LUXEMBOURG Law and Practice Contributed by: Oliver R Hoor and Fanny Addouda, ATOZ Tax Advisers
11.2 Rules on Savings Arising From Operating in the Jurisdiction Luxembourg does not have any specific rules governing savings that arise from operating in Luxembourg. 11.3 Unique Transfer Pricing Rules or Practices Luxembourg does not have any notable unique rules or practices applicable in the transfer pric - ing context. 11.4 Financial Transactions Luxembourg has issued specific local guidance on financial transactions, as outlined in Circular 56/1 – 56bis/1 of the LTA (see section 1.1 Stat- utes and Regulations ). This Circular provides detailed instructions on the transfer pricing treat - ment of intra-group financing activities. Accord - ing to the Circular, a financing entity should pos - sess the capacity to assume risks related to its financial intermediation activities, exercise con - trol over risks (including credit risk management) and maintain sufficient equity levels to absorb potential losses. From a wider perspective, Luxembourg gener - ally adheres to the OECD Transfer Pricing Guide - lines, particularly Chapter X, which emphasises the accurate delineation of financial transactions and the assessment of risk control functions. 12. Co-Ordination With Customs Valuation 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation While there is no specific provision in Luxem - bourg law in respect of the arm’s length value for customs duty purposes, Article 70-3 (d) of
the Union Customs Code applies the arm’s length principle in order to determine the cus - toms value, stating that the transaction value shall apply provided that “the buyer and seller are not related or the relationship did not influ - ence the price” . The Law of 19 December 2008 provides a legal framework for the exchange of informa - tion between the different LTA – ie, the direct tax authorities ( Administration des contribution Directes ), the indirect tax authorities ( Admin- istration de l’Enregistrement, des Domaines et de la TVA ) and the customs and excise duties administration ( Administration des Douanes et Accises ), as well as with other public authorities, such as the supervisory authority of the financial sector ( Commission de Surveillance du Secteur Financier ). However, in practice, to date, the use of transfer pricing documentation for customs duty purposes is uncommon. 13. Controversy Process 13.1 Options and Requirements in Transfer Pricing Controversies There is no dedicated procedure applicable to transfer pricing matters, meaning that the same procedure as for any other direct tax matters applies when it comes to transfer pricing audits or to legal proceedings. In a first step, the tax authorities may consider performing a tax audit which can take the form of either a general information request or a more formal tax audit, including several steps. In practice, we are seeing an increasing number of tax audits (in the form of a general information request) performed, especially when it comes to intra-group financing transactions. The tax audit is performed by the local inspector in charge of
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