At a glance

On 22 March 2025, the CNC released its Q&A CNC 25/035 regarding the accounting impacts of the law to enforce the EU Council Directive 2022/2523 (the “Pillar 2 Law”), following the Q&A CNC 24/031 and Q&A CNC 24/032, both published in 2024.

While the CNC’s 2024 Q&As specifically targeted the fiscal year 2023, the current Q&A CNC 25/035 applies to periods preceding the transition year as defined by the Pillar 2 Law (section 1) and to periods starting from the transition year (section 2).

A closer look

This Q&A applies to both individual annual accounts and consolidated accounts prepared by Luxembourg companies or groups under LUX GAAP or LUX GAAP-JV regimes, which are part of a multinational enterprise (MNE) group or a large national group, as defined by the Pillar 2 Law.

Section 1 of the Q&A: preparing annual or consolidated accounts before the transition year(1) under LUX GAAP or LUX GAAP-JV 

The CNC reminds that a company’s management is responsible for determining when the Pillar 2 Law applies based on the criteria introduced by the law.

When a company/group is likely to be in the Pillar 2 Law’s scope, especially if it has exceeded the EUR750 million annual revenue threshold, the company/group could include Pillar 2-related information in the notes to the annual and consolidated accounts. This is a strong recommendation from the CNC when the threshold has been exceeded for the second time in four years.

Companies/groups could provide known or reasonably estimable information in the notes to help users of the annual accounts or consolidated accounts understand their Pillar 2 Law exposure. To achieve this, the CNC recommends companies/groups provide qualitative or quantitative information by analogy with IAS 12, which could be presented in an indicative range. If the information is unknown or not estimable, the company/group should state this and provide an update on the impact and exposure assessment’s progress.

The CNC also reminds that, under Q&A CNC 24/032, a Luxembourgish company in an MNE or large national group under the "Pillar 2" law can present deferred tax assets in the disclosures of its annual accounts. Article 53, paragraph 2 of the "Pillar 2" law requires these groups to consider all deferred tax assets and liabilities in their financial statements for entities in a given jurisdiction.

The CNC encourages the disclosure of deferred tax assets in the notes to the standalone annual accounts, since they provide greater granularity and better traceability (by entity and jurisdiction) than the sole disclosures in the consolidated annual accounts.

Eventually, an in-scope Luxembourgish group is allowed to account for deferred tax assets in its consolidated accounts under LUX GAAP or LUX GAAP-JV, if these assets are highly probable to be recovered in the foreseeable future.

Regarding the calculation of the deferred tax asset amounts to be presented in the disclosures of the annual accounts or consolidated accounts for the last financial year before the transition year, the CNC recommends using the gross amount of tax attributes or temporary differences, applying the latest known and applicable income tax rate in Luxembourg. For example, this was 23.87% for companies based in Luxembourg City in 2024.

Luxembourg companies do not need to analyze the recoverability of deferred tax assets regarding carried forward tax losses. Instead, they can use the gross amount for calculations. However, if an in-scope Luxembourg group chooses to recognize deferred tax assets instead of presenting them in the disclosures, an analysis of recoverability is required. This ensures only highly probable recoverable deferred tax assets are recognized in consolidated accounts under LUX GAAP or LUX GAAP-JV.

Section 2 of the Q&A: preparing annual or consolidated accounts starting from the transition year⁽¹⁾ under LUX GAAP or LUX GAAP-JV 

From the date the Pillar 2 Law applies to a company/group, they must no longer provide prospective information on the expected Pillar 2 tax exposure. Instead, they should record related tax expenses and payables and provide relevant information on the actual impacts.

Regarding the financial period starting from the transition year, the CNC identifies two possible scenarios:

1. An in-scope Luxembourg company/group where the Pillar 2 taxes are insignificant or there is no tax charge: generally, no information is required in the disclosures, as the accounts already provide a true and fair representation. However, if the company's management deems the information relevant for users, supplementary information could be provided.
2. An in-scope Luxembourg company/group where the Pillar 2 taxes are significant: the disclosures should include additional detailed information to achieve a true and fair view. The disclosures’ specific content is at the management's discretion and aimed at providing a faithful representation. Illustratively, this could include a separate presentation of the tax expenses arising from the Pillar 2 Law.

Luxembourg companies/groups are not required to account for or disclose information on Pillar 2 deferred taxes (QDMTT, IIR and UTPR)⁽²⁾ in their notes, by analogy with IAS 12.

For groups recognizing deferred taxes in their consolidated accounts, the CNC recommends applying the IAS 12 principles regarding the mandatory exception from recognizing and disclosing deferred tax relating to Pillar 2 income taxes and the requirements to disclose the exception’s application.

• Option to disclose deferred tax information: the CNC recommends that in-scope groups, which choose to mention deferred tax assets in their annual or consolidated account disclosures, should maintain detailed tracking of deferred tax information, including the use and changes in tax attributes. This approach ensures granular, traceable information and a faithful representation of the annual accounts.
• Option to account for deferred tax assets: Luxemburgish in-scope groups that establish their consolidated accounts under LUX GAAP or LUX GAAP-JV can opt to account for deferred tax assets if they are highly likely to be recovered in the foreseeable future. Once this option is exercised, groups are required to consistently continue accounting for deferred tax assets in their consolidated accounts and provide detailed tracking information in the disclosures, following the principle of consistency in methods.

The CNC recommends recording Pillar 2 tax charges and liabilities by using existing PCN accounts related to other taxes/tax liability, possibly creating subdivisions of these accounts for QDMTT, IIR, and UTPR⁽²⁾.

⁽¹⁾ For the purposes of the Pillar 2 Law’s Article 53, paragraph 1, “(...) the term ‘transition year’ for a jurisdiction shall mean the first fiscal year during which an MNE group or a large national group falls within the scope of this law. Notwithstanding the first sentence, in cases where constituent entities of an MNE group or a large national group benefit from the protection regime referred to in Article 59, the transition year for these constituent entities corresponds to the fiscal year following the year in which the protection regime no longer applies to these constituent entities."

⁽²⁾ Qualified Domestic Minimum Top-up Tax (QDMTT), Income Inclusion Rule (IIR) and Undertaxed Profit Rule (UTPR).