Pillar 2 Dashboard: Luxembourg

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 and the EU DAC 9 GIR filing requirements: and

– a draft Regulation which includes the format of the GIR.

On June 12, 2024, the Luxembourg Government published draft law amending the law of 22 December 2023 on the minimum effective taxation for multinational enterprise groups and large domestic groups. The draft law provides for a number of amendments in the December 2023 OECD Administrative Guidance. On October 31, 2024 additional amendments were made to the draft legislation to incorporate elements from the OECD June 2024 Administrative Guidance. The draft law was approved by Parliament on December 19, 2024 and published in the Official Gazette on December 23, 2024.

On March 25, 2024, the Luxembourg Government issued a FAQ on its Pillar 2 law.

On December 22, 2023, the Luxembourg Official Gazette published Law A864 to transpose the EU Minimum Tax Directive.

Grand-Ducal Regulation of 22 December 2023 on the procedures for registration and deregistration, notification and filing of the information return for the supplementary tax with the Direct Tax Administration

On 20 December 2023, the Luxembourg Parliament voted to approve the draft law n°8292 transposing the EU Minimum Tax Directive.

On November 13, 2023, the Luxembourg Government issued amendments to update its draft law implementing the EU Minimum Tax Directive.

On 4 August 2023, the Luxembourg government issued Draft Law No. 8292 to implement the EU Minimum Tax Directive.

As provided in the EU Minimum Tax Directive, the Law confirms that taxpayers should use the GloBE Rules, the Pillar Two Commentary and the GloBE Administrative Guidance as sources of illustration or interpretation.

Whilst the original draft law did not include many aspects of the OECD Administrative Guidance, the final approved bill provides for a lot of the provisions.

The Law implements a transitional country-by-country report (CbCR) Safe Harbour in line with the GloBE Safe Harbours and Penalty Relief documentation. This aims to provide transitional relief for MNE groups operating in low-risk jurisdictions in the initial years during which the rules come into effect.

The UTPR Safe Harbour and the QDMTT Safe Harbour are included, as are the Simplified Calculation Safe Harbour and provisions for Non-Material Constituent Entities.

The Explanatory Notes to Article 20 of the Law provide that Luxembourg covered taxes include corporate income tax, municipal business tax and the net worth tax.

Differences to Model Rules

In general the provisions in the Luxembourg global minimum tax law closely follow the rules set out in the EU Global Minimum Tax Directive. However, the structure of the law is different to both the EU Directive and the GloBE Model Rules.

The differences are therefore minor.

Given the Luxembourg draft law is based on the EU directive, the scope of the global minimum tax also applies to domestic groups as well as international groups. As such, the definitions in the Model Rules relating to an MNE group including at least one entity or permanent establishment which is not located in the jurisdiction of the ultimate parent entity isn’t included in the Luxembourg draft law.

The Luxembourg law applies the UTPR via a separate additional tax. Therefore the specific requirements in the Model Rules and EU Directive that apply to UTPRs implemented as a denial of a deduction (eg Article 2.4.2) do not apply. As such, there is no equivalence to Article 2.4.2 of the OECD Model Rules in the Luxembourg law for the carry-forward of excess UTPR top-up tax.

Administrative Guidance

The November 2023 update to the draft law included numerous aspects of both the First and Second Set of OECD Administrative Guidance.

This includes:

-Forex hedge election (Article 2.2)

-Excluded Dividends – Asymmetric treatment of dividends and distributions (Article 2.3)

-Debt release election (Article 2.4)

-Accrued Pension Expenses (Article 2.5)

-Excess negative tax carry-forward guidance (Article 2.7)

-Substitute Loss-carry forwards (Article 2.8)

-Equity Gain or loss inclusion election (Article 2.9)

-Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10)

-The extension of the taxable distribution method election to insurance investment entities (Article 3.1)

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

-The extension of Additional Capital to include Restricted Tier One Capital (Article 3.3)

-Portfolio shareholding election (Article 3.5)

-Tax Credits Guidance (MTTCs) (Article 2 Second Set of OECD Administrative Guidance) to be provided by Ducal Regulation

-SBIE Rules – Foreign rules (Article 3 Second Set of OECD Administrative Guidance)

The 2024 Tax Amendment Law includes all aspects of the Third and Fourth Set of OECD Administrative Guidance (some are subject to further Grand-Ducal Regulations).

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

Safe Harbour and Penalty Relief Guidance

The Law implements a transitional country-by-country report (CbCR) Safe Harbour in line with the GloBE Safe Harbours and Penalty Relief Guidance. This aims to provide transitional relief for MNE groups operating in low-risk jurisdictions in the initial years during which the rules come into effect.

The final law also includes other Safe Harbours from the July 2023 Administrative Guidance and the OECDs Safe Harbours and Penalty Relief Guidance.

Transitional UTPR Safe Harbour

Section 58 of the law implements the Transitional UTPR Safe Harbour in Section 5.2 of the July 2023 Administrative Guidance.

This deems the UTPR Top-up Tax amount for a UPE Jurisdiction  to be zero if the UPE Jurisdiction has a corporate income tax rate of at least 20 percent.

It applies for Fiscal Years which begin on or before 31 December 2025 and end before 31 December 2026.

The guidance to the law notes that Luxembourg, with a nominal corporate tax rate of at least 20 percent, should be eligible for this Safe Harbour if a UTPR, based on the law of another jurisdiction is likely to apply during the period in respect of Luxembourg constituent entities where the UPE of the MNE group is located in Luxembourg.

The 2024 Tax Amendment Law includes all amendments to the operation of the Transitional CbCR Safe Harbour in the Third Set of OECD Administrative Guidance.

QDMTT Safe Harbour

Article 14 of the law implements the QDMTT Safe Harbour in Article 5.1 of the July 2023 Administrative Guidance.

The QDMTT Safe Harbour excludes the application of the GloBE Rules in other jurisdictions by deeming the Top-up Tax payable under the GloBE Rules to be nil where top-up tax is levied under a QDMTT.  The MNE Group therefore only needs to undertake one calculation.

However, this then opens up a risk that the QDMTT tax may be much less than any GloBE top-up tax that would have been due. This would undermine the international application of the GloBE rules.

Therefore, to qualify for the QDMTT safe harbour a QDMTT must meet three conditions specified in the July 2023 OECD Administrative Guidance (the QDMTT Accounting Standard, the Consistency Standard and the Administration Standard).

Some jurisdictions, (such as Germany) are including these requirements in their QDMTT legislation. Luxembourg takes a different approach and states that a jurisdictions QDMTT would only qualify for the QDMTT Safe Harbour if it qualified under the Inclusive Framework peer review process.

This would then imply that they have met the OECD Standards.

Permanent Safe Harbour

Article 32 of the law implements the permanent safe harbour, as provided in the OECD Safe Harbour and Penalty Relief Guidance – albeit with further work still be done.

Article 32 also reflects the Non-Material Constituent Entity provisions in the OECD Safe Harbour and Penalty Relief Guidance.

Elections

The law includes all of the key elections as provided in the OECD Model Rules, including:

–  Excluded Entity Election (Section 2(3) of the law)
–  Election to use the Realization Method (Section 16(6) of the law)
–  Stock-Based Compensation Election (Section 16(3) of the law)
–  Election to Spread Capital Gains (Section 16(7) of the law)
–  Consolidation Election (Section 16(9) of the law)
–  GloBE Loss Election (Section 23 of the law)
–  Tax Transparency Election (Section 42 of the law)
–  Taxable distribution Election (Section 43 of the law)
–  Unclaimed Accrual Election (Section 22(1)(b) of the law)
–  Distribution Tax Regime Election (Section 40(1) of the law)
–  Substance-Based Income Exclusion Election (Section 28(2) of the  law)
–  Prior Year Adjustment Election (Section 25(1) of the law)
–  De minimis Election (Section 30(1) of the law)
–  Deemed Disposal Election (Section 35(5) of the law)
–  Transitional CbCR Safe Harbour Election (Section 32(2) of the law)

Elections in the Administrative Guidance

All of the elections in the OECD Administrative Guidance are included. This includes the:

-Foreign Exchange Hedge Election (Section 16 of the law);

-Debt Release Election (Section 16 of the law).

-Portfolio Shareholding Election (Section 16 of the law);

-Excess Negative Tax Carry-Forward Election (Section 21 of the law);

-Equity Investment Inclusion Election (Section 16 of the law);

-QDMTT Safe Harbour Election (Section 14 of the law);

-UTPR Safe Harbour Election (Section 58 of the law).

Qualifying Domestic Minimum Top-Up Tax

Article 44 of the law includes a domestic minimum tax that is likely to be a QDMTT. This allows Luxembourg to levy top-up tax on the profits of low-taxed domestic entities of MNE groups.

The calculation of the QDMTT is relatively straightforward. In particular, it applies the Top-Up Tax calculated under the general GloBE rules and then subjects this to a very small number of adjustments.

Key points to note are:

– In order to avoid circularity, the top-up tax calculation formula for the QDMTT must be amended so that the QDMTT itself is not deducted. Article 44(2) of the Law provides for this.

– Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in 44(5) of the Law.

– Article 44(5) of the Law also excludes taxes incurred by Hybrids (as provided in the second set of Administrative Guidance) and taxes on distributions (unless the tax charge is levied under Luxembourg tax law). The December 2024 Amendment Law also extends the restriction to Reverse Hybrids as stated in Article 5.6.2 of the June 2024 OECD Administrative Guidance.

– Article 44(6) of the Law provides that instead of using the UPEs accounting standard, MNEs calculate GloBE income for QDMTT purposes using Luxembourg Accounting Standards or IFRS. Article 11 of the 2024 Amendment law provides that the IFRS to be used in the event that several admissible financial accounting standards applicable in Luxembourg are used by the Constituent Entities of the Group, are the IFRS as adopted by the European Union in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

For this to apply all the constituent entities of the MNE or domestic group located in Luxembourg must prepare financial statements based on Luxembourg GAAP or IFRS, and their financial year must be the same as the consolidated financial statements.

If these conditions are not met, the domestic minimum tax is calculated:

-using the financial accounting standard of the ultimate parent entity, and,

-if that is not practicable, on the basis of an accepted or approved accounting standard, if:

o          the constituent entity’s financial statements are prepared in accordance with that standard,

o          the information contained in the financial statements is reliable; and

o          permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

– Article 11 of the 2024 Tax Amendment Law provides that where all the Constituent Entities in the jurisdiction use Luxembourg GAAP and the euro as their functional currency, the QDMTT requires the relevant computations in euros.

However, if not all Constituent Entities in the jurisdiction use euros as their functional currency, the Filing Constituent Entity may make a Five-Year Election to undertake the QDMTT computations for all Constituent Entities in the jurisdiction either:

– in the presentation currency of the Consolidated Financial Statements; or

– in euros.

– Article 44(4) of the Law provides that Top-up Tax under a QDMTT in respect of Joint Ventures and Minority-Owned Constituent Entities is the whole amount irrespective of the fact that the UPE would only be subject to tax on its share of the Top-up Tax arising from Joint Ventures, JV subsidiaries, MOCEs. This reflects the OECD Administrative Guidance.

– Article 11 of the 2024 Draft Tax Amendment Law applies the initial phase of international activity exemption for QDMTT purposes.

-The June 2024 OECD Administrative Guidance provides various options to jurisdictions that have implemented a QDMTT in respect of securitisation vehicles:

     -(i) application of the jurisdiction’s QDMTT to securitisation vehicles without any specific adjustment of the rules;

     -(ii) exclusion of securitisation vehicles from the scope of the QDMTT; or

     -(iii) inclusion of securitisation vehicles in the scope of the QDMTT while providing that the amount of QDMTT that has been determined for a securitisation vehicle is imposed on another Constituent Entity located in the same jurisdiction and forming part of the same MNE Group.

Article 12(3) of the 2024 Draft Tax Amendment Law applies option (iii). However, if there are no other constituent entities located in Luxembourg, the amount of QDMTT for a securitisation vehicle is allocated for the purposes of the payment of the QDMTT to the securitisation vehicle itself.

– There are therefore very few adjustments for the Luxembourg QDMTT. The OECD Administrative Guidance allows for more flexibility for the QDMTT design, but the Luxembourg QDMTT is very similar to top-up tax for GloBE purposes. For instance, the OECD Administrative Guidance provides that:

        – The QDMTT can be more restrictive than the GloBE Rules where the tighter restriction is consistent with local tax rules.
        – The GloBE Loss Election, Substance-Based Income Exclusion and De Minimis rules do not need to be included.

For Luxembourg QDMTT purposes none of these adjustments are made and the general GloBE rules apply.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the OECD Guidance.

The proposed approach is that every Constituent Entity located in Luxembourg will have an obligation to file a GIR in Luxembourg. However, this obligation can be discharged if the GIR is filed by:

– The Ultimate Parent Entity, or
– The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Revenue.

The notification must contain:

– Details of the entity that is filing the GIR, and
– The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

Both the GIR and associated notifications must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Section 51 of the law also requires submission of an additional domestic top-up tax return and self- assessment return (referred to as a ‘GloBE Top-Up Tax Return’) where top-up tax is payable. The same filing deadline applies for the GloBE Top-Up Tax Return as for the GloBE Information Return.

Article 10 of the July 2025 Draft Law includes the Transitional Simplified Reporting Election from the OECD GloBE Information Return Guidance. The Draft Law also 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.

Payment

The top-up tax liabilities must be paid within one month of filing the GloBE Top-Up Tax Return under Section 51(5)(b) of the law (i.e. 15 months after the end of the Fiscal Year, extended to 18 months in the first year).

Penalties

Sections 51 and 52 of the law governs the application of interest and penalties.

Section 51(5)(f) provides that late payment of top-up tax incurs interest under Article 155 of the Income Tax Law.

Specific penalties are not provided, however, Section 52 applies the general penalty provisions in the law on the collection of direct taxes.

None issued.