Transfer Pricing in Luxembourg Managing the tax treatment of - PowerPoint PPT Presentation

www.pwc.com Transfer Pricing in Luxembourg Managing the tax treatment of intra-group financing activities

Clarification of “principally” GroupCo Payable 70% IP activity LuxCo 30% Financing Receivable ForeignCo June 2011

Intra-group financing transactions 3 rd Party GroupCo Payable LuxCo Payable LuxCo Receivable Receivable ForeignCo ForeignCo

Related party definition GroupCo Payable LuxCo Receivable 3 rd Party June 2011

Arm’s Length Remuneration The arm’s length compensation is based on: - Functions performed - Risks borne - Assets utilised June 2011

Arm’s Length Remuneration The arm’s length compensation is based on: - Functions performed - Risks borne - Assets utilised Therefore: Expected Profit Functions / Risks / Assets

Equity at risk Parent Company Payable Equity € 2M Risk LuxCo Receivable Borrower June 2011

Substance Requirements • A majority of the members of the board of directors are either Luxembourg residents, or non-residents with their main professional activity in Luxembourg. • These members/ directors/ managers need to have the required professional knowledge to fulfill their duties correctly. • The entity must have qualified resources capable of executing and rewarding the transactions executed (either employees on entity’s payroll, or outside personnel). • Key decisions concerning the entity’s management have to be taken in Luxembourg (shareholder meeting if required by law). • The entity must have at least one bank account in Luxembourg. • The entity must have met all the requirements related to the filing of tax returns. • The entity should not be considered a tax resident of another country. • The entity should maintain an adequate level of capital with regards to the functions performed (taking into account assets used and risks assumed). June 2011