LUXEMBOURG Trends and Developments Contributed by: Peter Moons and Katerina Benioudaki, Loyens & Loeff
Introduction Although 2024 was not a year of great develop - ments in the Luxembourg transfer pricing (TP) landscape, TP continues to be a hot topic for both taxpayers and tax authorities, domestically, at EU level and in the international arena. In this article the authors aim to provide an overview of the main trends and developments encountered in the Luxembourg TP scene. As a response to the decisions of 21 September 2023 in case No 48127C and of 14 November 2023 in case No 47754C of the Administrative Court of Appeal, on 29 January 2025, the Lux - embourg Tax Administration (LTA) issued Circular L.I.R. No 164/1 (the “New Circular” ) on interest rates applied on current accounts of associates or shareholders of Luxembourg-based taxpay - ers subject to corporate income tax (CIT). The New Circular replaced Circular L.I.R. No 164/1 New Circular on Interest Rates on Shareholders’ Current Accounts of 23 March 1998 (the “Old Circular” ). Individual associates or shareholders The Old Circular provided for a fixed interest rate of 5% applied on current accounts of natural persons in their capacity as associates or share - holders of entities subject to CIT in Luxembourg. Unlike the Old Circular, the New Circular now provides that the interest rate to be applied on current accounts of individual shareholders shall be determined in accordance with the terms and conditions that would have been agreed upon for comparable loans in the market between independent parties, in line with the arm’s length principle. For the sake of simplicity, the New Circular provides for an interest rate corresponding to the annual interest rate applicable to consumer
credit, which has to be proven and supported by documentation. Within this framework, the New Circular states that reference to average monthly interest rates as published by the Cen - tral Bank of Luxembourg concerning the interest rates applied by Luxembourg credit institutions to deposits and loans in euros is accepted. In line with the Old Circular, the New Circular maintains the provisions related to the interest calculation and clarifies that the provisions of L.I.R./N.S. memo 164/1 of 9 June 1993 remain applicable, in particular with respect to the crite - ria for a repayable debit current account. Legal persons as associates or shareholders The New Circular also maintains the provisions of the Old Circular in relation to the interest rates applied on loans between related parties. The New Circular repeats that in such cases, the interest rates to be taken into account are to be determined on a case-by-case basis respect - ing the arm’s length principle and should be a function of “notably” criteria such as the cur - rency and the maturity of the loan, exchange risk, credit risk and the refinancing interest rate. Conclusion To summarise, the fixed interest rate of 5% on current accounts of individual associates or shareholders no longer applies. Rather, the interest rate shall be determined in line with the arm’s length principle. A simplification measure allows reference to be made to the interest rate for consumer credit as published by the Central Bank of Luxembourg. As regards shareholder loans between compa - nies, the New Circular repeats that they must be determined on the basis of the arm’s length principle, as was the case before.
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