There is no coordination between the ABS process and the Mutual Agreement Procedures (MAP). In practice, however, the Economic Department of the Ministry of Foreign Affairs responsible for the MAP and the LTA responsible for the APA could cooperate if necessary. Luxembourg`s transfer pricing rules are strictly based on the OECD Transfer Pricing Guidelines 2017. To that end, Luxembourg companies should anticipate the transfer pricing aspects of all their intra-group transactions carried out using a market-based approach by providing consistent, relevant and comprehensive transfer pricing documentation in accordance with the Luxembourg legal framework and international transfer pricing standards in order to address potential tax challenges posed by ETAs or requests for information from foreign tax authorities. — as highlighted in historical Case 45072 of 16 December 2020. The Luxembourg judges stressed the importance of consistency and consistency between intra-group transactions and transfer pricing documentation. In addition, when determining the terms of a transaction, the transfer pricing result must be determined in accordance with the actual behaviour of the related parties. The guidelines for the application of the arm`s length principle set out in Actions 8, 9 and 10 are reflected in Luxembourg`s transfer pricing rules through the introduction of the new circular and article 56a(f) of the GDPR. As noted above, the guidelines are intended to ensure that the methods to be used to determine the appropriate arm`s length comparison take into account OECD comparability factors and are consistent with the nature of the well-defined transactions.
In addition, OECD Action 5 also dealt with the automatic exchange of information on preliminary rulings and cross-border APAs. On 23 July 2016, Luxembourg therefore adopted a law extending the scope of the automatic exchange of information to prior authorisations and APAs. This law supplemented the Grand-Ducal Regulation of 23 December 2014, which introduced a specific procedure for tax returns and applications for ABS, subject to fees and reviews of applications by the Tax Rulings Commission from 1 January 2015. Luxembourg expressed its willingness to fully comply with the new international framework, in particular the 2017 OECD Transfer Pricing Guidelines, the Profit Reduction Project and Base Erosion and Profit Shifting (BEPS) and OECD and EU requirements for information exchange. Therefore, some of the most important recent changes to Luxembourg`s tax legislation concern transfer pricing and tax transparency. Article 171 of the AO provides for a reversal of the burden of proof, according to which taxable persons must prove that the pricing of their controlled transaction is carried out under market conditions. This is an exception to the general principle that the burden of proof of the facts giving rise to liability to tax lies with the tax authorities, while the proof of the facts which exempt the taxpayer from such a tax obligation or reduce the tax liability lies with the taxpayer. There is no specific requirement for transfer pricing documentation for a root file and a local file. In practice, however, the ETA expects the transfer pricing documentation produced to follow the framework proposed in the 2017 OECD Transfer Pricing Guidelines.
The CbCR follows a specific reporting format that is fully aligned with the standards of the 2017 OECD Transfer Pricing Guidelines. The OECD COVID-19 Guidelines are useful both for taxpayers reporting financial periods affected by the pandemic and for tax administrations in assessing the implementation of taxpayers` transfer pricing policies. The OECD Guidelines on COVID-19 should not be seen as an extension or modification of the OECD`s 2017 GPT and represent the consensus view of the 137 members of the Inclusive Framework on BEPS. In Luxembourg, transfer pricing disputes are conducted by administrative courts. However, taxpayers who wish to object to their tax notice must first file a written complaint with the head of the direct tax administration within three months of receiving the tax notice. The head of the tax administration is then required to revise the tax notice in formal and factual terms. The OECD ft report is an important step by the OECD towards more comprehensive guidance on financial transactions. .