Luxembourg: Implications for transfer pricing studies | KPMG | GLOBAL
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Luxembourg: Pending draft law, implications for transfer pricing studies

Luxembourg: Implications for transfer pricing studies

Taxpayers in Luxembourg need to consider the implications of a pending draft law and the five comparability factors listed in the draft law on their transfer pricing studies.


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The draft of article 56bis, to amend the Luxembourg income tax law, was published in October 2016 and was intended to give both taxpayers and tax authorities more guidance concerning how to apply the arm’s length principle. The draft of new article 56bis is being viewed as a transposition into national law, of reports and recommendations from the base erosion and profit shifting (BEPS) project of the OECD. 

One of the paragraphs in draft article 56bis has attracted a certain amount of attention. Specifically, that draft paragraph provides that:


...transactions between the parties can be disregarded for transfer pricing purposes, if [part of] the transaction does not possess the commercial rationality of arrangements that would be agreed between independent parties…


The draft law sets forth five comparability factors (along with relevant questions to be considered in applying the five factors):

  • Contractual terms of the transaction—Does the accounting system show that the terms of the contract were actually carried out?
  • Functional analysis—Is there a clear description in the value chain and is a company really able to control the risk?
  • Characteristics of property services—Who benefits the most from the cash pool or central procurement function, and has a debt capacity analysis been performed?
  • Economic circumstances—Do the transfer pricing policy consider factors like product life cycle, market size, or the extent of competition?
  • Business strategies—Are there descriptions of risk diversification and innovation strategy on transfer pricing?


Read a November 2016 report [PDF 133 KB] prepared by the KPMG member firm in Luxembourg

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