Luxembourg Pillar 2 — Tax authorities update FAQs on filing obligations

Below is a summary of the main points in the newly added Section 3 of Chapter 10 of the FAQs.

Filing obligations under Article 51

As a reminder, Article 51 of the Pillar 2 Law sets out the filing and payment procedures for the income inclusion rule (IIR), the undertaxed profits rule (UTPR) and the qualified domestic top-up tax (QDMTT) rule. Under this regime, entities to which amounts are allocated under the IIR, UTPR and QDMTT must file a top-up tax return setting out the amounts of IIR, UTPR and QDMTT, and pay those taxes within the prescribed deadlines.

IIR — Article 51(1)

Any Luxembourg parent entity subject to the IIR must file a top-up tax return for any fiscal year in which it is subject to the IIR. The FAQs confirm that this may also apply to investment entities, but only in cases where the investment entity is the UPE and is not treated as an excluded entity.

A nil return is required where the IIR applies but the resulting top-up tax is zero (e.g. where the substance-based income exclusion eliminates all excess profit and there is there is no additional top-up tax).

No filing is required where:

• no constituent entity in the group qualifies as a low-taxed constituent entity; and/or
• the Country-by-Country Reporting (CbCR) transitional safe harbour option has been validly exercised for the relevant jurisdictions.

 UTPR — Article 51(2)

Any Luxembourg constituent entity to which a UTPR top-up tax amount is allocated under Article 46 must file a top-up tax return.

Where a Luxembourg designated filing entity has been appointed for UTPR purposes, it consolidates all the Luxembourg UTPR liability and files a single return, including a nil return if the UTPR due in Luxembourg amounts to zero. Absent a Luxembourg designated filing entity, each entity to which a UTPR amount is allocated (including a UTPR of zero) must file separately.

No filing is required where:

• the UPE is located in a Member State that has not elected for deferred IIR/UTPR application, so that the UTPR does not apply in Luxembourg;
• the Luxembourg constituent entities are all investment entities;
• no UTPR has been allocated to the Luxembourg constituent entities; or
• the CbCR transitional safe harbour option has been exercised in all jurisdictions.

 QDMTT — Articles 51(3) and (4)

A top-up tax return must be filed by any Luxembourg constituent entity to which an amount of QDMTT has been allocated under Article 47, unless there is a designated filing entity. The latter will be allocated the full amount of QDMTT due in Luxembourg, even where it is not itself a low-taxed constituent entity. These principles also apply where an additional top-up tax amount for a prior fiscal year is due in Luxembourg, as well as for joint venture groups.

No filing is required where:

• no Luxembourg constituent entity qualifies as low-taxed;
• the Luxembourg constituent entities are all investment entities;
• Luxembourg benefits from the CbCR transitional safe harbour; or
• the Luxembourg constituent entities are low-taxed but the substance-based income exclusion eliminates all excess profit, there is no additional top-up tax and no top-up tax is determined.