Luxembourg Issues a Draft Law to Implement January 2025 OECD Administrative Guidance and EU DAC 9

On July 24, 2025, the Luxembourg Government issued:

 – a draft law to amend its Minimum Tax Law to provide for the January 2025 OECD Administrative Guidance, as well as EU DAC 9 Directive amendments and the Transitional Simplified Reporting Election: and

 – a draft Regulation which includes the format of the GIR

The amendments are proposed to enter into force from January 1, 2026, except for the January 2025 Administrative Guidance changes which which take effect from tax years beginning on or after December 31, 2023.

January 2025 OECD Administrative Guidance

Article 9 of the Draft Law includes the amendments to Article 9.1.1 from the January 2025 OECD Administrative Guidance.

The general rule under Article 9.1.1 of the OECD Model Rules, is that in the transition year, deferred tax assets and liabilities of the entity are recognised at the lower of:

-the domestic tax rate used in the accounts; and

-the 15% global minimum rate.

The restriction on deferred tax assets being recognised at a maximum of the 15% global minimum rate prevents an MNE group reducing top-up tax by creating large releases to the P&L on the utilisation of a high tax deferred tax asset.

A special transitional rule in Article 9.1.2 of the OECD Model Rules applies to deferred tax assets that arise from permanent differences that are included in calculating taxable income but not Pillar Two GloBE income.

Note that this can apply to both timing differences and permanent differences where they aren’t reflected in Pillar Two GloBE income.

This will frequently arise from a permanent difference.

Typical examples are many of the tax-specific deductions that don’t apply for accounting purposes, such as a specific enhanced tax deduction.

Where the deferred tax asset is created in a transaction that takes place after 30 November 2021 it is not included in adjusted covered taxes.

This means that on the release of the asset there is no debit to the deferred tax charge in the P&L and no increase in the Total Deferred Tax Adjustment Amount under Article 4.4 (ie adjusted covered taxes).

The amendment now includes deferred tax assets that are ‘not attributable to the prepayment of tax in relation to income that would or will be included in GloBE Income or Loss’. It also includes ‘tax benefits that are designed to achieve similar effects as the example described above, including tax credits based on future expenditure or activity’.

It also confirms that Article 9.1.2 is not limited to commercial transactions and it includes any agreement, ruling, decree, grant or similar arrangement with a General Government.

The new Section 8.5 inserted in the OECD Commentary by this Administrative Guidance confirms that this will apply to:

a. A deferred tax asset that is attributable to a governmental arrangement concluded or amended after 30 November 2021 where such governmental arrangement provides the taxpayer with a specific entitlement to a tax credit or other tax relief (including, for example, a tax basis step-up) that does not arise independently of the arrangement. 

b. A deferred tax asset that is attributable to an election or choice exercised or changed by a Constituent Entity after 30 November 2021 and that retroactively changes the treatment of a transaction in determining its taxable income in a tax year for which an assessment by the tax authority was already made or a tax return was already filed.

c. A deferred tax asset or a deferred tax liability arising from a difference in the tax basis or value and accounting carrying value of an asset or liability if the tax basis or value was established pursuant to a corporate income tax that was enacted by a jurisdiction that did not have a pre-existing corporate income tax and that was enacted after 30 November 2021 and before the Transition Year.

The new Articles 8.8-8.12 of the OECD Commentary inserted by this Administrative Guidance contains a grace period under which the deferred tax expenses, (subject to a cap of 20% of the original deferred tax asset at the lower of 15% or the domestic CIT rate), can be included in the Total Deferred Tax Adjustment Amount under Article 4.4 or Simplified Covered Taxes under the Transitional CbCR Safe Harbour.

For (a) and (b) above, the grace period applies to DTA reversals in fiscal years beginning on or after 1 January 2024 and before 1 January 2026 but not including a Fiscal Year that ends after 30 June 2027,

For (c) the grace period applies to DTA reversals in fiscal years beginning on or after 1 January 2025 and before 1 January 2027 but not including a Fiscal Year that ends after 30 June 2028.

The grace period does not apply to relevant arrangements that arise after November 18, 2024.

In addition, the Transitional CbCR Safe Harbour is amended to exclude the reversals from the definition of simplified covered taxes and Article 5 of the Draft Law amends the QDMTT Safe Harbour to apply the Switch-Off rule to jurisdictions that allow the DTA reversals to be taken into account for adjusted covered taxes (or for Transitional CbCR Safe Harbour purposes).

Transitional Simplified Reporting Election

Article 10 of the Draft Law includes the Transitional Simplified Reporting Election.

The Transitional Simplified Reporting Election was included in the OECD GloBE Information Return Guidance. 

It provides for a simplified jurisdictional reporting mechanism for Fiscal Years beginning on or before December 31, 2028 but not including a Fiscal Year that ends after June 30, 2030.

It’s purpose is to give MNE Groups additional time to develop their IT and accounting systems to accommodate reporting on a constituent entity (CE) basis.

MNE Groups can elect for a simplified jurisdictional reporting framework for jurisdictions where:

-no Top-up Tax liability arises; or

-Top-up Tax liability arises but it does not need to be allocated on a CE-by-CE basis.

Where the election is made, the MNE Group is not required to report all adjustments to the Financial Accounting Net Income or Loss, current tax expense or deferred tax expense on a CE-by-CE basis (other than in respect of a few specific items) and all adjustments can be reported on a net basis. 

It therefore does not apply where a Top-up Tax liability arises and needs to be allocated on a CE -by-CE basis. 

Note that the election only applies for reporting purposes. When the GloBE Rules require a calculation to be undertaken at the CE level, this calculation still needs to be done at the CE level even if the information is then reported in an aggregated format in the GIR.

DAC 9

The Draft Law implements the EU DAC 9 amendments. This simplifies reporting in-scope groups by enabling central filing of a top-up tax information return (TTIR) and introduces a standard form for filing the TTIR across the EU, in line with the GIR.