Luxembourg: Guidance under Pillar Two law relating to inclusion of deferred tax assets and liabilities in computing ETR
Clarifications with respect to Article 53 of the Pillar Two law enacted in December 2023
The Luxembourg tax authorities on 25 March 2024 published a frequently asked question (FAQ) on Pillar Two, providing clarifications with respect to Article 53 of the Pillar Two law enacted in December 2023.
The Pillar Two rules apply for fiscal years starting on or after 31 December 2023, but there are disclosure requirements that need to be addressed in 2023 year-end financial statements because Article 53(2) of the Pillar Two law provides that for purposes of calculating the effective tax rate (ETR), a group must take into account all deferred tax assets and deferred tax liabilities (DTAs/DTLs) reflected or disclosed in the financial accounts of all of the constituent entities in a jurisdiction for the transition year, which is the first year the Pillar Two rules apply for the group.
The new FAQ provides the following clarifications:
- Confirmation that all DTAs/DTLs that relate to the transition year can be made in the annual accounts of the constituent entity and/or the consolidated accounts. If the DTAs/DTLs are disclosed in the consolidated accounts, they would need to be reliably and consistently traceable to the Luxembourg constituent entity.
- Clarification that the term “constatés dans les états financiers (in English: reflected)” refers to the DTAs/DTLs that are booked in the accounts. The term “tels qu’ils ressortent des états financiers” (in English: disclosed)“ refers to the DTAs/DTLs that are included in the notes to the annual accounts.
- DTAs/DTLs can be reflected (i.e., booked) in the annual accounts or disclosed in the notes to the annual accounts. The FAQ confirms that for purposes of article 53 (2) of the Pillar Two Law, a sole disclosure in the notes is sufficient.
- DTAs/DTLs must be reflected or disclosed in the accounts for the year preceding the transition year (i.e., 31 December 2023, for taxpayers in scope that have a calendar financial year from 1 January 2024 to 31 December 2024).
In addition, the Accounting Standard Commission (Commission des Normes Comptables (CNC)) on 7 March 2024 provided a question and answer (Q&A) covering the possibility to present DTAs/DTLs in the notes of Luxembourg GAAP accounts.
Read a March 2024 report prepared by the KPMG member firm in Luxembourg