Luxembourg has introduced a draft law to implement the OECD/G20 Inclusive Framework's Pillar Two Side-by-Side package. The bill proposes permanent safe harbour regimes, extends the transitional Country-by-Country (CbC) reporting safe harbour and updates administrative rules under the country's minimum effective taxation framework.
The Luxembourg parliament is considering a draft law submitted on 17 July 2026 that would amend the Law of 22 December 2023 on the minimum effective taxation of multinational enterprise groups and large national groups. The amendments would implement the OECD/G20 Inclusive Framework’s Pillar Two Side-by-Side package agreed in January 2026 and update Luxembourg’s rules on the global minimum effective tax rate of 15% for large multinational enterprise groups and large national groups.
Qualified Side-by-Side (SbS) Safe Harbour
The bill introduces the Qualified Side-by-Side (SbS) Safe Harbour, under which the top-up tax under both the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) will be reduced to zero for Luxembourg constituent entities where the group’s Ultimate Parent Entity (UPE) is located in a jurisdiction with a qualified Side-by-Side regime.
At the time the bill was submitted, the US was the only jurisdiction recognised as operating a qualified Side-by-Side regime.
Qualified UPE protection regime
The proposed Qualified UPE Protection Regime will also reduce the UTPR top-up tax to zero where the UPE is established in a jurisdiction with an eligible national tax system that meets specified effective taxation conditions. No jurisdiction currently qualifies for this regime.
Qualified tax incentives regime
The legislation establishes a Qualified Tax Incentives Regime covering tax incentives that are generally available and linked to substantial economic activity, including incentives based on expenditure or production volume.
The measure is intended to ensure that Pillar Two rules recognise qualifying economic policy incentives while maintaining the 15% minimum effective taxation objective.
Simplified ETR calculation regime
The bill also introduces a Simplified ETR Calculation Regime, allowing groups to elect a simplified calculation of their Effective Tax Rate (ETR).
Where the simplified ETR for a tested jurisdiction is equal to or greater than the 15% minimum rate, the top-up tax would be reduced to zero, removing the need to perform the full Pillar Two calculations for that jurisdiction.
Extension of transitional Country-by-Country (CbC) reporting safe harbour
The draft law extends the transitional Country-by-Country (CbC) reporting safe harbour, allowing the simplified mechanism to remain available for fiscal years beginning on or before 31 December 2027.
Administrative and technical amendments
The legislation introduces a definition of tested jurisdiction to clarify that the ETR must be calculated separately for certain sub-groups or sets of constituent entities within a jurisdiction where required under Pillar Two.
It also includes coordination rules to ensure the new safe harbour regimes interact correctly with existing provisions relating to deferred tax assets, transfer pricing adjustments, mergers, acquisitions and other business restructurings.
In addition, the bill updates Luxembourg’s Qualified Domestic Minimum Top-up Tax (QDMTT) provisions to keep them aligned with the latest international administrative guidance.
Application dates
Most of the proposed amendments would apply to fiscal years beginning on or after 1 January 2026.
However, provisions relating to the Simplified ETR Calculation Regime could apply to fiscal years beginning as early as 31 December 2025 where the relevant conditions are met. Certain administrative clarifications issued in 2025 will apply retroactively to fiscal years beginning on or after 31 December 2023.
If enacted, the bill will align Luxembourg’s Pillar Two legislation with the OECD’s January 2026 Side-by-Side package while introducing permanent safe harbour regimes and technical updates designed to simplify compliance.
Earlier, Luxembourg’s Administration of Direct Contributions (ACD), on 17 June 2026, published a Frequently Asked Questions (FAQ) document providing further guidance on the implementation of the Pillar Two Law of 22 December 2023 on minimum effective taxation.
