Luxembourg Tax Update: Pillar Two Developments from 2026
Luxembourg has enacted the Law of 19 December 2025, introducing important updates to Pillar Two reporting and technical rules. While the law formally applies from 1 January 2026, several provisions have retroactive effect and are relevant for earlier financial years.
What’s New?
1. Standardised Pillar Two Reporting (TTIR)
Luxembourg has introduced a standardised Top-up Tax Information Return (TTIR), aligned with the EU’s DAC9 framework, which implements the OECD GloBE Information Return.
The law also establishes a legal basis for the automatic exchange of information between tax authorities, covering specific elements of the TTIR.
2. OECD Guidance on Deferred Taxes Embedded in Luxembourg Law
The new legislation incorporates the OECD Administrative Guidance issued in January 2025, clarifying the treatment of deferred tax assets and liabilities arising before Pillar Two.
Although the law enters into force in 2026, these rules apply to financial years starting on or after 31 December 2023.
3. Grace Period for Deferred Tax Expenses
A limited Grace Period allows part of certain deferred tax expenses to be considered for Pillar Two purposes.
Key points include:
The QDMTT Safe Harbour generally does not apply where deferred tax expenses are not excluded from Covered Taxes.
An exception now applies, in line with OECD guidance, allowing up to 20% of certain deferred tax assets to be recognised during a two-year Grace Period, subject to a cap based on the lower of the 15% minimum rate or the domestic tax rate.
Narrowed Scope of the Grace Period
The Grace Period now applies only to:
Fiscal years beginning from 31 December 2023 and before 31 December 2025, for deferred tax assets generated no later than 18 November 2024; and
Fiscal years beginning from 31 December 2024 and before 31 December 2025, for deferred tax assets linked to the introduction of a new corporate income tax.
This replaces the broader timeline previously proposed.
What Does This Mean for Your Business?
Multinational groups with operations in Luxembourg should:
Prepare for TTIR reporting and data collection requirements.
Review existing deferred tax positions in light of the new OECD-aligned guidance.
Assess the availability and limits of the Grace Period, and
Evaluate potential impacts on Pillar Two Safe Harbour eligibility.
