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Luxembourg has introduced new transfer pricing rules for shareholder and intragroup current accounts, as outlined in the 2025 update to Circular L.I.R. No. 164/1. Issued by the Luxembourg tax authority (LTA) on February 3, the circular sets new benchmarks for market-based interest rates and underscores the importance of robust transfer pricing documentation.
Key Updates:
✅ Interest rate determination: Must reflect market conditions, with benchmarks for natural persons and related enterprises.
✅ Repayment obligations: Shareholder debit accounts must be structured as repayable loans to avoid reclassification as hidden profit distributions.
✅ New compliance standards: Businesses must ensure proper documentation, formal loan agreements, and adherence to repayment schedules.
✅ Regulatory framework: Aligns with OECD guidelines and Luxembourg Income Tax Law articles 56, 56bis, and 164.
Implications for Businesses:
📌 Companies engaged in intragroup financing or treasury activities must reassess compliance with arm’s-length pricing.
📌 Failure to comply may lead to tax reassessments, penalties, and reputational risks.
📌 The LTA can reassess tax returns for up to 10 years in cases of misreporting.
The 2025 circular marks a major shift in Luxembourg’s transfer pricing landscape, requiring companies to enhance their compliance frameworks to avoid financial and legal repercussions.
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