Luxembourg's new tax bill: Aligning with OECD guidance on Pillar Two
On 12 June 2024, Luxembourg's government submitted a new bill to Parliament, aiming to amend and complete the Luxembourg law of 22 December 2023 implementing the Pillar Two Directive on minimum taxation (Pillar Two).
For your recollection, a summary of the Pillar Two rules are to be found in our previous blog posts on Luxembourg's implementation of Pillar Two which can be accessed here, here and here.
The new bill is set to be debated over the coming months and likely voted on by the end of 2024.
The bill incorporates technical aspects from various OECD guidelines and introduces amendments to existing Luxembourg Pillar Two provisions, along with clarifications on certain technical points. One of the most important amendments and clarifications relates to investment funds which is a cornerstone of the Luxembourg financial services industry.
Key amendments and clarifications:
Extended scope for excluded entities - SPVs and investment funds
Currently an entity is considered an excluded entity if it meets certain activity test and is owned by another excluded entity (such as an investment fund that is the UPE) – the bill in line with OECD comments aims to also include Special Purpose Vehicles (SPVs) owned significantly by "excluded entities" like investment funds or REITs which is not a UPE.
Country-by-country reporting (CbCR) safe harbour
The bill aims to clarify the conditions to benefit from the safe harbour rule notably the requirements to use consistent data to calculate the safe harbour computations, prohibition to adjust the qualified financial statements (unless specifically required by Pillar Two). It also clarifies that groups which are not required to file CbCR may still benefit from the safe harbour.
Qualified domestic top-up tax (QDMTT) changes
New rules clarify that any amount of QDMTT challenged is not taken into account and is only taken into account the year it is paid or no longer contested. Also, the bill provides that functional currency can be used to compute the QDMTT in Luxembourg.
Turnover clarifications
The bill clarifies turnover definitions, ensuring consistent application of the €750 million threshold for group consolidated turnover in case of divergent tax years.
Equity investment inclusion
Updates confirm gains or losses on investments should be taken into account for Pillar Two purposes even if exempt under the Pillar Two rules and hence aligning tax treatment with domestic tax laws (taxable or deductible).
The Luxembourg government assures that these amendments do not violate non-retroactivity principles, emphasising the importance of aligning Luxembourg’s laws with up to date OECD clarifications.
The new Bill can be found (in French) here.
