On December 27, 2016 the Luxembourg tax authorities issued a circular on the tax treatment of companies carrying out intra-group financing activities (Hereafter: the Circular). The circular follows the introduction of a new Article 56bis in the Luxembourg Income Tax Act. This new article 56bis sets out the basic principles that have to be followed when performing a transfer pricing analysis to apply the arm’s length principle in accordance with the standards that were adopted in the OECD BEPS Action Plan.


According to the Luxembourg Ministry of Finance the final text of the Circular was published after consultation with the DG Competition of the European Commission.


The Circular discusses a.o. the following topics:

·   Definitions

·   General Information

·   The application of the arm's length principle to intra-group financing transactions

o  The comparability analysis

o  Identification of commercial or financial relations between companies and the determination of significant economic conditions and circumstances

o  The contractual provisions

o  Functional analysis

o  Analysis of the risks incurred in the financial relationship

o  Comparison of controlled and precisely defined transaction with comparable transactions between independent enterprises and the determination of an arm's length remuneration

o  Transactions without commercial rationality

·   Simplification measure

·   Contents of a request for a binding Advance Pricing Agreement applying to a group finance company

·   Decisions made by the (Luxembourg) tax authorities before the entering into force of Article 56bis of the Luxembourg Income Tax Act


Click here to be forwarded to the Circular as issued by the Luxembourg tax authorities on December 27, 2016 (which is available in the French language).



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