Transfer pricing should be seen as “strong risk mitigation tool”

Article Written by Lydia Linna from Delano

At a panel organised by the Luxembourg Private Equity & Venture Capital Association (LPEA) on Wednesday, experts discussed the importance of getting transfer pricing right in the context of fund management services.

“Starting with the basics, the arm’s length principle is the cornerstone of transfer pricing,” explained Viktoria Dimitrova, an associate from Arendt, during the transfer pricing panel organised by the LPEA. It states that “enterprises should enter financial and commercial relations according to market conditions.”

This is meant to ensure that profit is not shifted around during transactions between companies in the same group and to ensure that taxes are paid accordingly. Article 56 and 56bis provide for the arm’s length principle in Luxembourg, said Dimitrova, making it a legal obligation for taxpayers to comply.

But it’s not just something that applies at a single point in time. It’s important to consider the arm’s length principle throughout the lifetime of a structure–from inception of a transaction to settlement of funds–and to monitor changes on an ongoing basis, noted Dimitrova.