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2017 budget draft law introduces a more robust transfer pricing framework

Luxembourg

On 12 October 2016, Finance Minister Gramegna presented the draft law on the 2017 budget. Taxand Luxembourg takes a look at the recent amendments.

Even though tax measures to be introduced as from next year had already been addressed in a separate draft law presented to Parliament in July of this year, the 2017 budget draft law (the draft law) introduces some additional tax measures, including a new article 56bis Income Tax law (ITL) on the arm's length principle which provides some guidance on how to determine an arm’s length price.

The guidance introduced by the new article, which is in line with the OECD Transfer Pricing Guidelines, has to be followed when a transfer pricing analysis is performed. Therefore, controlled transactions, i.e. transactions performed between related parties, have to be performed in accordance with the so-called arm’s length principle, which means that the remuneration of the transaction has to be similar to what would apply between unrelated party parties in a comparable situation. 

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Your Taxand contacts for further queries are:
Keith O’Donnell
T. + 352 26 940 257
E. keith.odonnell@atoz.lu

Oliver R. Hoor
T. + 352 26 940 646 
E. oliver.hoor@atoz.lu

Samantha Schmitz-Merle
T. + 352 26 940 235
E. samantha.merle@atoz.lu

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Taxand's Take

Although the new draft legislation does not set out any transfer pricing documentation requirements, transfer pricing documentation has become increasingly more important in Luxembourg as a tax risk management tool. Transfer pricing inevitably exerts pressure on taxpayers to find a balance between a comfortable level of security and the costs involved in the preparation of sound transfer pricing documentation.

Taxand's Take Author

Keith O'Donnell
Taxand Board member & Taxand global real estate tax service line leader
Luxembourg

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