Transfer pricing The transfer pricing environment in Luxembourg is evolving rapidly. Rules were first introduced in 2011 for intra-group financing transactions, and the framework was further extended in 2015 to cover all controlled transactions. In 2016 it was further expanded under the influence of the OECD's Base Erosion and Profit Shifting initiative (BEPS).

As a result, Luxembourg now has a complete BEPS-compliant transfer pricing legislative framework covering all controlled transactions. This requires appropriate transfer pricing documentation for analysis under a reversed burden of proof, where it is up to the taxpayer to justify the arm’s-length nature of the controlled transaction rather than for the tax authorities to challenge it. This underlines the importance of appropriate transfer pricing documentation.

Following the publication of the 2016 Luxembourg intra-group financing circular, it is necessary to:

• Determine the level of equity on a case-by-case basis: the 1% level of equity capped at €2 million is no longer available
• Take a holistic approach in determining the arm’s-length character of the interest rate charged
• Determine that the level of substance is aligned with the overall structure

How can we help?

Arendt’s tax practice comprises more than 50 full-time dedicated tax specialists providing a full range of tax services, from advisory and implementation to compliance and litigation. Our team provides strategic transfer pricing advice for all types of controlled transactions across all industries, including complex financial transactions, asset management structures and restructurings.

Our transfer pricing experts establish the transfer pricing documentation, including conducting the value chain analysis, the functional/risk analysis and benchmarking of the transaction. They also file unilateral, bilateral or multilateral advance pricing agreements with the Luxembourg tax authorities, and liaise with them in contentious or non-contentious transfer pricing issues, including mutual agreement procedures or transfer pricing audits.