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Luxembourg direct tax authorities issue a new Circular on transfer pricing


A couple of months ago, Luxembourg direct tax authorities issued the Circular 164/2 of 28 January 2011 on the tax treatment of intra-group financing transactions. This Circular was seen as a very positive step forward in the clarification of transfer pricing rules applying to Luxembourg companies. Luxembourg companies carrying out intra-group financing activities were already required to comply with the arm’s length principle. After the introduction of the Circular, the question of whether or not financing transactions implemented before the issuance of the Circular would have to be revisited was unclear. For instance, were Luxembourg companies required to observe the new minimum equity requirements provided under the Circular?

The prevailing interpretation was that Luxembourg companies would have to be very prudent with any changes in the characteristics of their financing activities. In principle, any modifications to the characteristics of the intra-group financing would bring the Luxembourg company into the net of the Circular and its guidelines would have to be observed.

Now, the Luxembourg direct tax authorities’ Circular 164/2bis of 8 April 2011 (hereinafter, Circular/Bis) clarifies that Luxembourg companies carrying out intra-group financing activities covered by a confirmation on the arm’s length character of their financing transaction(s), obtained in front of the Luxembourg direct tax authorities, prior to 28 January 2011, may rely on it until 1 January 2012.

Hence, Luxembourg companies concerned and willing to confirm their tax position onwards may request an Advance Pricing Agreement under the Circular of 28 January 2011 - please see the attached article for further details.

For further information on this tax analysis and thought, please contact Diogo Duarte de Oliveira

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