest income and interest expenses is only deductible up to 30% of the company's EBITDA (Earnings Before Interest, Tax and Amortization) or up to an amount of EUR 3 million, whichever is higher, with the possibility of a carry forward.

Luxembourg’s domestic legislation or regulations do not contain specific guidance on CCAs and tends to rely on the OECD TPG.

Legal Reference§ 171 (3) of the General Law on Taxation Loi du 19 décembre 2014 relative à la mise en œuvre du paquet d’avenir – première partie (2015), Mémorial A – N°257 as of 24th December 2014 p. 5472 Law of 23rd December 2016 (published in the OJ : Mémorial A – No 280 as of 27th December 2016 page 5920 and following) related to CbCR

There is a documentation obligation for any transactions related to the determination of the taxable income. This documentation obligation is also extended to intercompany transactions, meaning that every taxpayer subject to the provisions of the arm’s length principle in the Income Tax Law needs to document how the arm’s length price has been determined. No specific form is required by law.

• Master file consistent with Annex I to Chapter V of the TPG (not selected)
• Local file consistent with Annex II to Chapter V of the TPG (not selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (not selected)
• Other (specify) (selected)

Documentation needs to be provided upon request by the taxation office during the process of the tax assessment. There is no specific requirement to file TP documentation during the filing of the tax returns. The documentation can be filed in the administrative languages of Luxembourg: French and German. Documentation in English is also acceptable. Requirements for the CbCR are in line with BEPS Action 13.

Legal Reference§ 202 of the General Law of Taxation

No specific TP related penalties, but administrative penalties may be applicable in order to enforce taxpayers’ delivery of general documentation on transactions in the course of the tax assessment.

MNEs with a turnover below EUR 750 million are not required to file CbCR but need to comply with the documentation obligation for any transactions related to the determination of the taxable income.

Legal Reference§29a of the General Law on Taxation Grand Ducal Decree as of 23rd December 2014 Luxembourg’s MAP Profile Circular L.G. - Conv. D.I. n° 60 of 11 March 2021 Luxembourg OECD MAP Profile

A general regime with regard to unilateral APAs has been introduced as of 29th December 2014, whereas the Luxembourg Competent Authority concludes bi- and multilateral APAs on the basis on Article 25(3), first sentence of the OECD Model Tax Convention. The Luxembourg MAP guidance is published and regularly updated under on the website of the Luxembourg tax administration (Circular L.G. - Conv. D.I. n° 60). For further information, please refer to Luxembourg’s MAP Profile.

• Rulings (not selected)
• Enhanced engagement or cooperative compliance programmes (not selected)
• Advance Pricing Agreements (APA) (selected)
• International Compliance Assurance Programme (ICAP) (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): European Trust and Cooperation Approach (ETACA) (selected)

The simplified and streamlined approach for baseline marketing and distribution activities is under consideration.

Please refer to the answer provided to question 34.

Legal Reference§4 of the Administrative Circular LIR 56 – 56bis/1 as of 27th December 2016

Circular 56/1 – 56bis/1 as of 27 December 2016 provided safe harbour provisions for financing companies. The Circular provides that financial companies realizing a purely intermediary activity can opt for a simplified method and declare a minimum after tax return of 2% in relation to the intermediated amounts.

Luxembourg domestic legislation does not allow downward corresponding adjustments in the absence of a mutual agreement procedure.

Compliance with the arm’s length principle is mandatory for all enterprises subject to the provisions of Art 56 and 56bis LIR.

Legal ReferenceArt. 164 (3) LITL

Excessive cash payments operated by an enterprise to a parent company on the basis of transfer prices exceeding the arm’s length price might in certain cases be subject to the recognition of a constructive dividend distribution for the excess price charged.

Legal ReferenceTax treaties

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (selected)
• Other (not selected)

In case a double tax treaty contains the pre-2010 language of Article 7 (OECD MTC), the provisions of that old version of Article 7 and the corresponding commentaries of the respective MTC version are regarded to be not compatible with the concept of the AOA, so that the AOA may in principle not be applied.

There are no special provisions in the Luxembourg national law regarding the application of the AOA. In the case that a double tax treaty contains the new version of Article 7 (OECD MTC version 2010), the attribution of profits to permanent establishments should follow the steps of the AOA.