Pawel Wroblewski, Tax Transfer Pricing Partner, Xiaoyan Huang, China Business Leader, Director and Ryan Davis, Banking Risk, Regulatory & Compliance Partner, PwC Luxembourg Photo: PwC Luxembourg

Pawel Wroblewski, Tax Transfer Pricing Partner, Xiaoyan Huang, China Business Leader, Director and Ryan Davis, Banking Risk, Regulatory & Compliance Partner, PwC Luxembourg Photo: PwC Luxembourg

CRD VI will significantly restrict cross-border banking into the EU, requiring an authorised presence for key activities. It forces banks to reassess where decisions are made, risks are managed and profits are allocated—bringing transfer pricing to the forefront.

CRD VI is not just a new regulatory approach; it fundamentally reshapes how non-EU banks operate—and how value is created, controlled and taxed within their groups.

The directive introduces a harmonised EU framework for third-country (non-EU) banks providing core banking services in a Member State. Its Third-Country Branch (TCB) regime represents a pivotal shift: for certain activities, including lending, guarantees and deposit-taking (where permitted), cross-border servicing without an authorised EU presence will be significantly curtailed. In practice, affected groups will need to operate through a local branch or a subsidiary.

This change goes beyond legal structure. It directly impacts operating models, requiring banks to reassess where client relationships are managed, where credit decisions are taken and where risks are controlled. The implementation timeline is tight: the TCB regime will apply from January 2027.

Banks therefore face a compressed window to map activities, define their target model and build sufficient substance in the EU.

Crucially, these regulatory changes create a direct tension with Transfer Pricing (TP). Supervisors will expect meaningful local governance, decision-making and risk ownership within the authorised EU entity. At the same time, tax authorities will expect profit allocation to reflect that substance. A structure presented to regulators as exercising real control and responsibility cannot, for TP purposes, be characterised as routine and low-risk. CRD VI therefore accelerates the need for alignment between regulatory substance and tax outcomes. Under OECD guidance for branch profit attribution, increased local substance may support higher profit in the EU. Where both a branch and a subsidiary are used, new internal dealings and pricing points may arise and should be documented consistently.

CRD VI may also drive changes to booking models, internal funding flows, or even the choice between branch and subsidiary. Such shifts can raise tax/TP issues such as business restructuring and should be analysed and documented upfront rather than retrospectively. The regulation increases visibility on where business is originated, booked and controlled, so gaps in the TP story are harder to defend.

Similar convergence is visible beyond banking in Luxembourg. CSSF Circular 26/906 (for payment and e-money institutions, not banks) takes effect on 30 June 2026 and shows the direction: arm’s length principle can be questioned in supervision, not only by tax authorities. With more information exchange between the CSSF and tax authorities, misaligned related-party pricing can create both supervisory and tax exposure.

As regulatory expectations increase transparency around where business is originated, booked and controlled, inconsistencies in the TP framework will become more visible—and more difficult to defend.

Banks that approach CRD VI as a purely regulatory exercise risk creating structural TP exposures. A coordinated, forward-looking response—integrating regulatory, operational and tax considerations from the outset—is essential.

 Xiaoyan Huang, China Business Leader, Director, PwC Luxembourg

Ryan Davis, Banking Risk, Regulatory & Compliance Partner, PwC Luxembourg

Pawel Wroblewski, Tax Transfer Pricing Partner, PwC Luxembourg

For more information, please visit our webpage on CRD VI and on Transfer Pricing.