LUXEMBOURG Law and Practice Contributed by: Oliver R. Hoor and Fanny Addouda, ATOZ Tax Advisers
2022, the tax authorities are imposing an additional documentation requirement, not required by the law, according to which a transfer pricing analysis follow - ing the OECD Transfer Pricing Guidelines has to be performed for each of the CFCs of the taxpayer – and has to be updated on an annual basis. Based on the Circular, even though the taxpayer does not assume any people function generating the CFC’s income, transfer pricing documentation needs to be available and updated on an annual basis. Luxembourg Double Tax Treaty Network As of early 2026, Luxembourg boasts one of the world’s most robust and expansive tax treaty net - works, with 92 double tax treaties currently in effect. Almost all Luxembourg double tax treaties are based on the OECD Model Tax convention and thus include the arm’s length principle, as further defined in the As a member of the OECD, Luxembourg adheres to the organisation’s Transfer Pricing Guidelines, which reflect the consensus of OECD member countries towards the application of the arm’s length principle, as provided in Article 9 (1) of the OECD Model Tax Convention. Since the Luxembourg legislation does not provide for any integrated transfer pricing legisla - tion, the OECD Transfer Pricing Guidelines play an extremely important role for Luxembourg taxpay - ers with respect to analysing their transactions from a transfer pricing point of view. Reference to these guidelines is made in both parliamentary documents (such as ones related to the draft laws introducing Article 56 and Article 56bis of the LITL) and in Circular 56/1 – 56bis/1 of the LTA on the tax treatment of intra- group financing activities. 1.2 Current Regime and Recent Changes OECD Transfer Pricing Guidelines. OECD Transfer Pricing Guidelines Over the past few years, transfer pricing and the need for related documentation have become increasingly important in Luxembourg. Before 2011, Luxembourg domestic tax law did not provide any specific transfer pricing rules or documentation requirements. On 28 January 2011, the LTA issued the first circular dealing with transfer pricing, Circular 164/2, which provided guidance on how Luxembourg companies performing financing activities should determine their arm’s length
margin. This Circular already explicitly referred to the OECD Transfer Pricing Guidelines. The Law of 19 December 2014 amended Article 56 of the LITL in order to formalise the application of the arm’s length principle and provided a legal basis for transfer pricing adjustments when associated enter - prises do not meet the arm’s length standard. The same law also amended paragraph 171 of the LGTL in order to explicitly extend the duty of co-operation of taxpayers to transactions between associated enter - prises, reflecting the increasing importance of transfer pricing documentation. The Law of 23 December 2016 introduced Article 56bis of the LITL, which provided, for the first time, definitions and guiding principles in relation to the application of the arm’s length principle. These defini - tions and guiding principles are in line with the OECD Transfer Pricing Guidelines. To reflect the changes introduced by Article 56bis of the LITL, on 27 Decem - ber 2016, the LTA released a new Circular, Circular 56/1 – 56bis/1, on the tax treatment of intra-group financing activities, which provides guidance on the practical application of the arm’s length principle to intra-group financing activities and repealed and replaced the former Circular of 28 January 2011 with effect from 1 January 2017. Further changes are in the pipeline with draft law No 8186, presented to Parliament on 28 March 2023, which would introduce a new procedure for request - ing an advanced bilateral or multilateral agreement on transfer pricing pursuant to the double tax trea - ties concluded by Luxembourg and additional transfer pricing documentation requirements (master file and local file, in line with Action 13 of the Base Erosion and Profit Shifting (BEPS) Action Plan). 2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules The scope of Article 56 of the LITL is limited to trans - actions between associated enterprises and does not apply to transactions between individual shareholders and Luxembourg companies. Article 56 of the LITL
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