Luxembourg has issued Circular L.I.R. n° 56/2 – 56bis/2 to implement the OECD’s “Amount B” approach for baseline marketing and distribution activities, setting out conditions, scope and methodology to simplify transfer pricing compliance and reduce disputes, effective for fiscal years from 1 January 2025.
The Luxembourg tax administration issued Circular L.I.R. n° 56/2 – 56bis/2 on 13 April 2026, introducing a simplified and rationalised approach for applying the arm’s length principle to baseline marketing and distribution activities, referred to as “Amount B”. The measure follows the OECD’s Pillar One report and is intended to ease transfer pricing compliance and reduce disputes, particularly in jurisdictions with lower administrative capacity.
Luxembourg confirmed it will respect the results produced under Amount B to eliminate double taxation. This will be achieved either by refraining from making adjustments or, where necessary, through correlative adjustments and mutual agreement procedures, provided the rules are correctly applied by a covered jurisdiction.
However, Luxembourg’s acceptance of Amount B is subject to three cumulative conditions. The other jurisdiction must be included in the OECD’s list of “covered jurisdictions”, which is reviewed every five years. A double tax treaty must also be in force between Luxembourg and that jurisdiction. In addition, the jurisdiction must have formally opted to apply Amount B to distributors operating in its market. If any of these conditions are not met—such as the absence of a treaty or non-adoption of the approach—Luxembourg will not recognise the outcome as being at arm’s length.
The scope of Amount B covers specific wholesale distribution arrangements. These include buy-sell transactions where a distributor purchases goods from related parties for resale to unrelated parties, as well as sales agent and commissionaire activities linked to wholesale distribution. To qualify, the arm’s length price must be determined using a unilateral transfer pricing method, with the distributor acting as the tested party. Annual operating expenses must fall within a range of 3% to an upper threshold of 20% to 30% of net sales. The framework excludes the distribution of intangibles, services, and commodities, as well as activities that cannot be clearly separated from non-eligible functions.
For determining the appropriate remuneration, the circular designates the Transactional Net Margin Method (TNMM) as the reference method, using Return on Sales (ROS) as the primary net profit indicator. The methodology is applied in three steps. First, a segmentation matrix establishes a remuneration range based on industry category and asset or expense intensity. Second, a “cap and collar” mechanism verifies whether the resulting profit-to-cost ratio falls outside predefined limits and adjusts the margin where required. Third, an adjustment is made to reflect data availability, taking into account the sovereign credit rating of the covered jurisdiction.
Taxpayers applying Amount B are required to disclose its use in their tax returns for the relevant fiscal year. They must also be able to justify the figures reported and provide supporting documentation to the tax authorities upon request.The circular includes a list of 66 covered jurisdictions, including Brazil, Mexico and Vietnam, underscoring the broad international scope of the simplified framework.
The provisions apply to fiscal years beginning on or after 1 January 2025.
