LUXEMBOURG Trends and Developments Contributed by: Oliver R. Hoor, ATOZ Tax Advisers
Introduction Transfer pricing is a key issue in Luxembourg taxation today and is frequently scrutinised in tax audits, as it is an easily identifiable target for adjustments by the tax authorities. However, having appropriate transfer pricing documentation in place is a useful way of miti - gating tax risks in Luxembourg and abroad. The current international geopolitical environment may also have far-reaching consequences for the global economy, businesses and ultimately, transfer pricing. In particular, the ongoing war involving Israel, the USA and Iran will likely have a significant impact on oil and gas prices, fuelling inflation across a wide range of goods and services. The Strait of Hormuz accounts for a fifth of global oil consumption, so the mere threat of disruption is causing energy prices to rise. Iran has currently blocked this waterway. This will affect every tier of the global supply chain. Such conflicts have the potential to prompt multina - tional groups to reconsider their supply chains. Fur - thermore, even if this conflict were to end soon, it would take decades to rebuild trust in the stability of Gulf countries. Creation of a New Transfer Pricing Division In Q4 of 2025, the Luxembourg tax authorities set up a new division specialising in transfer pricing. This initiative reflects a broader effort to professionalise expertise in this increasingly complex area within the tax authorities. The division is expected to primarily serve as an inter - nal resource, supporting tax inspectors during audits by providing specialised transfer pricing knowledge and contributing to cross-border dispute resolution processes. It will also help develop consistent local guidance on key transfer pricing matters. The underlying goal appears to be greater coher - ence, ensuring that the positions taken by Luxem - bourg are more consistent across cases, and enabling the authorities to engage more effectively with foreign counterparts in discussions or disputes where neces - sary.
Transfer Pricing in Tax Audits The Luxembourg tax authorities may review transfer pricing as part of a broader review of a Luxembourg company’s corporate tax returns or a formal tax audit spanning several years. Based on experience, when - ever the tax position of a Luxembourg company is reviewed, its transfer pricing is systematically scru - tinised. In practice, transfer pricing disputes primarily arise from a lack of proper documentation surround - ing significant intra-group transactions. Conversely, thorough transfer pricing documentation provides a robust defence against challenges from the Luxem - bourg tax authorities. Taxpayers should ideally take a proactive approach to transfer pricing, preparing documentation when entering into a controlled transaction. This is prefer - able to waiting until a transaction is identified during a tax audit. Although transfer pricing documentation can be prepared during a tax audit, the level of scru - tiny of the assumptions, transfer pricing approach and benchmarking is much higher. After all, if the transfer pricing analysis confirms the pricing of the intra-group transaction, this might be considered a coincidence. However, if the Luxembourg tax authorities can dem - onstrate that the transfer pricing of an intra-group transaction does not adhere to the arm’s length prin - ciple, it is the taxpayer’s responsibility to disprove this presumption. Without appropriate transfer pricing documentation, it is difficult to substantiate the arm’s length nature of intra-group pricing. Furthermore, when transfer pric - ing documentation is prepared for a tax audit poten - tially years after a transaction has taken place, it can be challenging to trace all the necessary information and comparable data. More Challenges From Foreign Tax Authorities In recent years, foreign tax authorities have increas - ingly challenged the arm’s length nature of transfer pricing in order to justify transfer pricing adjust - ments. As transfer pricing is not an exact science and requires judgement, tax authorities can consider dif - ferent parameters or approaches, resulting in different
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