Key Takeaways

The FAQ (available here in French) focuses on the recognition of pre-Pillar Two regime deferred tax assets (DTAs) and deferred tax liabilities (DTLs) of Luxembourg constituent entities as foreseen in the Luxembourg Pillar Two law adopted in December 2023 (see our Tax Flash).

  • Relevant DTAs and DTLs should be “reflected” or “disclosed” either in the Luxembourg GAAP financial statements of the constituent entity (taking into account the newly issued guidance in this regarding of the Luxembourg Accounting Board available here in French, as regards the determination of the amounts to be disclosed) or in the consolidated financial statements of the ultimate parent entity of the group. In the latter case, the DTAs and the DTLs must be traceable back to the Luxembourg constituent entity in a reliable and consistent manner.
  • The word “reflected” means included in the balance sheet, whereas “disclosed”  means presented in the notes to the financial statements.
  • The FAQ explicitly reconfirms that it suffices to disclose the pre-Pillar Two regime DTAs and the DTLs in the notes to the financial statements, preferably in the financial statements of the year preceding the transition year. Given the current definition of transition year in the Luxembourg law implementing Pillar Two, for entities that benefit from the “transitional CbCR Safe Harbour”, the transition year is the first year in which the main Pillar Two rules apply (i.e., the first year in which the “transitional CbCR Safe Harbour” no longer applies). This is without prejudice to the need to properly reflect DTAs and DTLs in the consolidated financial statements used for purposes of the “transitional CbCR Safe Harbour”.

Next steps

It is expected that this initial FAQ will be expanded in the coming months with further guidance on other topics. A bill of law to explicitly implement additional pieces of OECD guidance into Luxembourg law, and to possibly also introduce mechanisms to mitigate differences between the domestic tax computations and the Pillar Two tax computations, is also expected to be submitted to Parliament in the coming months.

We will keep you informed. Should you have any question on the impact of these FAQs or more broadly of the Pillar Two rules, please reach out to an author of this flash or to your trusted Loyens & Loeff contact.