On 31 July 2025, the Belgian Constitutional Court referred a request for a preliminary ruling to the European Court of Justice (the “ECJ”) on the compatibility of Council Directive 2022/2553 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union (the “Pillar Two Directive”).
The American Free Enterprise Chamber (the “AmFree”) brought a challenge against the Belgian implementation of the Pillar Two Directive, seeking the annulment in particular of the Undertaxed Profits Rule (“UTPR”). In this context, the Belgian Constitutional Court posed the following question to the ECJ: “Do Articles 12 to 14 of the Pillar Two Directive in so far as those provisions require Member States to subject constituents of an MNE group established in the Union to UTPR top-up tax, which would render those entities liable to tax on under-taxed profits realised by other constituent entities in another jurisdiction, without any distinction being made according to the financial capacity of those taxable constituent entities, infringe Articles 15, 16, 17, 20 and 21 of the Charter of Fundamental Rights of the European Union, the principle of legal certainty and the principal of fiscal territory?”
As a reminder, the Pillar Two Directive aims to establish a global minimum effective rate of tax of 15% for large multinational or domestic groups. The UTPR acts as a backstop to the Income Inclusion Rule (the “IIR”) by allocating to group entities in another jurisdiction an additional tax (top-up tax) when low-taxed income is not caught by the IIR at the level of the parent company.
According to the applicants, the obligation to pay UTPR top-up tax restricts the Belgian company’s freedom to dispose of its economic, technical and financial resources in a disproportionate manner. The applicants also claim that the UPTR discriminates between two categories of entities, that are objectively in different situations, are being treated the same, namely Belgian entities that are subject to UTPR top-up tax and that are loss-making, and Belgian entities that are subject to the same UTPR top-up tax but are making a profit. Such difference in treatment is not justified according to the applicants and may infringe the principle of “ability to pay” (in French: capacité contributive).
All these arguments, inter alia, will be examined by the ECJ and a judgment may be expected within two years.
Since a decision of the ECJ will be binding not only in Belgium but across all EU Member States, the outcome is to be followed closely, as the CJEU’s judgment could have significant implications for the implementation of Pillar II (particularly the UTPR rule) throughout the European Union.
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