TP country guide

How is Luxembourg transposing the OECD/G20 BEPS actions concerning TP matters? By Philippe Neefs, KPMG Luxembourg transfer pricing leader.

Market overview

Luxembourg is one of the few EU countries which did not require formal TP documentation until quite recently. New TP rules, laid out in Article 56 of the Luxembourg Income Tax Law, to comply with BEPS Actions 8-10 and a recent circular guidance came into place in January 2017.

The new TP measures oblige the government to align transfer pricing standards with value creation and implement strong guidelines for transactions involving the TP of intangibles and contractual arrangements. The shift towards formal documentation and rigorous standards has given the Luxembourg tax authorities another set of reasons to crack down. As a result, transfer pricing is becoming a major focus for taxpayers and advisers.

The new requirements of documentation are not only formal, but place new demands on taxpayers as the authorities have expanded their personnel to audit companies. During the interview process for World Transfer Pricing, several firms pointed out an increase in disputes as part of a trend in recent years.

"With the new transfer pricing circular the Luxembourg tax authorities are clearly not aiming at systematically increasing tax revenue," said Oliver Hoor, head of transfer pricing at ATOZ Tax Advisers, Taxand Luxembourg. "Instead, it is part of a wider strategy to make Luxembourg investment structures and businesses fit for the post-BEPS era."

Companies face a greater threat of exposure to controversy as tax planning and TP strategies come under intensified scrutiny. Consequently, clients are placing more emphasis on risk management in their TP operations. Some practitioners fear that the country taking on the BEPS measures will undermine its appeal to multinational companies.

In December 2016, McDonald's announced it was going to relocate its non-US tax domicile from Luxembourg to the UK following the EU Commission's investigation into a potential breach of state aid rules regarding tax exemptions.

Pressure from the EU Commission may have made the terrain more difficult to navigate, but practitioners are not pessimistic about the effect on the country. "Luxembourg still looks like an attractive market for investors and it's growing well, but it's more challenging than it was five or 10 years ago," said Keith O'Donnell, head of tax at ATOZ Tax Advisers, Taxand Luxembourg.

"It's a good thing in the long run," continued O'Donnell. "The tax world has moved on and there is much more transparency and that's a good thing overall. The level of service and technical analysis has increased a lot."

Tax authorities

Administration des Contributions Directes
45, Boulevard Roosevelt, L-2982, Luxembourg
Tel: +352 40 800 1
Fax: +352 40 800 2022

Tax rates at a glance

(As of July 2017)

Corporate income tax 21% (a)
Capital gains rate 21% (a)
Branch tax rate 19% (a)
Withholding tax
Dividends 0/15% (b)
Interest 0%/10%
Royalties 0%
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. This is the maximum rate. A municipal business tax and an additional employment fund contribution (employment fund surcharge) are also levied on income. A new minimum tax regime is effective from January 1 2013.
  2. A 15% dividend withholding tax is imposed on payments to resident and non-residents. Under Luxembourg domestic law, a full withholding tax exemption applies to dividends if they are paid to qualifying entities established in EU/EEA member states, Switzerland or a country with which Luxembourg has entered into a double tax treaty and if certain conditions are met.

Source: EY 2016 Worldwide Corporate Tax Guide

Firm contact details

ATOZ Tax Advisers, Taxand Luxembourg
Deloitte Luxembourg
Loyens & Loeff
T/A Economics