Luxembourg issues guidance on transfer pricing

On January 28, the Luxembourg tax authorities issued a Circular L.I.R no. 164/2 clarifying the tax treatment for Luxembourg based entities that are mainly engaged in intra-group financing activities financed by borrowings. The release of this circular shows that Luxembourg desires to follow the general trend of increased transparency. These guidelines are aimed at assisting the tax authorities and taxpayers dealing with intra-group financing activities to determine their taxable result in Luxembourg in accordance with the internationally acceptable transfer pricing principles.

The circular issued by the tax authorities provides for a clarification of article 164 Luxembourg Income Tax Law (LITL) on the inter-company finance transactions. In addition to article 164 LITL, article 56 LITL also makes reference to the arm's-length principle.

Scope of the circular The circular applies to entities that are principally engaged in intra-group financing transactions. In this respect, the activities related to the holding of...