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On 28 January 2011, the Luxembourg tax authorities issued a Circular (Circulaire du directeur des contributions L.I.R. n164/2 du 28 janvier 2011) clarifying the tax treatment for Luxembourg companies that are mainly engaged in intra-group lending activities financed by borrowings. The guidance comes as Luxembourg tax authorities follow a general trend around the globe to increase transparency. The guidance issued will allow Luxembourg to strengthen its credibility in the international tax environment. What is Transfer pricing? Before providing an overview of the main contents of the Circular, we first need to understand what is transfer pricing is and why it is important? The Transfer Price is the price at which an entity is transferring to another group entity (related party)...
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