LUXEMBOURG Law and Practice Contributed by: Oliver R Hoor and Fanny Addouda, ATOZ Tax Advisers
3.5 Comparability Adjustments Based on paragraph 4 of Article 56bis of the LITL, transactions are sufficiently comparable when there are no material differences between the transactions being compared that could have a significant methodological influence on the determination of the price, or when reasonably reliable adjustments can be made to eliminate the impact on price determination. Thus, com - parability adjustments have to be reliable and reasonable and may be performed ( “in accord- ance with internationally recognised standards” , as Circular 56-56bis states) if they are necessary to improve the reliability and quality of the com - parability analysis. Luxembourg tax legislation does not include any specific rules relating to the transfer pricing of intangibles. Thus, reference has to be made to Chapter VI of the OECD Transfer Pricing Guide - lines in this respect. However, Circular 50ter/1 of 28 June 2019 dealing with the Luxembourg intellectual property regime (ie, 80% corporate income tax and municipal tax exemption of the net qualifying income and capital gains derived from eligible IP assets and 100% exemption of qualifying IP assets for net wealth tax purposes) specifies that the arm’s length principle defined in Article 56 and Article 56bis of the LITL apply in case of application of the IP regime. 4.2 Hard-to-Value Intangibles 4. Intangibles 4.1 Notable Rules Luxembourg tax legislation does not include any specific rules relating to hard-to-value intan - gibles (HTVI), so the OECD Transfer Pricing Guidelines have to be followed in this respect. Based on the Luxembourg questionnaire on the Implementation of the HTVI Approach included
addition to these five methods, as stated in the commentary to the draft law introducing Article 56bis of the LITL, the OECD Transfer Pricing Guidelines also allow any other method to be applied, as long as it enables a price to be set that satisfies the arm’s length principle. In such case the taxpayer will have to evidence why this other method is the most appropriate method. 3.2 Unspecified Methods As a principle, the most appropriate method has to be applied, using either one of the methods defined in the OECD Transfer Pricing Guidelines or any other method which enables a price to be established that is in line with the arm’s length principle. 3.3 Hierarchy of Methods Since the Luxembourg legislation only refers to the OECD Transfer Pricing Guidelines without specifying the different methods, the only prin - ciple which should be followed is that the most appropriate method should be applied, meaning there is no hierarchy of methods. In practice the most commonly used method is the comparable uncontrolled price (CUP) method, mainly for a wide range of financial transactions and license fees. However, other methods such as the cost- plus method (for low value-adding services) as well as the profit split method (eg, for highly inte - grated fund management activities) are regularly relevant in practice as well. 3.4 Ranges and Statistical Measures The Luxembourg legislation does not require the use of ranges or statistical measures. However, since the LTA follow the OECD Transfer Pricing Guidelines, reference has to be made to these in this respect.
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