Pillar Two law update and implementation of automatic exchange of GloBE information Return

At a glance

On 24 July 2025, the Luxembourg government submitted a new draft law (Bill N. 8591 or “the bill”) to Parliament. The bill has the main objectives of transposing Council Directive (EU) 2025/872, also known as DAC 9, into domestic law, and implementing domestically the administrative guidelines approved by the OECD/G20 Inclusive Framework on BEPS (“inclusive framework”) on 13 January 2025 (“January 2025 approved administrative guidelines”).

On the same day, the government also issued a draft grand-ducal regulation on the format to be used to file the top-up tax information return, as required under article 50 of the Luxembourg Pillar Two law (Law of 22 December 2023 related to the global minimum level of taxation of multinational enterprise groups and large-scale domestic groups).
 

A closer look

Automatic exchange of information for Pillar two purposes 

The first chapter of the bill addresses the automatic exchange of information for Pillar two purposes by transposing DAC 9 into domestic law. The Council Directive 2011/16/EU on administrative cooperation in the field of taxation was amended by DAC 9 to set up a framework for the automatic exchange of top-up tax information returns between the competent authorities of EU member states. The bill also addresses the automatic exchange of information with third countries.

Article 50 of the Luxembourg Pillar Two law requires each Luxembourg constituent entity of a multinational enterprise group or large-scale domestic group to file with the Luxembourg tax authorities a top-up tax information return, also known as a GloBE information return (GIR). The GIR must be filed within 15 months from the end of the fiscal year (or 18 months for the first year of application of the Pillar Two rules).

A Luxembourg constituent entity may be exempted from the filing obligation when the GIR is filed by:

1. Another Luxembourg designated entity;
2. The ultimate parent entity; or
3. A foreign designated constituent entity.

In cases 2) and 3), the exemption applies only to the extent the filing entity is located in a jurisdiction that has concluded, for the reporting tax year, (i) an eligible competent authority agreement (central filing) that has entered into force in Luxembourg, and (ii) the jurisdiction is included in a specific list to be published in a grand-ducal regulation.

When exempted from the filing obligation, the Luxembourg constituent entities must still notify the Luxembourg tax authorities, indicating the designated entity responsible for the filing and the jurisdiction in which it is located.

The bill addresses situations within and outside the EU. From an EU perspective, recital 4 of DAC 9 confirms that the directive constitutes an eligible agreement between EU member states. Accordingly, for purposes of exempting Luxembourg constituent entities from GIR filing obligations, it is considered that an agreement is in place between the EU member states and Luxembourg.

With regard to jurisdictions outside the EU, Luxembourg should rely on either the OECD’s Multilateral Competent Authority Agreement on the Exchange of GloBE Information (“multilateral agreement”) or any other relevant bilateral agreement in place. For purposes of the filing obligation exemption, according to the multilateral agreement, an exchange between competent authorities may only take place if the exchange relationship has been activated between the competent authorities for the relevant reporting tax year.

In this respect, Luxembourg signed the multilateral agreement on 26 June 2025.  On 6 August 2025, the OECD published the list of signatories to the instrument, including 14 jurisdictions, out of which four non-EU countries (Japan, Korea (ROK), New Zealand, and the UK).   

The draft law also confirms that the work and the guidelines produced by the OECD and the inclusive framework in relation to the GIR should be taken into consideration for purposes of implementing and interpreting the bill.

On the other hand, when the GIR is filed in Luxembourg in accordance with article 50(5) of the Pillar Two law, the tax authorities should automatically exchange information in accordance with the dissemination approach, provided that the other jurisdictions have entered into, for the reporting tax year, an eligible competent authority agreement that has entered into force in Luxembourg and the jurisdiction is included in a specific list to be published in a grand-ducal regulation.

According to the dissemination approach, exchange of information, or part of information, with a given jurisdiction is performed only to the extent the information is relevant for the application of the Pillar Two rules implemented by the jurisdiction in question.

The deadline for the exchange of information would be no later than three months after the filing deadline for the reporting year, extended to six months for the first year of application of the Pillar Two rules (e.g., the first exchange of information would occur by 31 December 2026 for the first tax period starting on 1 January 2024). In case of late filing by the Luxembourg constituent entity, the automatic exchange of information should occur within three months of receipt of the GIR.

When, according to the notification provided by the Luxembourg constituent entities, the GIR should be filed in another jurisdiction but the exchange of information has not taken place with the Luxembourg tax authorities within three months (or six months, as applicable) after the filing deadline set by the Pillar Two rules, the tax authorities may notify the other competent authority in order to obtain the missing information for purposes of applying the Pillar Two law.

If, within three months from the request, the Luxembourg tax authorities have not received the GIR, they could request that the local constituent entities or the local designated entity file the GIR within one month from the request.

As provided in article 50(2) of the Pillar Two law, the format to be used to file the GIR return is to be determined by a grand-ducal regulation. On 24 July 2025, a draft regulation was published to complete the transposition of the automatic exchange of information. The grand-ducal regulation provides for a standard GIR form that Luxembourg constituent entities should use when the GIR filing obligations apply. This form is considered aligned with the DAC 9 Annex and the OECD’s latest model from January 2025. The regulation is expected to become effective on 1 January 2026.
 

Implementation of OECD guidelines and amendment of the Luxembourg Pillar Two law 

The second chapter of the bill aims to implement the January 2025 approved administrative guidelines by amending the text of the Luxembourg Pillar Two law.

These latest administrative guidelines provide further clarifications on the transition phase and on the recognition of the deferred taxes recognized prior to the transition year. These clarifications were necessary to address tax benefits or relief granted to groups of companies by certain jurisdictions during the transition period to mitigate the impact of the Pillar Two rules during their first years of application.

As such, the bill proposes to add a new paragraph 5 to article 53 of the Pillar Two law. This paragraph lists three different circumstances. If these circumstances occur after 30 November 2021, any related deferred tax assets (DTAs) or deferred tax liabilities (DTLs) should not be recognized for Pillar Two purposes under the transition rules:

• DTAs resulting from a governmental arrangement, if the transaction provides for a specific tax credit or tax relief that could not have been obtained independently under local tax rules;
• DTAs resulting from an option or election exercised or modified by a constituent entity, when it retroactively changes the tax treatment of a transaction for a tax year for which a tax return has already been filed or for which a tax assessment has already been issued; and
• DTAs or DTLs arising from the implementation of a corporate income tax that was introduced by a jurisdiction that previously did not have any corporate income tax in place.

The proposed changes also would have a direct effect on the application of safe harbors. As a result, deferred taxes arising from the above scenarios would be denied for purposes of the simplified effective tax rate computation of the transitional country-by-country reporting safe harbor rules. Also, the qualified domestic minimum top-up tax safe harbor would not apply in relation to a jurisdiction where the above deferred taxes arise but are not excluded by this jurisdiction based on a methodology described in article 53 paragraph 5 of the Luxembourg Pillar Two law.

Although the bill clarifies that it is unlikely that such deferred taxes could have been generated in Luxembourg during the transition phase, it highlights the importance of incorporating these clarifications into the Pillar Two law so that assessments can be conducted for other jurisdictions.

In addition to the amendments above, the bill introduces the following key amendments:

• Registration requirements: According to the clarification provided under article 49, when joint ventures and the subsidiaries of a joint venture are registered for Pillar Two purposes in Luxembourg and no other constituent entity is present in Luxembourg, these entities should provide the name and the country of the filing entity for their multinational or large-scale domestic group.
• Penalties related to GIR filing: The Luxembourg tax authorities would be allowed to levy, on a case-by-case basis, a penalty up to EUR 300,000 if a Luxembourg constituent entity declares that the GIR is filed in another jurisdiction but it cannot provide proof of the original GIR filing.
• Transitional simplified jurisdictional reporting framework: Subject to certain conditions, the bill introduces the option to elect a transitional simplified jurisdictional reporting framework, which would allow the reporting of jurisdictional sections on a simplified basis within the GIR.

What comes next 

The bill will go through the legislative process, during which it might be partially amended. The law is expected to be approved before the end of 2025 and thus would be generally applicable as from 1 January 2026. However, the provisions related to the implementation of the January 2025 approved administrative guidelines would have retroactive effect as from fiscal years beginning on or after 31 December 2023.