LUXEMBOURG Law and Practice Contributed by: Oliver R. Hoor and Fanny Addouda, ATOZ Tax Advisers
Lastly, the general administrative penalties that apply in any other tax matters – ie, in the case of late filing of a tax return, late payment of the tax due or fraud – might also apply. 8.2 Transfer Pricing Documentation Luxembourg tax law does not explicitly provide for transfer pricing documentation requirements. Howev - er, this does not mean that Luxembourg taxpayers are not required to demonstrate the arm’s length nature of their controlled transactions through robust transfer pricing documentation. Instead, the pressure to prepare transfer pricing docu - mentation for Luxembourg tax purposes may come from several directions, such as the magnitude of the intra-group transaction and the associated tax risks, the rules on the burden of proof and the ability of the LTAs to challenge the transfer pricing. Whenever the LTAs can reasonably evidence that the transfer pricing of an intra-group transaction is not in line with the arm’s length principle, it is up to the taxpayer to disprove this rebuttable presumption. Similarly, if a taxpayer wishes to claim a downward adjustment or a hidden capital contribution, it is for the taxpayer to prove the amount of the deduction or contribution. In particular, where Luxembourg companies carry out financing activities that fall within the scope of the Luxembourg Circular on transfer pricing aspects of financing activities (Circular 56/1 – 56bis/1 of 27 December 2016), the LTAs expect the taxpayer to sub - stantiate the arm’s length margin in a transfer pricing study. Moreover, there is a requirement to file CbC reports, based on the Law of 23 December 2016 implementing Council Directive (EU) 2016/881 of 25 May 2016. This obligation applies to MNE groups with a consolidat - ed revenue exceeding EUR750 million, whereby the entity of the group in charge of the reporting is gener - ally the ultimate parent entity of the group. Luxem - bourg entities that are members of an MNE group are also required to notify the LTA of the identity and tax residence of the reporting entity (whether this report -
ing entity is the Luxembourg entity itself or any other entity of the group). However, there is no requirement to prepare a master file or a local file, as defined in Action 13 of the BEPS Action Plan and Chapter V of the OECD Transfer Pric - ing Guidelines. In 2023, a draft Grand-Ducal Regulation was released that closely resembles the three-tier documentation standard defined in the OECD Transfer Pricing Guide - lines. However, it remains to be seen whether this reg - ulation will ultimately be adopted. Multinationals can already rely on the guidance in Chapter V of the OECD Transfer Pricing Guidelines if they prefer the master file/local file format to preparing separate transfer pricing reports for different intra-group transactions. 9. Alignment With OECD Guidelines 9.1 Alignment and Differences Since Luxembourg legislation does not provide for any integrated transfer pricing legislation, the OECD Transfer Pricing Guidelines play an extremely impor - tant role for Luxembourg taxpayers when analysing their transactions from a transfer pricing point of view, and for tax authorities in assessing the transfer pricing policy of taxpayers. Reference to these guidelines is made in the parliamentary documents related to the Luxembourg transfer pricing legislation, as well as in the related guidance of the LTA. Therefore, the posi - tion of the LTA should be fully aligned with the OECD guidelines, and taxpayers should use these guidelines as a reference. 9.2 Arm’s Length Principle Luxembourg tax law follows the arm’s length principle. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project The development of the Luxembourg transfer pric - ing legislation from 2015 is a direct effect of the out - come of the BEPS project in respect of transfer pric - ing matters. As such, the BEPS project has impacted Luxembourg legislation significantly. The wording of Article 56bis of the LITL closely follows some of the key paragraphs of Chapter I (arm’s length principle)
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