This context provided the backdrop for the Transfer Pricing breakfast event, organised by PwC Luxembourg last week.
Emergence in a new era – latest transfer pricing developments

Luxembourg’s transfer pricing landscape has changed significantly. The issuance of guidelines on transfer pricing regarding the intercompany financing transactions in 2011 by the Luxembourg tax authorities has been accompanied by tangible signs of new rules. Case in point: a recent court case that scrutinised the interest rates applied by a Luxembourg tax payer, and the coalition programme of the Luxembourg government announcing the introduction of new transfer pricing regulations.

“Transfer prices have to be documented properly as the Luxembourg tax authorities have increased their focus on intercompany transactions that do not accord with the arm’s length standard, specifically in relation to financing activities, notes Marc Rasch, partner, Transfer Pricing Leader at PwC Luxembourg.  A recent court case marks the changing view towards transfer pricing in Luxembourg. The authorities scrutinised the adherence of the company to the arm’s length principle regarding the interest rate applied to intercompany loans.”

International developments add to the re-examination of transfer pricing documentation requirements, in particular item 13 of the OECD's BEPS action plan. Under the latest status of the discussion draft, transfer pricing documentation would be done based in a three tiered approach including a master file, a Country-by-Country reporting (CbC) template and a local file. The CbC template will need to provide some economic activity parameters of a company on a country basis including turnover, number of employees and tax paid.

“To gear up for such changes, taxpayers may evaluate their system capabilities, perform a risk assessment and put in place policies, protocols and tools to more efficiently manage the TP process,” says Caroline Goemaere, Transfer Pricing partner, BEPS Leader at PwC Luxembourg.

Transfer pricing has undoubtedly emerged in a new era and taxpayers have to be aware of the upcoming changes regarding the transfer pricing requirements by reviewing their intercompany transactions and taking into account the substance rules.