Luxembourg Tax Alert 2025-04

On July 24, 2025, a new draft law (Bill No. 8591, hereafter referred to as “the Bill”) was submitted to the Luxembourg Parliament. The Bill aims to transpose Council Directive (EU) 2025/872 (“DAC9”) into domestic law and to incorporate certain elements of the OECD’s Administrative Guidance on Pillar Two, published in January 2025 (“January Guidance”) into the Law of December 22, 2023, on Minimum Taxation, as amended by the Law of by the Law of December 20, 2024 (“Pillar Two Law”). In addition, a new draft Grand-Ducal regulation on Article 50 of the Pillar Two Law was issued on the same day.

The first part of the Bill aims to transpose DAC9 into domestic legislation. DAC9 is the latest extension to the Directive on Administrative Cooperation (“DAC”) establishing a framework for the automatic exchange of Pillar Two information between the tax authorities of the EU Member States.

Article 50 of the Pillar Two Law provides that each constituent entity must file a GloBE information return (“GIR”) with the Luxembourg tax authorities 15 months after the end of the fiscal year at the latest (18 months for the transition year). The GIR may also be filed by a local designated entity on behalf of the Luxembourg constituent entities.

An exemption from the filing requirement applies if the following two conditions are met:

1. The ultimate parent entity (“UPE”) of the group, or a designated entity, files the GIR on behalf of the MNE group¹, and
2. The relevant tax authority with which the return is filed has an exchange framework or an international agreement in place with Luxembourg allowing an automatic exchange of Pillar Two information.

In the case that such a filing requirement exemption applies, Luxembourg constituent entities should notify the Luxembourg tax authorities that the GIR will be filed by a designated filing entity.

Within the EU, the above-mentioned framework for the exchange is governed by DAC9. The Bill introduces this framework where the GIR is filed in another jurisdiction with which Luxembourg has an applicable exchange agreement. However, the scope of the Bill extends beyond EU Member States and includes other countries that have an agreement with Luxembourg covering the automatic exchange of Pillar Two information, either via the OECD GIR Multilateral Competent Authority Agreement² or any other relevant bilateral agreement. The list of jurisdictions covered by such agreements will be published in a forthcoming Grand-Ducal regulation.

The exchange of information will follow the dissemination approach as outlined in DAC9 to ensure that each country only receives the information they need based on their role in the MNE group.

The Bill provides for the same exchange of information deadlines as provided in DAC9. The relevant sections of the GIR, as defined by the dissemination approach, would be exchanged no later than three months after the filing deadline for the reporting financial year. For the first financial year, this deadline is extended to six months after the filing date. If GIRs are received by the Luxembourg tax authorities after the filing deadline, they must also be exchanged within three months of receipt.

The Bill also provides for the possibility for the Luxembourg tax authorities to enquire about a GIR where they were notified that the GIR was filed in another jurisdiction, but the report has not been exchanged within the deadline. In cases where the GIR has not been received through the automatic exchange within three months from the date of the enquiry, Luxembourg would be allowed to require that the GIR is filed locally within one month from the date the Luxembourg tax authorities notify the Luxembourg constituent entities that the GIR was not received.

If enacted, the Bill is expected to enter into effect as from January 1, 2026 with the first exchange of information taking place by December 31, 2026 – but not earlier than December 1, 2026.

In relation to the transposition of DAC9, the government also issued a draft grand-ducal regulation to introduce the standard form of the GIR to be used by Luxembourg constituent entities. The form is in line with the Annex to DAC9 and reflects the latest model published by the OECD in January 2025.

If enacted, the grand-ducal regulation is expected to become effective as of January 1, 2026.

The second part of the Bill introduces several changes to the Pillar Two law, most notably to introduce the January guidance on deferred tax assets into the law.

Under Article 53(2) of the Pillar Two Law, constituent entities are generally allowed to take into account all deferred tax assets (“DTA”) and liabilities (“DTL”) reflected or disclosed in the financial statements. A limitation to this rule is provided by Article 53(3), which excludes all DTAs related to items that are excluded from the GloBE basis under Chapter 3 of the Pillar Two Law if those DTAs were generated in a transaction that took place in the transition period after November 30, 2021.

The Bill incorporates additional rules extending the scope on application of Article 53(3) into a new paragraph (5) and excluding DTAs from the recognition under the transitional rules under the following circumstances:

• DTAs that are attributable to a government arrangement (“accord avec une autorité publique”) concluded or amended after November 30, 2021, and the arrangement gives rise to a tax credit or other tax relief (such as a tax basis step-up) that does not arise independently of the arrangement;
• DTAs that are attributable to an election or choice exercised or changed after November 30, 2021, which retroactively changes the treatment of a transaction in determining its taxable income in a tax year for which an assessment has been made or tax return has already been filed; or
• DTAs or DTLs that arose pursuant to a corporate income tax that was enacted by a jurisdiction that did not have a pre-existing corporate income tax that became effective after November 30, 2021, and before the transition year.

The proposed changes are closely aligned to the January guidance and include related amendments to the transitional Country-by-Country Reporting Safe Harbour (“CbCR Safe Harbour”) and QDMTT Safe Harbour. The Bill clarifies that DTAs falling under Article 53(5) are excluded from the simplified ETR calculation under the CbCR Safe Harbour and that the QDMTT Safe Harbour cannot be applied towards a jurisdiction where DTAs falling under Article 53(5) arise but are not excluded by this jurisdiction. 

The parliamentary comments to the Bill specify that the incorporation of this January guidance is important, even though it is generally expected that such DTAs would not be generated in Luxembourg.

In addition to the changes related to Article 53(3), the Bill also introduces the following amendments:

• Registration: A clarification was added to Article 49 concerning the registration of joint ventures or joint venture subsidiaries where no constituent entity is located in Luxembourg. The clarification requires that these entities indicate the name of the filing entity of the MNE group or large-scale domestic group, as well as the country where the filing entity is located.
• GIR filing: Several changes are proposed, most notably enabling the Luxembourg tax authorities to impose a penalty of up to EUR 300,000, in case the entity has notified that the GIR is filed in another country, but the tax authorities have not received the GIR information by exchange and the entity has failed to provide proof that the GIR was filed in another jurisdiction. The penalty is determined on a case-by-case basis.
• Simplified jurisdictional reporting framework: The Bill proposes to introduce the election for the transitional simplified jurisdictional reporting framework, which would allow the MNE group to report the relevant jurisdictional sections on a simplified jurisdictional basis in the GIR.

The Bill now needs to follow the usual legislative process such that changes may still occur during this process.

If voted into law, the new amendments related to Article 53(3) and (5) are expected to apply for fiscal years starting on or after December 31, 2023, which corresponds to the date of entry into effect of the Pillar Two Law. All other changes would become effective as from January 1, 2026.

Footnotes

¹ MNE group as per the Pillar Two Law means any group that includes at least one entity or permanent establishment which is not located in the jurisdiction of the ultimate parent entity.

² As published on January 15, 2025: Multilateral Competent Authority Agreement on the Exchange of GloBE Information (January 2025)