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12.4.3. Documentation Requirements

Disclosure Requirements

From 2017, taxpayers are required to disclose transactions entered into with related parties in their tax return. Effective from tax year 2018, taxpayers are also required to disclose transactions with related parties located in non-cooperative jurisdictions as identified by the EU.

Standard Documentation

Luxembourg tax laws does not provide any specific guidelines on transfer pricing documentation. However, as per the general tax law, taxpayers are required to:

  • Disclose their transactions with related parties; and
  • Document their compliance with the arm’s length principle.

Hence, transfer pricing documentation may be maintained as per the OECD transfer pricing guidelines.

As per the CFC rules, taxpayers are required to prepare transfer pricing documentation including functional analysis covering any relationships with foreign entities or permanent establishment that are deemed to be controlled foreign company (CFC).

Country-by-Country (CbC) Reporting

Luxembourg CbC reporting requirements are in line with BEPS Action 13 and apply for fiscal years beginning on or after 1 January 2016 for MNE groups exceeding a consolidated group revenue threshold of EUR 750 million in the previous year. The requirement to submit CbC report primarily applies for ultimate parent entities (UPE) resident in Luxembourg. Under a secondary obligation, constituent (non-UPE) entities are required to file locally in Luxembourg if:

  • The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction of residence has a current international agreement with Luxembourg but does not have a qualifying competent authority agreement in force with Luxembourg by the date the CbC report is due; or
  • An agreement is in place, but there is a systemic failure for spontaneous exchange of CbC reports with the UPE’s jurisdiction of residence  and the failure has been notified by the the Luxembourg tax authority to the constituent entity resident in Luxembourg.

Where there are more than one Luxembourg constituent entities of the same MNE Group and one or more of the conditions set out above apply, the MNE Group may designate one of such constituent entities to file the CbC report and notify the Luxembourg tax authority that the filing is done on behalf of all the constituent entities in Luxembourg.

Further, a Luxembourg constituent entity may not be required to file a CbC Report locally in Luxembourg, if the MNE Group has made available a CbC report with respect to the relevant fiscal year through a surrogate parent entity (SPE) (i.e., a constituent entity appointed as a sole substitute for the ultimate parent company to file the CbC report). The SPE must file the CbC report with the tax authority of its jurisdiction of tax residence no later than 12 months after the last day of the reporting fiscal year of the MNE Group. The following conditions are required to be satisfied:

  • The jurisdiction of tax residence of the SPE requires the filing of CbC Reports conforming to the requirements mentioned in the Luxembourg tax regulations;
  • The jurisdiction of tax residence of the SPE has a Qualifying Competent Authority Agreement in effect to which Luxembourg is a party on or before 12 months after the last day of the reporting fiscal year of the MNE Group;
  • The jurisdiction of tax residence of the SPE has not notified the Luxembourg tax authority of a systemic failure;
  • The SPE has notified in its jurisdiction of tax residence that it is designated as the SPE on behalf of the MNE Group; and
  • A notification has been provided by the Luxembourg constituent entity to the Luxembourg tax authority providing details of the SPE.

The CbC report is required to be electronically submitted within 12 months following the close of the fiscal year.

All constituent entities resident in Luxembourg must provide notification to the Luxembourg tax authorities by the end of the fiscal year concerned on whether the entity is the ultimate parent of the group or acting as surrogate, or on the identity and residence of the entity submitting a CbC report on behalf of the group.

The reports must be submitted via the MyGuichet e-filing system by entering the information directly or with a completed XML file.

The tax authorities have published CbC reporting FAQs (French language) on their website. Effective 1 February 2021, a new manual for submission of CbC reports (French language) was published by the tax authorities.

Language of Documentation

The transfer pricing documentation must be submitted in the local language viz., German and French. However, documentation in English is also accepted.

Penalties

Failure to comply with CbC reporting requirements results in a penalty of up to EUR 250,000.