Background
On 13 April 2026, the Direct Tax Administration (Administration des contributions directes) (the "DTA") published Circular L.I.R. No. 56/2 - 56bis/2 (the "Circular"), confirming Luxembourg’s adoption of the OECD’s simplified and streamlined approach to the arm’s length principle for baseline marketing and distribution activities, known as “Amount B”.
The Circular is grounded in Articles 56 and 56bis of the Luxembourg law of 4 December 1967 on income tax, as amended (the "L.I.R."), and implements the OECD Pillar One - Amount B Report (the "Amount B Report"), published on 19 February 2024 and supplemented on 17 July 2024. Amount B forms an annex to Chapter IV of the OECD Transfer Pricing Guidelines and applies to fiscal years beginning on or after 1 January 2025.
Luxembourg’s position
Luxembourg will respect Amount B outcomes where a covered jurisdiction has introduced and correctly applied the framework. In practice, the DTA will:
- refrain from adjusting the remuneration of in-scope transactions where Amount B has been correctly applied in the covered jurisdiction;
- eliminate double taxation through a correlative adjustment; or
- eliminate double taxation via a mutual agreement procedure, if requested.
This acceptance is nonetheless subject to three cumulative conditions being met:
- the other jurisdiction must appear on the OECD’s list of covered jurisdictions, which is reviewed every five years;
- Luxembourg must have a double tax treaty in force with that jurisdiction; and
- the covered jurisdiction must have elected to apply Amount B to distributors operating in its market.
The Circular includes an illustrative table and an annexed list of 66 covered jurisdictions, as published by the OECD in June 2024.
Transactions in scope
Amount B covers two categories of eligible transactions:
- wholesale buy-sell distribution, where the distributor purchases goods from one or more associated enterprises for wholesale distribution to unrelated parties; and
- sales agency and commissionaire arrangements, where the agent or commissionaire facilitates the wholesale distribution of goods on behalf of one or more associated enterprises to unrelated parties.
To qualify, the arm’s length price must be reliably determined using a one-sided transfer pricing method, with the distributor, agent or commissionaire as the tested party. Annual operating expenses must fall within a floor of 3% and a ceiling of 20-30% of annual net revenue.
Amount B does not apply to transactions involving intangibles, services, or commodities, nor where the eligible transaction cannot be accurately delineated.
Pricing methodology
The Transactional Net Margin Method is the reference pricing method under Amount B, with the return on sales as the net profit indicator. A segmented pricing matrix - based on industry category, operating asset intensity and operating expense intensity - produces an arm’s length range. A cap-and-collar mechanism adjusts the result where the cost-based return exceeds predefined limits, and a data availability adjustment may apply based on the sovereign credit rating of the covered jurisdiction. The OECD provides an automated pricing tool for these calculations.
Reporting obligations
Taxpayers must disclose the application of Amount B in the relevant fiscal year’s tax return. Supporting documentation must be available to demonstrate both the applicability of Amount B and the methodology applied, in line with Paragraph 171 of the General Tax Law (loi générale des impôts).
Next steps and timeline
Amount B applies to fiscal years beginning on or after 1 January 2025, meaning that affected groups should already be assessing its impact on current transfer pricing policies.
Groups should:
- identify distribution arrangements that fall within the scope of Amount B.
- verify whether the relevant counterparty jurisdiction appears on the OECD's list of covered jurisdictions and has elected to apply the framework.
- confirm that a double tax treaty is in force between Luxembourg and that jurisdiction.
- ensure that adequate transfer pricing documentation is in place to support the application of Amount B in the relevant tax return.
The OECD's list of covered jurisdictions is subject to review every five years, and groups should monitor any updates that may affect their position.
Luxembourg's adoption of the Amount B framework marks a significant step towards greater certainty and consistency in the transfer pricing treatment of routine distribution activities. By committing to respect Amount B outcomes determined in covered jurisdictions and offering both correlative adjustments and mutual agreement procedures to eliminate double taxation, the DTA has provided multinational groups with a more predictable environment for structuring their distribution arrangements even though the benefits are conditional.
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