On 12 October 2016, the Luxembourg government presented a draft law for the 2017 budget. The draft law includes some new tax measures applicable from 2017 which are summarized below.
Despite the fact that the work on Actions 8-10 of the OECD/G20 BEPS Project ‘Aligning Transfer Pricing Outcomes with Value Creation’ is not yet finalized, the Luxembourg government has already put forward a draft law transposing certain parts thereof into Luxembourg law. This will provide Luxembourg taxpayers with further guidance for applying the arm’s length principle from 2017 onwards, following the 2011 transfer pricing circular for intra-group financing and the 2015 legal framework for transfer pricing adjustments and documentation.
Article 56bis will be included in the Income Tax Act (ITA) to codify the arm’s length principle. As per the article 56bis, companies have to determine an arm’s length price for all transactions. It is specified that if a transaction is generally not concluded by unrelated parties, as such, it does not automatically mean that the transaction is not at arm’s length.
