LUXEMBOURG Trends and Developments Contributed by: Peter Moons and Katerina Benioudaki, Loyens & Loeff
services or the marketing, trading or distribu - tion of commodities. In addition, the tested par - ty must not conduct non-distribution activities alongside the qualifying transaction that can - not be evaluated and priced separately unless the qualifying transaction can be adequately evaluated on a separate basis and can be reli - ably priced separately from the non-distribution activities. Applicable method According to the Report, the transactional net margin method is considered as the most appro - priate method under the S&S Approach with RoS as the net profit indicator without any further jus - tifications or analysis of other TP methods. An exception is provided for instances where the internal comparable uncontrolled price method can be reliably used for pricing the Qualifying Activities. Pricing matrix and adjustments The arm’s length remuneration for Qualifying Activities under the S&S Approach can be deter - mined through a pricing matrix provided by the Report by assessing the tested party’s (i) net operating asset intensity, (ii) operating expense intensity and (iii) industry group. The return pro - vided in the pricing matrix will be considered acceptable with a range of tolerance of plus or minus 0.5 percentage points. Taxpayers will apply and test the actual outcome of their Qualifying Activities to demonstrate that the conditions of these transactions were con - sistent with the S&S Approach on an ex-post basis. Tax administrations should use the RoS percentage derived from the pricing matrix to adjust the margin of the controlled transaction when the margin reported by the taxpayer falls outside the range. The financial data and other datapoints of the pricing matrix will be updated
annually and the ranges of the pricing matrix every five years, unless market conditions man - date an interim update. Furthermore, the Report provides two profitabili - ty adjustment mechanisms. First, the profitability of tested parties will be adjusted if the RoS of the tested party falls outside the pre-defined operat - ing expenses cap-and-collar range specified in the Report. Secondly, in instances of no or insuf - ficient data, taxpayers in qualifying jurisdictions, ie, jurisdictions included in the list published and updated every five years on the OECD website, will need to earn an adjusted RoS calculated based on a formula provided in the Report and are dependent on the sovereign credit rating of the qualifying jurisdiction and the operating intensity of the tested party. Documentation Taxpayers should have sufficient and reliable information available to allow tax administrations to assess whether the scoping criteria are met, and whether the pricing methodology has been applied properly. The following items comprise a non-exhaustive list of information that may be relevant for the application of the S&S Approach with respect to the Qualifying Activities: • accurate delineation of the transaction (including functional analysis and context); • written contract or agreements concluded governing the qualifying transaction and sup - porting the explanation on the delineation of the Qualifying Activities; • calculations showing the determination of the relevant revenue, costs and assets allocated or attributed to the Qualifying Activities; and • TP reconciliation, ie, allocation schedules showing how the TP method used ties to the annual financial statements.
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