New draft bill spells major revamp of Luxembourg’s accounting law - Part 2

Welcome to Part 2 of our blog series on draft bill 8286. In Part 1 we gave you the lowdown on the bottom-up structure of this one-stop law as well as essential information about micro undertakings and large undertakings. And that’s not all, so don’t forget to check it out!

With seven more significant changes on the horizon – and a few others worth mentioning too – we’ve got the answers to the key questions everyone’s asking. 

Q: What should the duration of a financial accounting period be?

A: This question has always been open to interpretation, and it’s finally been answered. The draft bill proposes that standalone annual financial statements have a duration of 12 months. By derogation, a financial accounting period can have a minimum of 52 weeks and a maximum of 53 weeks.

In the year of incorporation, the first financial period can have a duration of less than 12 months, but cannot exceed 18 months.

In any other exceptional circumstances where an undertaking changes its financial accounting period, the financial period in the year of transition shall remain less than one year. 

A major overhaul in the draft bill relates to Sociétés en Commandite Spéciale (SCSps), the famous legal form introduced in 2013 in the amended law of 10 August 1915 on commercial companies. As of now, unregulated SCSps have an obligation to prepare financial data but are not required to file or publish any of their financial information. 

Q: What will change and should the draft bill be voted in its current form?

A: Unregulated SCSps will have to submit their trial balance annually (via the eCDF platform) using the Luxembourg Standard Chart of Accounts (SCA)/Plan Comptable Normalisé (PCN). Certain SCSps, such as RAIFs, undertakings regulated by the CSSF and the CAA, as well as undertakings preparing financial statements in accordance with IFRSs, will be exempt from the obligation to submit the SCA/PCN as they are required to file financial statements in accordance with this draft bill. 

It is important to highlight that SCA/PCN are not published and are not available for public consultation. Only government bodies including STATEC, the Administration des Contributions Directes (Luxembourg Inland Revenue), the Administration de l’enregistrement, des domaines et de la TVA will have access to the SCA/PCN of these SCSps.

The draft bill sheds light on the reporting requirements for dissolved or in-liquidation undertakings. Until now, the requirements for such undertakings were limited, fragmented and outdated.

Q: What does the draft bill propose?

A: A new article explains that an undertaking which is not able to continue its activities or does not have the intention to carry on its activities, should adapt its accounting principles, measurement bases and valuation methods to reflect the non-going concern basis of preparation. This will also apply to dissolved or in-liquidation undertakings.  

What’s more, article 1100-14 of the amended law of 10 August 1915 on commercial companies is being amended and will require the presentation of the liquidation results in the form of interim standalone annual financial statements to the annual general meeting of an undertaking, within six months of the financial year end or one calendar year after the opening of liquidation. These interim annual financial statements of liquidation will include a balance sheet, a profit and loss account, and notes accompanying the liquidator(s)’ report explaining the progress of liquidation and the reasons why the liquidation was not completed. These interim annual financial statements of liquidation are to be published at the RCS if the undertaking in liquidation is an undertaking with a legal form that is required to publish its standalone annual financial statements. 

Once the liquidation is complete, the liquidator(s) must submit a report to the annual general meeting. This report must include closing liquidation financial statements consisting of a balance sheet, a profit and loss account as well as notes covering the period from start to close of the liquidation. At this point, the annual general meeting will nominate one or more ‘commissaire(s) à la liquidation’ to examine the documents prepared by the liquidator(s). The closing liquidation financial statements are to be published with the RCS.

In exceptional situations, intangible assets including goodwill, may have unlimited useful lives. Instead of amortizing such intangible assets annually, the undertaking will have to test for annual impairment.

Q: What will undertakings have to do?

A: Undertakings will need to identify which intangible assets have unlimited useful lives and test these for annual impairment in accordance with IAS 36 Impairment of assets, or in line with the accounting framework of another EU member state. The law addresses a point where even Directive 2013/34/EU^[1] does not differentiate between assets with unlimited useful lives and assets that have useful lives that cannot be reasonably determined, meaning their maximum useful lives cannot exceed ten years.

Q: What exactly is control?

Control is defined as the power of a shareholder to influence decisively or to drive the management and financial policies of another undertaking. The comments to the draft bill provide for three specific circumstances:

1. When an undertaking holds the majority of the voting rights of another undertaking.

2. When an undertaking has the power to appoint or dismiss the majority of the administrative, management or supervisory body of another undertaking. 

3. When an undertaking controls, by virtue of an agreement with other shareholders, to confer control to one of them.

Interestingly, the comments to the draft bill cover the situation of General Partner (GP) and Limited Partner (LP) and hypothesize which party has the obligation to prepare consolidated financial statements.

Q: What does this entail?

A: Previously included in LRCS, it could be understood that an undertaking may seek derogation from certain provisions of the Commercial Code or certain sections of the LRCS for the preparation of standalone annual financial statements from the Ministry of Justice. The transfer of this article to Title IV lays the premise that a derogation of this nature can be requested when choosing an accounting framework for the preparation of consolidated financial statements only.

Appearing multiple times – mainly in the amended law of 19 August 1915 on commercial companies – the role of ‘commissaire’ (not to be confused with ‘commissaire(s) à la liquidation’) was doing little else but creating confusion. Undertakings that were required to name a ‘commissaire’ will not have to do so anymore.

Q: Who will replace the ‘commissaire’?

The ‘commissaire’ function has not been replaced by any other supervisory body, therefore reducing the burden on undertakings that had to appoint one. Undertakings released from this obligation may still consider, on a contractual basis, seeking the assistance of a member of the Ordre des Experts-Comptables to help them prepare or finalize their standalone annual financial statements or a réviseur d’entreprises agréé to audit them.

• The layouts of the balance sheet and the profit and loss account are now included directly in the draft bill.
• The scope of the draft bill has been extended to cover undertakings that have a commercial activity without a commercial form. These include:
  • sociétés civiles (civil companies)
  • associations agricoles (agricultural associations) 
  • associations d’assurance mutuelle (mutual insurance associations)
  • associations d’épargne-pension (ASSEP) (pensions-savings associations)
  • fonds communs de placements (FCP) (common funds)
• Annual accounts will be referred to as annual financial statements.
• It will be possible to recognize deferred taxes in both standalone annual and consolidated financial statements when the recoverability of taxes is highly probable.

This is just the beginning, as there are other changes brought about by draft bill 8286 to the Commercial Code, the amended law of 10 August 1915 on commercial companies and the law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of undertakings. 

Its provisions are expected to enter into force for the first time for annual and consolidated financial statements with financial year starting 1 January 2025.

Have you read this important tax alert? Published this year, tax alert 2023-06 provides essential guidelines for Reverse Hybrid (RH) Entities in Luxembourg.

Other key questions: How ready are you for these changes? Do you have specific questions or need guidance when it comes to understanding the impact of these changes on your company? Let’s talk! Reach out to KPMG Luxembourg’s specialists today. 

Ruslan Tumanshin
Partner, Audit
KPMG Luxembourg
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Jerome Luxembourger
Partner, Advisory
KPMG Luxembourg
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This article was written in collaboration with Nishta Thuposy, Senior Manager.

^[1] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC.