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Arm's length principle

Arm's length principle

What does the new draft article 56bis mean for you?



Philippe Neefs

Partner, Head of Transfer Pricing

KPMG in Luxembourg


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Have you considered the 5 comparability factors mentioned in the new draft law in your transfer pricing studies?

On 12 October, a new draft article 56 of the Luxembourg Income Tax Law (LITL) was published in order to give taxpayers and tax authorities more guidance on how to apply the arm’s-length principle. The new article can be seen as a transposition of the recent OECD BEPS reports into national law.

One of the paragraphs that so far has attracted the most attention (also by the Conseil d’Etat) is article 7 that states:

...transactions between the parties can be disregarded for transfer pricing purposes, if [part of] the transaction does not possess the commercial rationality of arrangements that would be agreed between independent parties…

At KPMG, we have experience in applying the five comparability criteria in our daily transfer pricing work and are happy to provide you with additional information on the new draft law.

Below we have listed examples of the most relevant questions that need to be considered when applying the 5 comparability factors.

The 5 Comparability Factors

If these apply to you, feel free to get in touch and we will get back to you to answer your questions.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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