LUXEMBOURG Trends and Developments Contributed by: Peter Moons and Katerina Benioudaki, Loyens & Loeff
More Detailed Transfer Pricing Documentation
The TP landscape is undoubtedly intimidating for taxpayers. Comparability can be subjective, which gives tax authorities a lot of flexibility to challenge taxpayers’ controlled transactions. To that end, in an effort to mitigate the risk that the LTA challenges their intra-group transactions, the TP documentation prepared by taxpayers is becoming more and more granular and detailed compared to the level of detail contained in such documents in previous years.
As previously mentioned, currently Luxembourg does not impose any master file or local file obligations. However, paragraphs 171(1) and 171(3) of the general tax law of 22 May 1931 ( Abgabenordnung or AO) demand that taxpayers must be able to prove the accuracy of the infor - mation included in their tax returns, including information related to the TP of their controlled transactions. As such, all intercompany transac - tions are documented in ad hoc TP reports and benchmarking analyses. In addition, as opposed to certain other EU countries, there is no specific requirement in Luxembourg to file TP documentation as part of the filing of tax returns. Instead, TP documen - tation shall be provided upon request by the LTA during the process of a tax audit. Experi - ence shows that the LTA can challenge easier taxpayers’ intercompany transactions when no TP documentation is prepared or when the TP documentation is incomplete or when the TP documentation is prepared after the request for information. In an environment where more and more tax scrutiny is observed, taxpayers should make sure that all controlled transactions are duly documented and supported by ad hoc TP documentation.
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