Pillar 2 - Clarification of filing obligations (Luxembourg FAQ - June 2026)

As the first Pillar 2 filing deadline approaches, the updated FAQ issued by the Luxembourg tax authorities provides important clarifications regarding the filing obligations applicable to in-scope entities.

These clarifications are particularly relevant as they confirm the interaction between the registration requirement (Article 49 of the Pillar 2 Law - P2 Law), the GloBE Information Return (GIR) (Article 50 P2 Law) and the local top-up tax returns (Article 51 P2 Law).

They also provide practical guidance and examples on how groups should approach compliance following registration, mostly aligning local filing obligations where top-up tax is due. 

GloBE Information return notification (Article 50 P2 Law)

The FAQ confirms that Luxembourg does not require a systematic local filing of the GIR where the conditions for centralised filing are met. In such cases, Luxembourg constituent entities may rely on the filing performed in another jurisdiction.

This is, however, subject to a mandatory notification requirement. Luxembourg entities (or a designated local entity acting on their behalf) must notify the Luxembourg tax authorities of the identity of the filing entity and the jurisdiction in which the GIR is submitted. This notification must be made as part of the registration process (i.e., no separate GIR notification exists in Luxembourg).

The FAQ further introduces a transitional administrative approach in jurisdictions where the exchange of information mechanisms are not yet fully operational (including, for example, Switzerland, Turkey and Barbados). In such cases, Luxembourg will, until 31 December 2026, accept that no local GIR filing is required, provided that the return is duly filed abroad and exchanged with Luxembourg by 31 December 2026. If the relevant information is not subsequently exchanged with Luxembourg, a local filing obligation may arise. 

Local top-up tax returns (Article 51 P2 Law)

The FAQ generally clarifies that local filing obligations in Luxembourg are not automatic. Instead, they arise mainly where a Luxembourg constituent entity is subject to, or allocated, top-up tax under one of the Pillar 2 charging mechanisms, IIR, UTPR and QDMTT.

• Income Inclusion Rule (IIR)

Where a Luxembourg entity, typically the ultimate parent entity (UPE), a Partially Owned Parent Entity (POPE) or an Intermediate Parent Entity (IPE), is subject to the IIR and this results in top-up tax being effectively due, it is required to file a Luxembourg top-up tax return.

The FAQ clarifies that, where no top-up tax is due under the IIR collection mechanism, in principle no top-up tax return should be filed. For example, this could arise where none of the constituent entities in scope are low taxed, or in case of application of the transitional CbCR safe harbour provisions.

Exception: a nil top-up tax return is still required where the absence of top-up tax results from the substance-based income exclusion exceeding the GloBE income. This exclusion reduces the amount of GloBE income exposed to top-up tax by carving out a return linked to the group’s substantive presence in the jurisdiction, generally based on eligible payroll costs and tangible assets. Where that exclusion exceeds the GloBE income, there is no excess profit on which top-up tax can be applied. Although the top-up tax amount would be zero, the IIR mechanism remains applicable, and a nil top-up tax return must be filed.

• Undertaxed Profits Rule (UTPR)

For UTPR purposes, similarly the obligation to file lies with the Luxembourg constituent entity (or entities) to which the top-up tax is allocated.

Where a designated UTPR filing entity has been appointed, it will act as the sole filing entity for UTPR purposes. In the absence of such designation, each Luxembourg entity receiving an allocation of UTPR top-up tax is required to file a separate return.

No filing requirement arises however where no UTPR allocation is made. Examples included in the FAQ are notably:

• Where no constituent entities in Luxembourg are subject to UTPR as e.g., a parent entity applies IIR.   
• Where constituent entities in Luxembourg are Pillar 2 Investment Entities that are not subject to UTPR.
• Where there is no UTPR allocated to the Luxembourg in absence of top-up tax due resulting from the operation of the substance-based income exclusion.
• Where the transitional CbCR safe harbour provision applies for foreign jurisdictions that could otherwise have been subject to Luxembourg UTPR.

Exception: Where Luxembourg has a nil UTPR allocation ratio, no UTPR top-up tax is effectively payable in Luxembourg, but the Luxembourg constituent entity is still required to file a nil top-up tax return as per the FAQ example.

• Qualified Domestic Minimum Top-up Tax (QDMTT)

Similar principles apply in respect of the Luxembourg QDMTT. Filing obligations are limited to the entity to which the domestic top-up tax is allocated, or to the designated QDMTT paying entity where such an approach has been adopted upon registration.

In practice, this may result in a single Luxembourg filing where a designated entity has been appointed (unless several Luxembourg entities need to apply IIR). In the absence of such designation, the filing obligation for QDMTT follows the allocation of the tax among Luxembourg entities.

The FAQ includes examples where no QDMTT filing requirement arises, notably:

• Where there are no low-taxed constituent entities in Luxembourg.
• Where Luxembourg constituent entities are Pillar 2 Investment Entities that are not subject to QDMTT.
• Where the transitional CbCR safe harbour provisions apply in Luxembourg.
• Where there is no QDMTT resulting from the operation of the substance-based income exclusion. 

The clarifications provided in the FAQ confirm the overall coherence of the Luxembourg compliance framework for Pillar 2:

• the registration process constitutes the entry point, including for GIR notification purposes.
• the GIR filing could be centralised, with Luxembourg relying on a notification-based approach and automatic exchange of information with other jurisdictions, rather than systematic local filing.
• Luxembourg top-up tax filing obligations are limited and targeted, generally arising where Luxembourg entities are allocated IIR, UTPR or QDMTT top-up tax.

From a practical perspective, Luxembourg entities that are part of a Pillar 2 group should now focus on:

• Initiating/finalising Pillar 2 registrations, including the determination of the jurisdiction for the GIR filing.
• Assessing whether any Luxembourg entities are expected to bear, or be allocated, top-up tax, which will generally determine the existence of a Luxembourg top-up tax declaration.