1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Luxembourg does not have specific transfer pricing documentation requirements.
With the exception of transfer pricing documentation regarding intragroup financing activities in the context of Advance Pricing Agreement (APA) requests [In 2011, Circulars 162 / 2 (dated 28 January 2011) and 164 / 2bis (dated 8 April 2011) were issued in relation to intragroup financing activities.], Transfer pricing documentation requirements in Luxembourg are based on general tax law provisions. The preparation of transfer pricing documentation as such is not required.
2. What is the content of the documentation that must be prepared?
Luxembourg tax law only requires the Luxembourg taxpayer to have its bookkeeping and financial statements duly organised.
The preparation of transfer pricing documentation as such is not required. However, Luxembourg taxpayers must be in position to justify and document any transaction with directly or indirectly related parties to the extent that evidence is available, reasonable and relevant.
In the context of intragroup financing activities, an APA request filed with the Luxembourg direct tax authorities must include the following information (i) name, address and taxpayer number (if available); (ii) detailed description of the transactions; (iii) overview of the legal structure, including details of the beneficial owner(s); (iii) tax years to which the request relates; (iv) transfer pricing study in accordance with OECD principles and guidelines; (v) description of the industry and market context; (vi) analysis of the relevant tax issues with reference to the methodology adopted; and (vii) confirmation that the information provided is complete and gives an accurate view of the transaction(s).
b) What is the definition of “associated enterprises” for the purposes of this requirement?
There is no general definition of “associated enterprises”. Transactions with directly and indirectly related parties may fall within the scope of the general transfer pricing rules.
Luxembourg transfer pricing Circulars on intragroup financing provide a specific definition which applies in that context, as follows: “two companies are related if one of them participates, directly or indirectly, in the direction, control or share capital of the other, or if the same persons participate, directly or indirectly, in the direction, control or share capital of both”.
In addition, Luxembourg adheres to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and follows the OECD Model Tax Convention. The Luxembourg tax authorities rely on the principles contained in those documents.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
No, there are no specific transfer pricing documentation requirements, except for those set out in the Luxembourg transfer pricing Circulars on intragroup financing (please see above).
d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
In cross-border cases, the Luxembourg tax authorities may request information from Luxembourg taxpayers under an extended duty of co-operation. The taxpayer must use all legal and available means to obtain the relevant information.
Furthermore, Luxembourg tax treaties generally provide for exchange of information. The competent authorities of the Contracting States may exchange such information as is foreseeably relevant for implementing the treaty, or for the administration or enforcement of domestic laws concerning taxes of every kind and description which are imposed by the Contracting States, their political subdivisions or local authorities, insofar as such taxation is not contrary to the treaties.
e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Transfer pricing studies must generally be in line with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities and follow the OECD Model Tax Convention. However, in practice, the Luxembourg tax authorities may accept documentation prepared for foreign jurisdictions (e.g. pan-European benchmark studies, if applicable).
f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
French, German and English should be acceptable.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
There is no specific deadline or timescale for providing transfer pricing documentation to the Luxembourg tax authorities.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
There is no obligation to prepare transfer pricing documentation as such.
If there is no documentation or the documentation is incomplete (e.g. where the taxpayer has not complied with its obligations regarding bookkeeping and financial statements, where transactions are not documented, etc.) the taxpayer is in breach of its duty of co-operation and the tax authorities may conduct a transfer pricing adjustment.
5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?
Even if relatively low, the burden of proof should still be with the Luxembourg tax authorities.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
Luxembourg does not impose documentation-related penalties. There should be no impact on a mutual agreement procedure provided for by a double tax treaty, or any international treaty.