Executive summary

The Luxembourg government, on 24 July 2025, submitted a Draft Law aimed at transposing European Union (EU) Directive on Administrative Cooperation (DAC9),¹ which describes the implementation of the Organisation for Economic Co-operation and Development's (OECD's) Global Anti-Base Erosion (GloBE) Information Return (GIR). In line with DAC9, the Draft Law introduces a standardized the Top-up Tax Information Return (TTIR) and establishes a legal framework for the automatic exchange of information of (specific sections of) the TTIR between competent authorities.

The Draft Law also proposes amendments to the Pillar Two Law.² Alongside certain administrative clarifications, these amendments incorporate the Administrative Guidance released in January 2025. These amendments focus on deferred tax assets (DTAs) arising from certain tax benefits provided by the General Government (i.e., all levels of federal, state, regional, local government), an election with retroactive effect or following the introduction of a new corporate income tax after 30 November 2021.

The Draft Law would enter into effect on 1 January 2026; provisions implementing the Administrative Guidance would be effective for financial years starting from 31 December 2023.

Detailed discussion

Standardized TTIR

The Draft Law introduces the standardized TTIR form, as stipulated by DAC9, to be used by Luxembourg-based constituent entities to meet their information return filing obligations. The DAC9 form aligns with the standardized OECD GIR template released in July 2023 and updated in January 2025.

Exchange of sections of the TTIR with other tax authorities

In line with the provisions of DAC9, the Draft Law requires Luxembourg Tax Authorities to automatically exchange specific sections of the TTIR filed by Luxembourg constituent entities with other relevant jurisdictions, provided there is an "eligible competent authority agreement" in place between Luxembourg and that jurisdiction. Which jurisdictions receive which sections of the TTIR is determined under the dissemination approach as provided by DAC9 and the Multilateral Competent Authority Agreement on the Exchange of GloBE Information (GIR MCAA),³ the Draft Law determining the sections of the TTIR to be provided to each applicable jurisdiction.

The Draft Law requires the information to be exchanged no later than three months after the filing deadline for a given reporting fiscal year or, in case of late filing, no later than three months after the date of receipt of the TTIR. For the first year in which the exchange of information requirements apply, the deadline is six months after the filing deadline and no exchange will take place before 1 December 2026.

The Draft Law also establishes procedures foreseen by DAC9 for collaboration on corrections, compliance and enforcement of TTIR obligations. If the Luxembourg Tax Authorities identify errors in a TTIR received from another jurisdiction, they must notify the competent authority of that jurisdiction. Likewise, if Luxembourg Tax Authorities are notified by another jurisdiction regarding errors in the information they have exchanged, they must take appropriate measures to obtain the corrected TTIR from the filing entity. Furthermore, if a Luxembourg constituent entity notifies the Luxembourg Tax Authorities that the TTIR will be filed in another jurisdiction, but no information is received through automatic exchange, a local filing obligation for the TTIR is triggered. In the absence of a Luxembourg constituent entity, this filing obligation may even apply to a Luxembourg joint venture or joint venture subsidiary.

Penalties

To prevent entities from engaging in delaying tactics to postpone filing, the Draft Law introduces a penalty of up to €300k for any Luxembourg constituent entity that has wrongly claimed the exemption from local filing of the TTIR. The Luxembourg Tax Authorities may request proof from the constituent entity that the TTIR has indeed been filed in the other jurisdiction.

Transitional simplified jurisdictional reporting framework

As foreseen by the GIR Guidance, the Draft Law introduces the possibility for constituent entities located in Luxembourg to opt to file a simplified TTIR during a transitional period that includes all fiscal years beginning before 1 January 2029 and ending before 1 July 2030. In such cases, the return may be submitted — specifically for the relevant jurisdictional sections — on a simplified jurisdictional basis rather than on an entity-by-entity basis.

The simplification is available for any jurisdiction other than Luxembourg if either no top-up tax arises for a given fiscal year or a top-up tax liability arises but does not need to be allocated on a constituent entity-by-constituent entity basis. However, the option cannot be exercised with respect to a jurisdiction that does not allow this option to apply to its own qualified domestic top-up tax.

Incorporation of the Administrative Guidance

In line with the OECD Administrative Guidance issued in January 2025 on the application of Article 9.1 of the GloBE Model Rules, the Draft Law clarifies the treatment of deferred tax assets and liabilities that arose prior to the application of the Pillar Two Law. (For background, see EY Global Tax Alert, OECD releases new documents on GloBE rules and on qualified jurisdiction status, dated 17 January 2025.)

The Draft Law proposes excluding:

• Deferred tax assets resulting from a discretionary agreement (including an amendment of a preexisting agreement) with a public authority concluded or modified after 30 November 2021
• Deferred tax assets attributable to an election or choice that is exercised or changed after 30 November 2021, if this option or choice retroactively changes the tax treatment of a transaction for a year for which a tax return was already filed or a tax assessment already issued
• Deferred tax assets and liabilities arising from a difference in value following the introduction of a new corporate income tax after 30 November 2021 and before the Transition Year by a jurisdiction that did not have a preexisting corporate income tax

These exclusions would apply to both the determination of Covered Taxes under the Pillar Two Law and the determination of Simplified Covered Taxes under the Transitional Country-by-Country Reporting (CbCR) Safe Harbor rules.

The Draft Law introduces a two-year grace period (Grace Period) during which a portion of the deferred tax expenses attributable to the reversal of deferred tax assets described above can be considered for purposes of determining top-up-taxes and the CbCR Safe Harbor rules. In line with the Administrative Guidance, the maximum amount that may be included is 20% of the deferred tax asset's amount originally recorded and taken into account at the lower of the 15% minimum rate or the applicable domestic tax rate. The Grace Period applies to all fiscal years beginning during calendar years 2024 and 2025 and ending no later than 30 June 2027, provided that the DTAs were generated no later than 18 November 2024. For DTAs related to the introduction of a new corporate income tax, the Grace Period includes all fiscal years beginning in calendar years 2025 or 2026 but not including a fiscal year that ends after 30 June 2028.

Finally, the Draft Law amends the Pillar Two Law to specify that the QDMTT Safe Harbor will not apply in respect of a jurisdiction that does not exclude the deferred tax expense referred to above from Covered Taxes when determining the amount of top-up-tax or from Simplified Covered Taxes under the Transitional CbCR Safe Harbor.

Entry into effect

The Draft Law will enter into effect on 1 January 2026, with the provisions incorporating the OECD Administrative Guidance being effective for financial years starting from 31 December 2023 onward.

Next steps and implications

The Draft Law will now go through the legislative process, which involves the analysis of the text by a dedicated parliamentary commission, the collection of opinions from different advisory bodies (most importantly, the Council of State), discussion of and vote on the text in a parliamentary session and finally its publication in the Official Gazette (Memorial). The entire process may take a couple of months.

Taxpayers potentially affected by the Draft Law should remain aware of its progress through Parliament and consult with their tax advisors to fully understand how it could affect them.