Tax Memorandum – Fiscal Treatment of Group Financing Operations

The Luxembourg tax authorities (Administration des contributions directes) have issued a new instruction (the “Instruction”) which sets out transfer pricing guidelines for the determination of the arm’s length character of intra-group financing transactions. The instruction is intended for Luxembourg entities that are principally engaged in intra-group financing activity, without taking into consideration their shareholding activity. Its purpose is to scrutinise more closely this activity on the Luxembourg territory, bring some useful clarification for determining the arm’s length financing rates and further set out the conditions under which an advance agreement on transfer pricing arrangements can be obtained from the tax authorities. The new rules are based on article 9 of the OECD Model Convention on Income and Capital and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
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