Questions a Consultant Asks the Owner

Is your Luxembourg holding an asset—or a liability? In 2025–2026, “paper” structures fail less on headline tax rates and more on governance reality: who controls decisions, who bears risk, whether intragroup flows are defensible, and whether beneficial ownership and AML files are coherent across tax, banking, and deal due diligence.

At EU level, the substance agenda has not disappeared—even after the Council effectively stopped work on the Unshell/ATAD 3 proposal in June 2025. Pressure is shifting into existing frameworks (DAC6/DAC8, AML/AMLD6, anti-abuse, Transfer Pricing) and bank onboarding expectations. We see business owners with €1-20M assets losing months on emergency measures instead of strategic development.

Status as of 17 December 2025. This is general information, not individual legal/tax advice.

1. Equity-at-risk: is there enough capital genuinely “at risk” in the LU structure?

This is not about nominal share capital; it is about whether the holding has the capacity to bear the risks it claims (financing, guarantees, treasury functions, intragroup lending). If risk is allocated to Luxembourg “on paper” but controlled elsewhere, you create exposure in transfer pricing, treaty/beneficial owner analysis, and bank SoF/SoW reviews.

Per Circular L.I.R. n°56/1-56bis/1, intragroup financing requires the functions–risks–capital link. CSSF Circular 24/860 requires financial holdings to demonstrate capital adequacy. Minimum: €4,815 NWT; optimal level: at least 15-20% equity of total assets.

Quick checks:

• Risk map: who decides and who bears downside
• Equity/liquidity buffers vs guarantees and covenants
• Group guarantee limits and cross-default triggers
• Dividend policy vs capitalisation needs
• Alignment with TP documentation for financing

Red flags:

• “Risk in LU, decisions and cash elsewhere”
• Guarantees without capacity analysis
• No credible economic rationale for the financing set-up

2. Transfer Pricing: are intragroup transactions properly supported?

In 2026, the core test remains: intragroup dealings must be arm’s length—services, loans, royalties, management fees, cost sharing. Luxembourg strictly follows OECD Transfer Pricing Guidelines. Common weaknesses are template intercompany agreements with little evidence of performance.

Luxembourg does not require proactive filing of TP documentation, but tax authorities can request it within 65 days. Non-compliance with CbC reporting can result in fines up to €250,000. TP Competence Center operational since October 2025. For loans: credit analysis, pricing logic, covenants, comparables are critical.

Quick checks:

• Full inventory of intragroup flows (cash and non-cash)
• TP policy: method, cost base, mark-up, benchmarks for 2024-2025
• Performance evidence: deliverables, reports, communications
• For loans: credit analysis, pricing logic, covenants
• Availability/quality of Master File + Local File

Red flags:

• “Management fee for everything” with no outputs
• Royalties without a defensible IP chain/DEMPE logic
• Loans with no credit profile or pricing rationale

3. Substance: where are real decisions taken?

Substance is not a mailbox; it is an effective decision centre: who approves investments/financing/dividends, where strategic discussions happen, where corporate memory lives. Key criterion: Place of Effective Management. After CJEU Danish cases (Feb 2019) and Danish Supreme Court (Jan 2023), requirements tightened—TDC structure was deemed a conduit.

Quick checks:

• Full inventory of intragroup flows (cash and non-cash)
• TP policy: method, cost base, mark-up, benchmarks for 2024-2025
• Performance evidence: deliverables, reports, communications
• For loans: credit analysis, pricing logic, covenants
• Availability/quality of Master File + Local File

Red flags:

• “Management fee for everything” with no outputs
• Royalties without a defensible IP chain/DEMPE logic
• Loans with no credit profile or pricing rationale

4. Beneficial Owner: who is the UBO and how is it documented?

In 2026, the UBO issue is simultaneously a matter of registry discipline, an AML reality, and a reputational risk. The Luxembourg Beneficial Owner Register (RBE) has a 25% threshold. The law of January 25, 2025, added public notices, fines of €3,500, and daily penalties. The overall fine range is €1,250–€1,250,000.
Despite the 2022 CJEU ruling limiting public access, the register is fully open to banks and government agencies. Banks employ a risk-based approach: they care not only about names but also about control, sources of wealth, and the coherence of the structure. Discrepancies in the RBE data, bank KYC forms, and Ukrainian CIC declarations pose a critical risk.

Quick checks:

• UBO chain to an individual (including trusts/foundations)
• Control documents: SHA, options, veto rights, powers of attorney
• Coordination: RBE ↔ corporate documents ↔ bank ↔ KIK-zvіtnіst
• Change policy (update deadlines, responsibilities)
• Sources of Work/SoF for UBOs

Red flags:

• Discrepancies between RBE, the bank, and Ukrainian declarations
• A “complex” structure without a clear business rationale
• Lack of demonstrable control/economic logic

5. AML/KYC readiness: can you handle a bank request tomorrow?

A practical maturity criterion is the readiness to complete KYC “within 48 hours” without chaos: structure, UBO, sources of funds/wealth, business purpose, tax residency, sanctions/PEP screening. Banks in Luxembourg act as financial police—a “passive” holding with infrequent transactions raises suspicion.
Banks rely on the EBA’s risk factor and CDD guidelines, implemented through CSSF Circular 25/878. AMLD6 and the AMLR Regulation come into force on July 10, 2027—preparations are needed now. AMLR introduces enhanced due diligence (EDD) for clients with assets greater than €50 million. Banks retain AML/KYC records for at least five years after the termination of the relationship..

Quick checks:

• KYC pack: structure, UBO, passports, residency, profiles
• SoW/SoF: sources of capital, transaction chains, confirmations
• Contracts/invoices/business justification for operations
• Sanctions checks and counterparty policies
• Logic of account transactions (expected vs. actual activity)

Red flags:

• Documents are collected from scratch for each request.
• Inability to explain the origin of assets with documents
• Discrepancy between “expected activity” and actual payments

6. Directors: resident directors vs “nominees”—what are the real risks?

The question isn’t ideological, but legal and factual: who actually controls and who can confirm control. The era of “nominees” holding positions in 500 companies simultaneously is over. The CSSF and tax authorities are analyzing directors’ workloads.
CSSF Circular 24/860 requires directors to be genuinely involved in decision-making. If directors are merely formal, the substance narrative is undermined, increasing the risk of reclassification and operational risks—from bank blockages to deal collapses. Starting in 2025, EU tax authorities will exchange data on effective management locations.

Quick checks:

• Roles of directors: who prepares materials, asks questions, decides
• Conflicts of interest and discussion minutes
• Signatory powers and matrix approvals
• Actual meeting calendar and director participation
• Responsibility contour D&O (indemnities)

Red flags:

• Directors cannot explain business/transactions
• Solutions “arrive ready-made” from another jurisdiction
• Signatories do not correspond to real control

7. ATAD / anti-avoidance: does the structure trigger anti-abuse rules?

The consultant reviews two layers: technical rules and behavioral anti-abuse logic. At the EU level, ATAD enshrines interest limitation, CFC, and GAAR—all transposed into LU. An anti-abuse treaty operates in parallel through BEPS Action 6 (PPT) and MLI.
Important: Work on ATAD 3 (Unshell Directive) was effectively abandoned by the EU Council in June 2025. However, this does NOT mean a relaxation of pressure—substance criteria are verified through existing instruments (GAAR §6 StAnpG, PPT). The CJEU applies the “valid commercial reasons” criterion—even “correct form” loses without a business purpose.

Quick checks:

• Interest limitation: financing model and interest rate
• CFC risks for low-tax/passive income of the group
• GAAR vulnerabilities: lack of business purpose / artificial steps
• Treaty access: PPT logic and the real beneficial owner
• Business purpose memo for structure and key flows

Red flags:

• Financing “for the sake of deduction”, without business
• Holding as a transit channel without functions
• Lack of business justification for the structure

8. Exit strategy: what happens on a sale, reorganisation or liquidation?

A holding company is valuable as long as you understand the exit costs: tax, regulatory, banking, and transactional implications. Many people create holding companies to “enter” but forget to consider the exit.
Participation exemption in Luxembourg: requires a stake of ≥10% or an acquisition of ≥€6M, a holding period of ≥12 months, and (from 2025) a minimum 8% effective tax on the subsidiary. Exit tax is applied over 5 years for the EU/EEA. CIT is reduced to 16% from 2025. Pillar Two (GloBE) — 15% minimum ETR for groups >€750M; safe harbor until 2026, but planning is needed now.

Quick checks:

• 2-3 exit scenarios with figures (taxes/expenses/deadlines)
• Conditions of participation regime and restrictions/anti-abuse
• Risks of requalification (dividend vs capital gain)
• Banking covenants/reorganization consents
• Data room readiness (legal, tax, TP, AML)

Red flags:

• There is no exit model, only “we’ll figure it out later”
• The structure will not withstand buyer due diligence.
• Exit depends on “aggressive interpretation” without support

9. Documentation: are board minutes and intercompany agreements current?

Documents are not an archive, but an evidence base. In 2026, the most expensive thing is inconsistency: minutes don’t match bank authority, intercompany records don’t match actual payments, and transaction logic doesn’t align with management reality.
Retention periods: 10 years for tax documentation, 5 years for AML. Particularly vulnerable are groups where documents were prepared “for account opening” and were not used afterward. In an anti-abuse environment, a document is what holds a position.

Quick checks:

• A set of corporate documents and a register of decisions
• Intercompany agreements ↔ actual transactions ↔ accounting
• Signatory Authority, KYC folder for key persons
• TP dossier and confirmation of services rendered
• Policies: dividend, financing, treasury, compliance

Red flags:

• “Signed and forgotten” – no updates
• Payments are made without a contractual basis
• Meetings “in one day for the whole year”

10. Triple Verification: can you pass tax + bank + investor scrutiny simultaneously?

This is the main stress test of 2026: three auditors with different objectives ask similar questions. The tax authorities look for economic substance and anti-abuse. The bank looks for ML/TF risk, sanctions, SoF/SoW. The investor looks for governance, TP, and ownership chain integrity.
Automatic exchange of information on Pillar Two will begin on January 1, 2026; registration is due June 30, 2026, with a late penalty of up to €250,000. If you don’t have a unified “structure history,” audits will begin to conflict, and you’ll lose time, a transaction, and banking services.

Quick checks:

• A single narrative folder: purpose → functions → risks → documents
• Consistency of tax/TP/AML responses (one set of facts)
• Data room readiness in 5-10 business days
• 30/60/90-day remediation plan for red flags
• Owner discipline: who is responsible and according to what SLAs

Red flags:

• Different versions of “why a holding company” from CFO/lawyer/director
• There is no owner of the compliance process/documents
• The weak link (UBO/SoF/TP) brings down everything at once

Closing

In 2026, a Luxembourg holding wins not because of jurisdiction branding but because it is governable: clear structure logic, risk control, defensible substance, and readiness for simultaneous tax, bank and investor verification. Tax planning is chess, not roulette.

If your holding “lives” in a service provider folder rather than in your management system, the hidden cost is usually higher risk—account friction, lost time, and deal discounts. Ignoring warning signs today can lead to critical failure tomorrow.

At LigLex we act as system architects: we don’t just prepare reports, we restore operational integrity of structures. Our methodology includes stress-testing all 10 questions, creating “living” documentation, and preparing for triple verification. We typically start with a structured audit across these ten questions, then deliver an evidence roadmap and a measurable remediation plan.

If useful, we can prepare a risk map against these ten questions and a 30/60/90-day remediation track.

#Substance #Holding #Luxembourg #PrivateWealth #EU #LigLex #TransferPricing #BeneficialOwner

Author by Lipatnikov Sergey

Key Sources

Regulatory & Official:

• EU Council document ST-9960-2025-INIT (ATAD 3 suspension)

• LU Transfer Pricing Circular L.I.R. n°56/1-56bis/1

• RBE Law (coordinated version 13/01/2019) 

• CSSF Circular 25/878 (AML/KYC) 

• CSSF Circular 24/860 (Financial Holdings)

Case Law:

• CJEU Danish cases (C-116/16, C-117/16) — February 2019

• Danish Supreme Court TDC case — January 2023

Industry Sources:

• EY Luxembourg, PwC Luxembourg, Deloitte, CMS, Elvinger Hoss, A&O Shearman, Taxand, LPEA