Luxembourg – Transfer Pricing (2025)

Legal framework and scope

Luxembourg’s domestic framework enshrines the arm’s length principle in Article 56 of the modified law of 4 December 1967 concerning income tax (“LITL”), entitled “Arm’s length principle”. Article 56 provides that profits of enterprises linked by conditions differing from those between independent enterprises shall be determined in accordance with the conditions that prevail between independent enterprises and taxed accordingly. This provision was introduced by the loi du 19 décembre 2014 relative à la mise en œuvre du paquet d’avenir and the parliamentary file (Chapter 9 of the bill and related commentaries) explicitly refers to the OECD Transfer Pricing Guidelines (TPG). The parliamentary document number related to Art. 56 is N° doc. parl. : 6722.

Further, Article 56bis LITL incorporated into Luxembourg law the relevant criteria from the revised OECD TPG (BEPS Actions 8-10) that taxpayers are required to comply with. This amendment was introduced by the 2017 budget law (Art. 3) and appears in the parliamentary file N° doc. parl. : 7050.

Arm’s length principle and role of the OECD Guidelines

The Luxembourg legal framework explicitly recognises the OECD Transfer Pricing Guidelines as the primary reference for any transfer pricing analysis. Articles 56 and 56bis LITL refer to the TPG and, in practice, the OECD Guidelines constitute the framework applied by taxpayers and the tax administration for assessing and documenting arm’s length outcomes.

Definition of related parties

Article 56 LITL incorporates the definition set out in Article 9(1) of the OECD Model Tax Convention on Income and on Capital. Accordingly, the definition of related parties in Luxembourg follows the thresholds, control criteria and relationships (including the consideration of permanent establishments where relevant) as reflected in Article 9(1) of the OECD Model.

Methods and selection criteria

Domestic law does not list specific transfer pricing methods as a statutory enumeration; rather, Luxembourg’s law reflects the principles of the OECD TPG. Therefore, the methods described in the OECD Guidelines are to be used, and “other methods” may be acceptable within the limits of paragraph 2.9 of the TPG. In terms of method selection, Luxembourg applies the “most appropriate method” criterion as established by the OECD Guidelines; there is no strict statutory hierarchy of methods in domestic law, and the selection depends on the factual circumstances and the guidance provided in the TPG.

Comparability and ranges

Luxembourg largely follows the comparability guidance in Chapter III of the OECD TPG, as incorporated into Art. 56bis LITL. There is no legal preference for domestic comparables over foreign comparables; cross-border comparables are acceptable. The use of secret comparables is not permitted under the domestic framework. Luxembourg permits the use of an arm’s length range and statistical measures (for example, the interquartile range or other percentiles) in line with OECD practice. Where no suitable direct comparables can be found, comparability adjustments may be applied to remove material differences, provided such adjustments comply with the TPG.

Commodities and intangibles

For commodity transactions, Luxembourg follows the guidance in paragraphs 2.18–2.22 of the OECD TPG. Luxembourg does not have a domestic specific commodity method distinct from the OECD approach. Regarding intangibles, domestic legislation or regulations do not provide specific guidance and generally rely on the OECD TPG; the profile does not provide specific domestic guidance for intangibles. The hard-to-value intangibles (HTVI) approach of Chapter VI of the TPG has not been implemented as a standalone domestic rule; therefore, the profile does not provide domestic guidance specific to HTVI, although the general principles of Chapters I-III of the TPG may be applied in audits.

Intragroup services and Cost Contribution Arrangements (CCAs)

Luxembourg’s domestic law does not contain specific guidance on intragroup services and tends to rely on the OECD Guidelines. No specific domestic guidance for CCAs is contained in Luxembourg law according to the profile; therefore, no domestic CCA guidance is provided in the profile. The low value-adding intra-group services simplified approach described in Chapter VII of the TPG could be accepted depending on facts and circumstances, but there is no explicit automatic adoption in domestic legislation.

Financial transactions

Specific guidance for financial transactions is provided in Administrative Circular LIR 56 – 56bis/1 dated 27 December 2016. The circular incorporates clarifications from BEPS Actions 8–10 and the revised Chapter I of the OECD TPG (notably on control and assumption of risk) and is therefore aligned with OECD guidance on financial transactions. The circular also includes safe harbour provisions: financial companies performing a purely intermediary activity may opt for a simplified method and declare a minimum after-tax return of 2% in relation to intermediated amounts. Additionally, Luxembourg introduced interest limitation rules by the Law of 21 December 2018 (transposing the EU ATAD 1). Article 168 bis LITL provides that the net amount between interest income and interest expense is deductible only up to 30% of a company’s EBITDA for a given year or up to EUR 3 million, whichever is higher, with carry forward available.

Transfer pricing documentation and reporting

There is a general documentation obligation for transactions affecting taxable income which extends to intercompany transactions. No specific statutory form is required for TP documentation. The obligation is reflected in § 171 (3) of the General Law on Taxation and the CbCR obligations were implemented by the Law of 23 December 2016. Luxembourg requires Country-by-Country Reporting consistent with BEPS Action 13. The profile does not mandate the submission of a Master File or Local File in a specific statutory format; the domestic framework requires taxpayers to maintain documentation and provide it on request rather than filing it with the tax return.

Documentation must be provided upon request by the tax administration during tax audits; there is no requirement to file TP documentation at the time of tax return submission. Documentation may be prepared in the administrative languages of Luxembourg, French and German, and English is also accepted. Multinational enterprises with consolidated turnover below EUR 750 million are not required to file CbCR, although they remain subject to general documentation obligations.

Penalties and compliance incentives

Luxembourg does not provide for transfer pricing-specific penalties in the statutory framework. Administrative penalties may, however, be applied to enforce the delivery of documentation during tax assessments pursuant to § 202 of the General Law on Taxation. The profile indicates no specific TP-related compliance incentives beyond the administrative procedures and the availability of APAs and MAP.

Safe harbours and simplification measures

The Administrative Circular LIR 56 – 56bis/1 contains a safe harbour for financing companies acting as pure intermediaries by allowing them to elect a simplified method and declare a minimum post-tax return of 2% on intermediated amounts. No other industry-wide safe harbours are detailed in the profile.

APAs, MAP and dispute resolution

Luxembourg provides Advance Pricing Agreements and Mutual Agreement Procedures. Since 29 December 2014 a general regime for unilateral APAs exists, and the Luxembourg Competent Authority concludes bilateral and multilateral APAs under Article 25(3), first sentence, of the OECD Model Tax Convention. The APA and MAP framework is supported by domestic provisions including §29a of the General Law on Taxation and the Grand Ducal Decree of 23 December 2014. The tax administration publishes MAP guidance (Circular L.G. - Conv. D.I. n° 60 of 11 March 2021) and details are available in Luxembourg’s MAP profile. Luxembourg also participates in international cooperative programmes such as the International Compliance Assurance Programme (ICAP) and has referenced the European Trust and Cooperation Approach (ETACA).

Other considerations: secondary adjustments, year-end adjustments and corresponding adjustments

Article 164 (3) LITL provides for secondary adjustments: excessive cash payments made on the basis of transfer prices exceeding arm’s length amounts may, in certain circumstances, be treated as a constructive dividend for the excess charged. Year-end adjustments are required under the domestic framework: compliance with the arm’s length principle is mandatory for enterprises subject to Articles 56 and 56bis LITL and year-end adjustments must be executed where appropriate. Luxembourg does not allow unilateral downward corresponding adjustments in the absence of a Mutual Agreement Procedure; domestic legislation does not permit downward corresponding adjustments without a MAP.

Attribution of profits to Permanent Establishments (PEs)

Luxembourg’s treaty network includes both versions of Article 7 of the OECD Model Tax Convention: 82 treaties contain the pre-2010 wording and 10 treaties contain the post-2010 wording. For treaties containing the pre-2010 Article 7 wording, the Luxembourg position is that those provisions and commentaries are not compatible with the Authorized OECD Approach (AOA) and the AOA will in principle not be applied under such treaties. There are no specific provisions in national law implementing the AOA; however, where a double tax treaty contains the 2010 version of Article 7, the attribution of profits to a permanent establishment should follow the steps of the AOA.

Conclusion

Luxembourg’s transfer pricing regime is fundamentally anchored in the OECD Transfer Pricing Guidelines through Articles 56 and 56bis LITL and is complemented by administrative guidance such as Circular LIR 56 – 56bis/1 for financial transactions. The country applies the “most appropriate method” principle from the TPG, allows the use of ranges and statistical measures, requires documentation to be maintained and provided on request (with CbCR obligations for MNEs at or above the EUR 750 million threshold), and offers APAs and MAP for dispute prevention and resolution. Domestic-specific guidance is not provided in the profile for certain areas such as HTVI, CCAs or detailed Master/Local File formats, and these areas are handled by applying the OECD Guidelines.

References

Further information and country profiles: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html