The draft country-by-country (CbC) law has been forwarded to Parliament, in alignment with the EU Directive for 2016 tax year reporting.
A surrogate parent entity should file a CbC report with the Luxembourg tax authorities in one of the following cases:
- The ultimate parent entity (UPE) is not obliged to file a CbC report in its country of residence,
- The UPE is obliged to submit a CbC report, but there is no automatic exchange of CbC reports between Luxembourg and the country of residence of the UPE or
- The UPE is obliged to submit a CbC report,and there is automatic exchange of CbC reports, but due to systematic failure, no effective exchange of information takes place.
As the terminology includes “obliged” vs. voluntary filings in some countries, the filing entity and disclosure rules should be reviewed. Additionally, there are significant penalties for late/non-filing.
The EY Global Tax Alert, linked for reference, provides additional details.
The Luxembourg Parliament has approved a draft law, effective 1/1/2015, that will provide a formal transfer pricing framework, coupled with relevant transfer pricing documentation.
PwC’s newsletter provides a summary of these developments:
Summary of key points:
- Alignment with the arm’s length principle as stated in the OECD Model Tax Convention, covering transactions between Luxembourg related parties or cross-border transactions.
- Tax return report of upward, or downward, transfer pricing adjustments whenever the transfer prices do not reflect the arm’s length standard.
- Transfer pricing documentation expectation for the three-tiered approach in accordance with the OECD’s final Chapter V guidelines.
- APA’s: Competent Authority will seek advice for advance tax confirmations from a tax rulings commission for additional legal certainty. The tax confirmation rulings will be published in anonymous and summary form.
Luxembourg sends a strong statement of its alignment with the arm’s length principle and revised OECD transfer pricing documentation guidelines. Tax transparency of the APA ruling process and recognition of transfer pricing adjustments, upward or downward, also provide a revised state of play in this jurisdiction that performs a vital tax and economic role going forward for MNE’s and other tax administrations.