Luxembourg tax circular clarifies simplified transfer pricing framework for distribution activities under OECD Pillar One “Amount B”

On 13 April 2026, the Luxembourg tax authorities issued Circular L.I.R. n° 56/2 – 56bis/2 (Circular) setting out how Luxembourg will apply the OECD’s Pillar One – Amount B simplified approach for certain marketing and distribution activities.

The Circular applies to financial years beginning on or after 1 January 2025 and provides useful clarification on how Luxembourg will treat Amount B outcomes, confirming that the approach is consistent with Articles 56 and 56bis of the Luxembourg Income Tax Law (L.I.R.).

Background – what is Amount B?

In October 2021, the OECD/G20 Inclusive Framework on BEPS agreed to simplify and streamline the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity jurisdictions — an approach commonly referred to as “Amount B.” The OECD published its report on Amount B in February 2024, incorporating the simplified and streamlined approach as an Annex to Chapter IV of the OECD Transfer Pricing Guidelines, with effect for fiscal years commencing on or after 1 January 2025.

Amount B forms part of the OECD’s Pillar One initiative and is designed to reduce complexity in transfer pricing, enhance tax certainty and minimise disputes, particularly in jurisdictions with limited administrative capacity.

In practice, Amount B applies a standardised return on sales derived from a pricing matrix (a global benchmark) to in-scope transactions involving “covered jurisdictions”.

Luxembourg’s position

The Circular confirms that Luxembourg aligns with the OECD Amount B framework as incorporated into the OECD Transfer Pricing Guidelines.
Luxembourg will respect the outcome of Amount B where it is correctly applied by a covered jurisdiction to transactions within scope. In such cases, the Luxembourg tax authorities will refrain from making transfer pricing adjustments, grant a corresponding adjustment to eliminate double taxation or resolve double taxation through a mutual agreement procedure (MAP), where relevant.

However, this recognition is conditional. Luxembourg will only accept an Amount B outcome if all of the following criteria are satisfied: (i) the other jurisdiction qualifies as a covered jurisdiction (as defined by the OECD), (ii) a double tax treaty is in force between Luxembourg and that jurisdiction and (iii) the jurisdiction has opted to apply Amount B.

Transactions in scope

Amount B applies to baseline wholesale distribution arrangements where the tested party is located in the covered jurisdiction. This includes buy-sell distributors purchasing goods from related parties for resale to third parties, and sales agents or commissionaires involved in wholesale distribution.

Importantly, the transaction must first be accurately delineated in accordance with Article 56bis L.I.R., taking into account the relevant comparability factors.

For a transaction to fall within Amount B, it must be possible to reliably apply a one-sided transfer pricing method (with the distributor, agent or commissionaire as the tested party), and the tested party’s operating expenses must fall within a defined range, generally 3% to 20–30% of net sales. Even where these conditions are met, Amount B does not apply to services, intangibles or commodities-related transactions, situations where activities cannot be reliably segmented or cases where the transaction cannot be reliably delineated.

Pricing methodology

The Circular confirms the core mechanics of Amount B:

• The Transactional Net Margin Method (TNMM) is the reference method.
• The key profit level indicator is the operating margin (return on sales).
• Arm’s length outcomes are determined using a pricing matrix based on industry classification, operating asset intensity and operating expense intensity.

The methodology involves a multi-step process. The OECD’s automated pricing tool can be used to calculate the applicable return.

Reporting and documentation

Although Amount B simplifies pricing, it does not remove compliance obligations.

Taxpayers must disclose the application of Amount B in their Luxembourg corporate tax return and comply with general documentation requirements under §171 Abgabeordnung by substantiating the applicability of Amount B and the calculation of the outcome.

Note that Amount B cannot be used to support pricing for out-of-scope transactions.

Practical takeaways

• Luxembourg formally aligns with the OECD framework and will accept Amount B outcomes applied by covered jurisdictions.
• Mechanisms to eliminate double taxation are explicitly recognised.
• Application is not automatic and strict cumulative conditions must be satisfied.
• Documentation remains essential despite the simplified approach.

Next steps for taxpayers

Groups with cross-border distribution structures involving covered jurisdictions should assess whether their arrangements fall within the scope of Amount B, monitor whether relevant jurisdictions have opted into the regime and ensure appropriate documentation and disclosures are in place for Luxembourg tax purposes.