LUXEMBOURG Trends and Developments Contributed by: Oliver R. Hoor, ATOZ Tax Advisers
outcomes. This often makes transfer pricing the target of foreign tax audits. Given the high debt levels of EU member states, com - bined with ambitious spending commitments such as the NATO 5% of GDP military spending target, pres - sure on national budgets is set to intensify, especially since interest rates on government debt have risen in recent years. Consequently, it is likely that foreign tax authorities will continue to adopt increasingly assertive positions in transfer pricing audits. The pressure to meet tax rev - enue targets could lead to the boundaries of the arm’s length principle being tested. Taxpayers should there - fore prepare for greater scrutiny and less tolerance of undocumented or poorly justified pricing positions. Impact of Geopolitical Conflicts on Transfer Pricing In 2026, the global geopolitical landscape is charac - terised by significant instability. The ongoing war in Ukraine and the Israeli-USA war with Iran, which car - ries the risk of further escalation, are contributing to this deeply uncertain environment. Approximately 20% of the world’s oil and gas passes through the Strait of Hormuz. If the blockade con - tinues, a sustained disruption would lead to signifi - cantly higher oil prices. This would not only affect energy costs, but also the prices of a wide range of goods and services that rely on oil and gas. This has the potential to cause inflation to rise considerably. Although most oil from the Gulf region is consumed by Asian countries, the workbench of the world that is dependent on cheap and reliable energy, the impact would be felt worldwide. Furthermore, the current geopolitical situation in the Middle East is forcing many cargo ships to reroute around Africa, bypassing the Suez Canal entirely. This increases costs and transit times, posing significant risks to supply chains that rely on just-in-time produc - tion models. This turmoil means that multinational groups must now consider geopolitical developments when assessing supply chain resilience, country risk and the reliability
of global transport routes for raw materials and fin - ished goods. Moreover, if oil and gas prices remain high for an extended period, it is likely that inflation will remain high for a sustained period. This would necessitate more frequent updates to transfer pricing documenta - tion. Ultimately, if the situation leads to a global reces - sion, the implications for transfer pricing, particularly with regard to comparables, profit margins and bench - marking, would need to be carefully assessed. The question, then, is how these developments spe - cifically affect transfer pricing in Luxembourg. In Luxembourg’s financial ecosystem, transfer pricing models focus more on the transmission of financial and regulatory risks resulting from geopolitical shifts than on physical supply chains. Treasury centres, investment platforms and holding companies should therefore ensure that they rigorously price heightened credit, country and currency risks in intra-group loans, guarantees and cash pools. This requires robust transfer pricing documentation that clearly demonstrates how Luxembourg entities manage these risks and implement group financial strategy. Such documentation is essential to demon - strate how these entities execute and are remunerated for group-wide financial transactions in an increasingly fragmented world. It also serves as a critical defence against audit scrutiny in Luxembourg and abroad. Conclusion This article has explored how Luxembourg’s trans - fer pricing is evolving in response to both domestic developments and external pressures. At the same time, new layers of complexity are being introduced by the broader geopolitical environment that cannot be ignored. The practical implication for multinational groups and international investors is clear: transfer pricing cannot be treated as a static, annual compliance exercise. The assumptions underlying intercompany pricing, whether in financing, treasury or holding structures, may need to be revisited more frequently as economic conditions change. Inflation, supply chain disruptions
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