Pillar Two and the Fundamental Freedoms: Evaluating Luxembourg’s Corporate Tax Framework in Light of EU Law

This article explores whether the OECD’s Pillar Two framework is aligned with the EU fundamental freedoms, particularly the freedom of establishment and free movement of capital. The analysis highlights potential conflicts between the OECD’s Model Rules and Luxembourg’s participation exemption regime and CFC rules, highlighting potential infringements of the EU fundamental freedoms. Through an analysis of CJEU case law on proportionality, non-discrimination and State aid, it assesses the legal risks and potential litigation scenarios. The article concludes with policy recommendations to reconcile Pillar Two compliance with Luxembourg’s competitiveness and the broader integrity of EU law.