LUXEMBOURG Trends and Developments Contributed by: Diogo Duarte de Oliveira, Antonio Weffer, Amar Hamouche and Olivier Dal Farra, Baker McKenzie Luxembourg
Treaty certainty and exchange of information continue to intensify The OECD 2025 Update also contains updates to the Commentary regarding transfer pricing under Article 9, including financial transactions and Amount B, as well as changes to Article 25 on mutual agreement procedure and Article 26 on exchange of information. For Luxembourg‑centred groups, the practical trend is that disputes and information exchange are increas - ingly systematised, and the standards applied in treaty interpretation continue to evolve in a direction that emphasises certainty, administrability and data use. The EU 2026 Agenda: Simplification, Consolidation and Digitalisation The EU Commission pivots from ambitious harmonisation to targeted simplification A key European trend for 2026 is the EU Commis - sion’s shift toward simplification and consolidation in direct taxation. The EU Commission’s 2026 Work Programme has withdrawn several initiatives, includ - ing Unshell (ATAD 3), DEBRA and the proposed trans - fer pricing directive, while maintaining other files at a pending status. A Tax Omnibus simplification package expected in June 2026 is intended to propose co- ordinated amendments across multiple EU corporate tax directives, including ATAD, the EU Parent‑Subsid - iary Directive, the EU Interest & Royalty Directive, the EU Merger Directive and the EU Dispute Resolution Directive. For Luxembourg groups, the significance is twofold. First, the withdrawal of certain proposals reduces short‑term uncertainty about major new EU‑layer regimes. Second, the Omnibus approach suggests that changes will be delivered through co-ordinat - ed, targeted amendments rather than through new “standalone” directives, and taxpayers should expect consultation and technical adjustment rather than a wholesale redesign. DAC and ATAD evaluations: toward a more coherent compliance architecture The DAC evaluation has concluded that the frame - work is effective but requires simplification. The Com - mission aims to consolidate DAC1–DAC9 into a single recast text to reduce duplications and inconsisten - cies, and there is a push for common EU guidance to
17 December 2025, with effect from 1 January 2026, and opened an online platform in January 2026 to comply with Pillar Two registration and reporting obli - gations. A practical takeaway is that Luxembourg‑centred groups should implement a structured sequence. They should model QDMTT outcomes first, then layer in elections (Transitional CbCR, simplified ETR, SBTI and, where relevant, side‑by‑side/UPE), and align data pipelines and documentation with the reporting position. This sequencing matters because QDMTT exposure is not removed by side‑by‑side/UPE safe harbours, and because safe harbour integrity princi - ples require consistent treatment of taxes and income across years. OECD Treaty Developments: Remote Work, Transfer Pricing and Information Exchange Remote work and permanent establishment risk becomes more structured The OECD’s 2025 Update to the Model Tax Conven - tion, to be incorporated into revised editions in 2026, is a second international trend likely to affect Lux - embourg‑centred groups. The OECD update clarifies when a home or other remote location may consti - tute a place of business of the enterprise for Article 5 purposes, reflecting the proliferation of cross‑border remote work. The Update outlines a more structured analysis and refers to a 50% benchmark over a 12‑month period as a reference point for assessing when remote work is “intermittent”, while also stressing that exceeding the benchmark does not automatically create a perma - nent establishment. The guidance further focuses on whether there is a commercial reason for activities to be carried out in the other state, rather than the loca - tion being used purely for personal convenience. For Luxembourg groups, these developments reinforce the need to integrate HR policies, functional profiles and documentation with treaty‑based risk assess - ments, particularly where senior decision‑makers or client‑facing personnel work across borders.
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