Overview of the amendments to the draft Law N°8186

The modifications that mostly concerns transfer pricing are the modifications made to the General Law on Taxation of the 22 May 1931 (“Abgabenordnung”) in the following paragraphs: §29c, §96a, §171 ,§165c & §249. These changes have been made with a view to simplifying and modernising the procedures applicable to taxpayers.

Formalisation of Bilateral and Multilateral Transfer Pricing Agreements (Article 1, Paragraph 29c)

One of the most significant amendments is the formalisation of bilateral and multilateral TP agreements. This new provision introduces a structured framework for such agreements, setting associated fees between Euro 10,000 and Euro 20,000. The goal is to provide Multinational Enterprises (“MNEs”) with greater certainty and predictability in their cross-border transactions.

By formalising these agreements, Luxembourg aims to streamline the resolution of transfer pricing disputes and ensure that related party transactions are conducted at arm’s length. This development is anticipated to minimise conflicts and discrepancies in international transactions, thereby promoting a more stable and reliable business environment for MNEs.

Flexibility in Tax Notices (Article 1, Paragraph 96a)

Another notable amendment is the introduction of a provision that allows tax notices to be issued, withdrawn, or modified based on mutual agreements or arbitration decisions. This flexibility is a proactive measure to prevent double taxation and tax evasion.

Luxembourg’s ability to adapt its tax notices in response to international tax agreements and arbitration outcomes reflects its commitment to creating a fairer and more adaptive tax environment. This amendment not only enhances Luxembourg’s alignment with global tax standards but also improves its attractiveness as a jurisdiction for international business operations.

Enhanced Transfer Pricing Documentation Requirements (Article 1, Paragraph 171)

The Bill also introduces stringent documentation requirements for companies to substantiate their TP policies upon request. The specifics of these documentation requirements will be outlined in a Grand Ducal regulation (“RGD”). A draft of this regulation (61388) was released in March 2023, highlighting Luxembourg’s dedication to aligning with international best practices in TP.

Although the draft regulation is still pending updates, it implies a crucial step towards ensuring that Luxembourg remains compliant with global standards and provides a transparent framework for MNEs to adhere to TP norms.

Updates to Notification and Appeal Processes (Article 1, Paragraphs 165c and 249)

To enhance communication and transparency, recent amendments also focus on updating the notification and appeal processes. These changes aim to improve the efficiency of tax-related notifications and appeals, allowing taxpayers to be better informed and to respond more effectively.

The streamlined processes are designed to reduce misunderstandings and foster a more cooperative relationship between taxpayers and tax authorities. This will likely lead to more efficient handling of tax disputes and a more transparent interaction between the tax administration and taxpayers.

To conclude, the amendments introduced by draft Law N°8186 represent a pivotal shift towards a more structured, flexible, and transparent tax system in Luxembourg, particularly concerning transfer pricing. The formalisation of bilateral and multilateral TP agreements aims to provide MNEs with greater certainty in cross-border transactions, thereby reducing disputes and promoting a stable business environment. The introduction of flexible tax notices prevents double taxation and tax evasion, enhancing Luxembourg's appeal as an international business hub. Stricter TP documentation requirements align Luxembourg with global standards, ensuring compliance and transparency. Lastly, updates to notification and appeal processes are set to improve communication and efficiency between taxpayers and tax authorities. Together, these reforms are expected to simplify and modernise tax procedures, benefiting both taxpayers and the broader business landscape in Luxembourg.

Grant Thornton's Luxembourgish transfer pricing team shall be in contact again once the RGD has been signed and we have the final verdict.

Should you have any questions or need assistance in navigating these changes, please do not hesitate to contact us.