LUXEMBOURG Law and Practice Contributed by: Oliver R Hoor and Fanny Addouda, ATOZ Tax Advisers
Article 164ter of the LITL – transfer pricing aspects of the Controlled Foreign Company (CFC) rule Article 164ter of the LITL, which implemented the CFC rules of the Council Directive (EU) 2016/1164 into Luxembourg tax law with effect as from 1 January 2019, includes some transfer pricing- related aspects. This is because Luxembourg is one of the few EU member states which decided to opt for the transactional approach when intro - ducing the CFC rules. Article 164ter of the LITL provides that a Luxembourg corporate taxpayer or a Luxembourg permanent establishment (PE) of a non-Luxembourg tax resident entity will be taxed on the non-distributed income of an entity or PE which qualifies as a CFC, provided that the non-distributed income arises from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advan - tage. An arrangement or a series thereof will be regarded as non-genuine if the entity or PE does not own the assets or has not undertaken the risks that generated all or part of its income if it were not controlled by a Luxembourg corporate taxpayer when the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the CFC’s income. While no further clarification is provided on the concept of significant peo - ple functions and the interaction between the Luxembourg transfer pricing rules and the CFCs rules, in Circular 164ter/1 of 17 June 2022, the tax authorities are imposing an additional docu - mentation requirement, not required by the law, according to which a transfer pricing analysis following 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
of Article 56 of the LITL is an adjustment of the taxable income of the company (in order to restate arm’s length conditions), whereas the concepts of hidden dividend distributions and hidden capital contributions may require addi - tional tax adjustments at the level of the com - pany and the shareholder. Since the introduction of Section 3 of paragraph 171 of the Luxembourg General Tax Law (LGTL), the duty of co-operation of taxpayers set out in paragraph 1 thereof has been expressly extend - ed to transactions between associated enter - prises. This means that transfer pricing docu - mentation is identified in Luxembourg tax law as information which taxpayers should provide to the LTA upon request in order to support the positions they take in their tax returns. Country-by-country reporting Transfer pricing documentation Duty of co-operation of taxpayers The Law of 23 December 2016 implemented the provisions of Council Directive (EU) 2016/881 of 25 May 2016 into Luxembourg law which extended administrative co-operation in tax matters to country-by-country (CbC) report - ing. MNE groups with a consolidated revenue exceeding EUR750 million are required to pre - pare a CbC report. The entity of the group in charge of the reporting is either the Luxembourg resident ultimate parent entity of the MNE group or, in certain circumstances, any other reporting entity (a Luxembourg subsidiary or a Luxem - bourg permanent establishment) as defined in Annex 2 of the law. The CbC report follows the OECD recommendations provided in Chapter V of the OECD Transfer Pricing Guidelines.
235 CHAMBERS.COM
Powered by FlippingBook