Luxembourg Tax Alert 2026-01

This week brought two major developments in respect of Pillar Two.

On Monday, 5 January 2026, the OECD Inclusive Framework reached agreement on key elements of the “side-by-side package,” which will modify several aspects of the Pillar Two Framework. These changes are generally expected to impact multinational (“MNE”) groups as from 2026.

On Tuesday, 6 January 2026, Luxembourg opened the online platform for complying with Pillar Two registration and reporting requirements.

Overview of the Pillar Two Forms and online process

The Law of 22 December 2023 on Minimum Taxation, as amended (“Pillar Two Law”) introduced several compliance obligations for entities in scope. On 6 January 2026, the Luxembourg tax authorities made the forms available to comply with these filing obligations and launched the process on the “MyGuichet” online platform. The following processes are now available:

Registration: A registration form is now available in online form and xml format through the “MyGuichet” online platform. The form requires several pieces of information, including but not limited to the following:
- the identity and tax identification number of the constituent entity;
- the name of the MNE group or large-scale domestic group;
- the identity of the ultimate parent entity (“UPE”) and the jurisdiction where it is located;
- the fiscal year for which the group falls within the scope of the Pillar Two rules;
- the date on which the fiscal year of the group ends;
- the identity of the designated local filing entity for the GloBE information return (if applicable)
- the identity of the designated Luxembourg entity for filing and paying the top-up tax under the Undertaxed Profits Rule (“UTPR”) (if applicable);
- the identity of the designated Luxembourg entity for filing and paying the Qualified Domestic Minimum Top-up Tax (“QDMTT”) (if applicable).
  
  Registration is required for each constituent entity, joint venture, and joint venture affiliate. The same form may also be used to notify the Luxembourg tax authorities of any changes to the group or to deregister an entity.
GloBE Information Return (GIR): The GIR related xml schema is also now available on the “MyGuichet” online platform. The form was already published on 19 December 2025 via the Grand-Ducal decree on Article 50 and aligns with the latest OECD template issued in January 2025. The GIR must be submitted by the Luxembourg constituent entities (a Luxembourg designated filing entity may do the filing on behalf of the Luxembourg entities), unless it is filed in another jurisdiction and exchanged with Luxembourg. If filed in another jurisdiction, a notification must be submitted to the Luxembourg tax authorities. The notification is to be made through the registration process.
Local Tax Return covering IIR, UTPR and QDMTT: The form of the local return has also been made available in online form and xml format through the “MyGuichet” online platform. For QDMTT and UTPR, there is a possibility to elect a Luxembourg designated entity to file and pay the tax on behalf of all Luxembourg constituent entities. The form is relatively short and does not require the disclosure of detailed Income Inclusion Rule (“IIR”), UTPR, or QDMTT calculations. Instead, only general information and a declaration of the amount of tax payable is required.

The deadline for these filing obligations is 15 months after the end of the fiscal year (18 months for the transitional year). Accordingly, calendar-year taxpayers will have their first filing obligation by 30 June 2026 in respect of the 2024 fiscal year.

Key Takeaways

With the registration and filing portal now open and the first filing deadline approaching on 30 June 2026, it is essential to start preparing now. KPMG can assist you with all your Pillar Two compliance obligations, whether by providing a fully centralized global compliance model or by supporting you with specific obligations, such as the registration or the local filings.

SAVE THE DATE: An event on Pillar Two compliance will be held on 11 March 2026 at the Luxembourg KPMG premises. More information will follow. If you are interested, please contact your KPMG partner.

Overview of the Side-by-Side Package

On 5 January 2026, the OECD released a new Side-by-Side (SbS) Package to implement the shared understanding on a SbS approach agreed under the June G7 Statement. The new package includes several key components, including: (1) a SbS system consisting of new safe harbors for MNE Groups having a UPE located in a jurisdiction meeting certain minimum taxation requirements, (2) the introduction of a new Substance-Based Tax Incentive Safe Harbor, and (3) a series of simplification measures.

Please find below a short overview of the package. For a full and comprehensive overview, you may refer to this KPMG newsletter.

Side-by-Side System

The package introduces a new system consisting of a SbS Safe Harbor and a UPE Safe Harbor, applying to MNE Groups headquartered in jurisdictions recognized by the Inclusive Framework as having an eligible regime.

SbS Safe Harbor: Applicable as from 1 January 2026, the SbS Safe Harbor would turn off the application of the IIR and UTPR for MNEs with a UPE located in a jurisdiction that imposes minimum taxation requirements with respect to both domestic and foreign income, and provides a foreign tax credit for QDMTTs. The OECD Central Record of Qualified SbS regimes has been published on the same day and currently only lists the United States as having a qualified SbS regime.
UPE Safe Harbor: Also applicable from 1 January 2026, this new UPE Safe Harbor will replace the existing transitional UTPR Safe Harbor and exempt UPE jurisdictions from the UTPR if those jurisdictions impose minimum taxation requirements with respect to domestic income. The OECD Central Record listing jurisdictions eligible for the UPE Safe Harbor has not been published yet.

The Inclusive Framework has committed to conducting a stocktaking exercise on the effects of the global minimum tax and the SbS system, to be concluded by 2029. The package also notes that the SbS system will not interfere with the application of QDMTTs to all MNE groups, including those benefiting from the SbS safe harbour and the UPE Safe Harbor. In this respect, they note that QDMTTs that discriminate between MNE groups will imperil their status as QDMTTs and may even result in such taxes not being treated as Covered Taxes under the Pillar Two rules.

Substance-based Tax Incentives Safe Harbor

The Inclusive Framework recognizes that tax incentives are a widely used tool to promote substantial investments and economic development. Under the existing rules, certain tax incentives in the form of Qualified Refundable or Marketable Transferable Tax Credits were protected to some extent by benefiting from a more favorable treatment under the rules. The new package introduces a safe harbor to broaden the scope of tax incentives benefiting from this more favorable treatment to eligible expenditure-based incentives (e.g., tax credits, super deductions), together with certain production-based incentives. This new safe harbor would become applicable as from 1 January 2026.

Where MNE Groups elect to apply the Substance-based Tax Incentives Safe Harbor, certain qualified tax incentives are treated as an increase to the ETR numerator (Adjusted Covered Taxes) in the amount of their tax value, but limited to a substance cap.

Simplification measures:

Extension of the transitional CbCR Safe Harbor: The package notes that the transitional CbCR Safe Harbor would be extended by one year and may also be applied for fiscal years commencing on or before 31 December 2027 but not including a fiscal year that ends after 30 June 2029. The percentage rate for the Simplified ETR test will be 17 percent as for 2026.
Simplified ETR Safe Harbor: The transitional CbCR Safe Harbor will be replaced by a new permanent regime based on a simplified ETR) calculation. Under this safe harbor, MNE Groups will be required to calculate their Simplified ETR, which comprises Simplified Taxes over Simplified Income, on a jurisdictional basis. Where the Simplified ETR exceeds 15%, the MNE Group shall be deemed to have no top-up tax liability in respect of that jurisdiction. The new safe harbor would be applicable in fiscal years that begin in 2027 (and in some circumstances in 2026). Unlike the current transitional CbCR Safe Harbor, the new safe harbor will no longer rely on CbCR data but instead draw directly from financial accounting information.

The package also notes that further work will be done, including the work on a permanent routine profits and a permanent de minimis safe harbor that is scheduled to be completed in the first half of 2026.

More information on this new package can be found in this KPMG newsletter.

Key Takeaways

SbS Safe Harbor effective from 2026 only: The SbS Safe Harbor will only apply from 1 January 2026. Groups with UPEs located in the US will therefore remain subject to the Pillar Two rules and will be required to fill out the full GIR for 2024 and 2025.
QDMTTs remain applicable for groups benefiting from the SbS Safe Harbor: Although the SbS Safe Harbor switches off the IIR and UTPR in the structure, these groups will remain subject to QDMTTs. This means that these groups remain subject to QDMTT calculations in many countries. For an overview of jurisdictions that have implemented a QDMTT, please refer to our KPMG BEPS 2.0 Tracker.
Non-US parented groups: The SbS Safe Harbor does not apply to groups with non-US parents that have US operations, meaning they remain fully subject to the IIR and UTPR.
Qualified SbS Regime assessments: The SbS Package provides that additional countries may request an assessment by the Inclusive Framework to determine whether their tax systems meet the requirements of a Qualified SbS Regime in 2027/28.
Simplified ETR Safe Harbor: The new simplified ETR Safe Harbor offers less simplicity than the current transitional CbCR safe harbour. Some companies may therefore see only limited benefit.
Substance-based Tax Incentives Safe Harbor: This new Safe Harbor should be a welcome development for companies currently using investment tax credits in Luxembourg.

The package now needs to be transposed into domestic legislation, therefore a change of law is expected to be launched soon by the government.

If you have any questions, please reach out to your KPMG partner.