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Documentation and reporting

Rules and procedures

What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?

Save for country-by-country reporting, there is no compulsory filing requirement for transfer pricing documentation in Luxembourg. The taxpayer may therefore decide to join the transfer pricing document to its tax return or to wait until it is requested by the tax administration, on the basis of Paragraph 171(3) of the General Tax Law, to justify the arm’s-length price of the transactions with related parties.

Content requirements

What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?

There is no specific content requirement in Luxembourg. The transfer pricing documentation should be in line with the rules set out in the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Deveopment (OECD). As regards, specifically, country-by-country reporting, the information that must be provided is that requested in EU Directive 2016/881 on the mandatory automatic exchange of information in the field of tax and Action 13 of the Base Erosion Profit Shifiting (BEPS) Report – that is, for each tax jurisdictions:

  • the amount of revenue, profit before income tax, and income tax paid and accrued;
  • the number of employees, stated capital, retained earnings and tangible assets; and
  • each entity within the group doing business in a particular tax jurisdiction and an indication of the business activities that the entities are engaged in.

Luxembourg entities that are part of a ‘MNE Group’ (multinational entreprises, as defined in BEPS Action 13), but that are not the reporting entity, are subject to a notification requirement.

Luxembourg has currently no primary legislation regarding the filing of the ‘Master File’ and ‘Local File’ as defined in BEPS Action 13.

Penalties

What are the penalties for non-compliance with documentation and reporting requirements?

Luxembourg taxpayers have a general duty of cooperation with the Luxembourg tax authorities. In case the taxpayer is not able to justify the arm’s-length aspect of the transactions that it entered into with related parties, the tax administration should proceed, based on Article 56 of the Luxembourg Income Tax Law, to an adjustment of the tax base.

Best practices

What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?

Taxpayers should keep the relevant documentation for at least 10 years and the transfer pricing documentation should be reviewed on a regular basis in order to ensure that:

  • it is still up-to-date; and
  • it can be provided within a short timeframe in case of tax audit or information request from the tax administration.

As a general rule, the level of detail, description, comparable analysis, etc in the transfer pricing documentation should be commensurable with the tax amount at stake.

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