The cross-application of consolidation exemptions

One of the most relevant updates for the Luxembourg market concerns the applicability of consolidation-related exemptions to financial reporting obligations. The State Council had asked the legislator in its comments issued on 12 July 2024 to clarify its intention with respect to the reflection of these exemptions in Bill 8370, particularly in light of recital 26 of the CSRD, which differentiates between exemptions applicable to financial and to sustainability reporting.

The Luxembourg legislator clarified that Recital 26 specifically pertains to the exemptions outlined in paragraphs 3 to 8 of Article 23 of Directive 2013/34, which concerns parent undertakings that are subsidiaries of another undertaking, but those entities benefiting from multiple consolidation exemptions under Luxembourg law will be exempt from preparing a sustainability report. In  their October update, the legislator referenced Articles 1711-8 and 1711-9 of the Law of 10 August  1915, on commercial companies, Article 83 of the Law of 17 June 1992, on the accounts of credit institutions, and Article 98 of the Law of 8 December  1994, on the annual and consolidated accounts of insurance and reinsurance companies.

Despite the State Council’s initial calls for clarification, the October amendments address  this issue in a broad manner. Nonetheless, the commentary highlighting the legislator’s  intentions proved sufficient to resolve  the State Council’s objections, which did not comment on the legislator’s alternative proposition to include more specific references.

The most notable of such exemptions is the Private Equity Exemption under article 1711-8 paragraph (3), subparagraph (1) of the 1915 Law, which excludes from the scope of consolidated financial statements entities whose “shares […] are held exclusively with a view to their subsequent resale”.

Other exemptions from financial reporting will apply equally to sustainability reporting under Bill 8370, mainly derived from article 23, paragraphs 9 and 10 of Directive 2013/34, including the exemption applicable to holding companies with insignificant subsidiaries.

Publishing requirements

The October amendments also specified that in those cases where a company is exempt from the requirement to prepare a consolidated management report but is required to publish consolidated sustainability information, the consolidated sustainability information should be published as a separate document complying with the format criteria under Directive 2022/2464 and such document being filed with the Luxembourg Trade and Companies register (the RCS).

The interaction with Directive 2013/34 transposition

 As we previously stated in an existing website article, (CSRD update - Luxembourg draft bill for the transposition of CSRD | Loyens & Loeff), draft bill 8286 amending the Luxembourg law of 19 December 2002 on the register of commerce and companies and the accounting and annual accounts of companies (the 2002 Law) is currently under consideration by the Luxembourg legislature. Its form continues to affect the impact and applicability of the transposition of the CSRD directive in Luxembourg law.

One such notable instance relates to the rules determining when and for how long an entity must meet the size thresholds in order to be subject to sustainability reporting obligations. As stated in Bill 8370, the size thresholds established by the Accounting Directive have been adjusted by Delegated Directive (EU) 2023/2775 (see figures here CSRD update - Luxembourg draft bill for the transposition of CSRD | Loyens & Loeff). The size thresholds are to be met for two consecutive financial years in order for an entity to fall into the relevant category for the purposes of sustainability reporting.