Belgium's Pillar Two UTPR and the Constitutional Challenge: What Cross-border Groups Need to Know

Belgium’s Pillar Two rules remain firmly on the agenda for cross-border groups. The transposition of the EU minimum-tax directive into Belgian law introduced an undertaxed profits rule (UTPR), and the compatibility and application of that rule have generated significant debate, including litigation touching on the validity of the underlying EU provisions. For Belgian subsidiaries of multinational groups, particularly those headed by United States and other non-EU ultimate parents, the question of potential UTPR top-up liability remains a live legal and financial risk. This analysis explains the legal architecture, why an administrative notice cannot by itself remove statutory liability, who may remain exposed and what practical steps groups and their advisers should take now.

Please note: this article discusses matters that are developing. Specific case numbers, judgment references and dates should be verified against the primary sources listed at the end before being relied upon, as the position continues to evolve.

Opening summary: key takeaways

• The legal question is not settled. The compatibility of Belgium’s UTPR and the validity of the underlying EU provisions remain subject to legal scrutiny, including litigation and preliminary reference proceedings before the Court of Justice of the European Union (CJEU).
• Exposure may remain live. Belgian group entities may still face potential UTPR top-up tax, depending on where the ultimate parent is resident and how that jurisdiction is treated under the relevant tests.
• The CJEU may prove decisive. Where the validity of EU secondary law is in issue, only the Court of Justice can rule on that validity; national courts cannot declare EU provisions invalid.
• Administrative guidance is not legislation. A European Commission notice or draft law does not, by itself, amend the directive, amend Belgian law, or extinguish statutory liability.
• Act now. Groups should model exposure, prepare documentation and consider provisional positions rather than assume the risk has evaporated.

The practical message is straightforward: taxpayers cannot rely on an administrative package to close off exposure while the enacted rules remain in force and the underlying validity questions are unresolved.

Legal background: Belgian UTPR, the Law of 19 December 2023, and EU Pillar Two

To understand why these Pillar Two questions remain unresolved, it helps to set out the layered legal architecture. Three instruments interact: Belgian domestic law, the EU minimum tax directive, and the OECD’s global framework. Each has its own status, and each contributes to the current uncertainty.

Belgian law (the Law of 19 December 2023)

Belgium transposed the EU minimum-taxation rules through the Law of 19 December 2023 on a minimum tax for multinational enterprise groups and large-scale domestic groups, published in the Belgian Official Gazette (Moniteur belge / Belgisch Staatsblad). That Law contains the undertaxed profits rule, the mechanism that allows Belgium to collect a top-up tax where the low-taxed profits of a multinational group are not already captured by an income inclusion rule elsewhere. The UTPR operates as a backstop: where the group’s income is taxed below the agreed effective minimum and no other qualifying jurisdiction levies the top-up, Belgium may claim the shortfall through its group entities.

The precise numbering and wording of the relevant provisions should be checked against the consolidated text in the Official Gazette, as the Law has been subject to subsequent amendment.

EU Directive and UTPR mechanics

The Belgian rules implement Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups within the Union. The directive sets out the income inclusion rule and the undertaxed profits rule as complementary charging mechanisms. The undertaxed profits rule Belgium applies is therefore not free-standing Belgian policy, it is a transposition of EU secondary law. Where the validity of provisions of the directive is put in issue before a national court, that court may (and, where it doubts validity, generally must) refer the question to the Court of Justice, which alone can rule on the validity of EU acts.

OECD side-by-side concept

The OECD’s GloBE model rules underpin both the directive and the Belgian statute. Under the OECD framework, a “side-by-side” approach has been discussed to allow certain jurisdictions, notably those with their own domestic minimum-tax regimes, such as the United States, to be treated as operating alongside the GloBE framework, so that groups headed in those jurisdictions are not subjected to the UTPR of other jurisdictions. The side-by-side concept is intended to reduce friction between competing national systems. However, any such arrangement is an inter-governmental and administrative construct; its interaction with binding EU law and Belgian constitutional guarantees is precisely the fault line at the heart of the current debate.

Why an administrative notice or draft law does not settle the position

Much of the confusion in the market stems from a misunderstanding of what a European Commission notice or a draft transposition law can and cannot achieve. An administrative package can shape practice and signal intent, but it cannot by itself resolve constitutional questions or extinguish statutory liability. This is a core reason exposure may remain live.

What a “side-by-side” package is intended to achieve

The EU’s engagement with the OECD side-by-side approach is intended to accommodate jurisdictions, particularly the United States, whose own minimum-tax rules can be treated as operating alongside the GloBE framework, so that groups headed in those jurisdictions are not subjected to the UTPR of EU member states. Where a parent jurisdiction qualifies, subsidiaries in the group would, in principle, be shielded from top-up assessment in respect of that jurisdiction.

Limits of notices versus legislative transposition

The decisive point is hierarchical. A Commission notice or communication is not legislation. It does not amend the directive, does not amend Belgian law, and cannot bind a national court on the compatibility of enacted provisions with the Belgian Constitution or on the validity of EU secondary law. For any side-by-side arrangement to alter the legal position of Belgian taxpayers definitively, it would need to be reflected in binding legal instruments, an amended or clarified directive, and corresponding Belgian legislation in force. Until then, the enacted UTPR provisions remain the operative law, and the potential for liability persists.

Procedural posture and the role of the CJEU, what to expect

Where the validity of EU provisions is at issue, a ruling from the Court of Justice may be the next decisive event. Understanding the procedural posture helps groups calibrate their planning horizon.

What can be referred and why

A national court may refer to the CJEU questions concerning the validity of the UTPR provisions of Directive (EU) 2022/2523. Because the Belgian UTPR is a transposition of those provisions, their validity is logically prior: if the EU provisions are valid, the Belgian rules stand on that foundation; if they were found invalid, the Belgian transposition would lose its legal basis. A national constitutional court cannot itself declare EU provisions invalid; that competence lies exclusively with the Court of Justice.

Possible CJEU outcomes and implications

Broadly, the Court of Justice may uphold the validity of contested provisions, in which case the Belgian UTPR framework would be reinforced. Alternatively, it could find defects, which would have significant consequences for the Belgian rules and potentially for equivalent transpositions across the Union. The Court may also interpret the provisions in a manner that narrows or clarifies their scope. Each scenario carries distinct implications for exposure, refunds and forward planning, which is why advisers are watching the CJEU docket closely.

Timeline considerations

Preliminary references ordinarily take a considerable period to resolve; expedited treatment is available only in limited circumstances and is not routinely granted. Affected groups should therefore be prepared to manage UTPR exposure across more than one compliance cycle without the benefit of a definitive ruling. The likely practical effect is that provisional positions, documentation and modelling will carry the burden of managing risk in the interim.

Who may remain at risk: the ultimate parent’s jurisdiction matters

The most pressing question for clients is concrete: which entities may actually owe top-up tax, and for which years? The answer depends principally on the ultimate parent’s jurisdiction and how it is treated under the relevant tests. Two broad scenarios structure the analysis.

Scenario A, groups headed in jurisdictions that do not qualify under a side-by-side approach

The first scenario concerns groups whose ultimate parent is located in a jurisdiction that does not qualify under any OECD/EU side-by-side approach. Where the parent jurisdiction does not qualify, the side-by-side mechanism does not shield the subsidiary, and Belgium may in principle assert its backstop charge in respect of the group’s low-taxed income. Groups in this position need to assess, with care, whether their parent jurisdiction meets the qualifying criteria, a factual and legal determination that should not be assumed.

Scenario B, groups headed in low-taxed jurisdictions

The second scenario concerns groups whose ultimate parent is located in a low-taxed jurisdiction. Whether and when a UTPR top-up can arise turns on the detailed factual and legal conditions in the Belgian Law and the directive, including the group’s effective tax rate in the relevant jurisdiction and any transitional or safe-harbour reliefs. Because exposure in respect of low-taxed parent jurisdictions can crystallise sooner, this scenario often carries a higher immediate urgency for affected groups.

Worked examples: US parent and non-EU low-tax parent

Consider a Belgian operating subsidiary within a group headed by a United States ultimate parent. Whether the subsidiary is exposed turns on how the US parent jurisdiction is treated under any applicable side-by-side arrangement and on the effective-tax-rate analysis. The question is therefore not answered by nationality alone, it requires an assessment against the relevant tests, and the treatment of the United States in particular has been the subject of ongoing international discussion.

Now consider a Belgian subsidiary whose ultimate parent is resident in a non-EU jurisdiction with a very low effective rate. Here, the low-tax analysis is squarely engaged, and the group should treat exposure as a real and near-term possibility. In both examples, modelling the group’s effective tax position and the qualification status of the parent jurisdiction is essential.

Practical compliance and planning steps for groups and advisers

Given that UTPR liability may remain live pending resolution of the validity questions, the sensible response is disciplined preparation rather than inaction. The following steps are organised by horizon.

Immediate steps (next 30 days)

• Map the group structure. Identify the ultimate parent jurisdiction and every Belgian group entity that could be a charging point for the UTPR.
• Run the qualification tests. Assess whether the parent jurisdiction qualifies under any applicable side-by-side approach and how the group’s effective tax rate is calculated in the relevant jurisdictions.
• Estimate exposure. Produce a first-pass model of potential UTPR top-up tax that Belgium may assert, flagging the assumptions used.
• Preserve records. Ensure that the data underpinning the effective tax rate calculations and jurisdictional analysis is retained and version-controlled.

Three-to-six-month planning

• Refine modelling. Build a robust UTPR exposure model with sensitivity analysis for different CJEU outcomes and for changes in parent-jurisdiction treatment.
• Consider provisional positions. Evaluate whether provisional payments or disclosures are appropriate given the group’s risk appetite and cash-flow considerations.
• Review treaty and withholding features. Consider how cross-border payments and withholding taxes interact with the group’s overall minimum-tax position.
• Address governance. Brief the board and audit committee on the exposure, the pending validity questions and the range of possible outcomes.
• Family and trust structures. For family offices and trustees with cross-border holdings, assess whether any group entities within the wider structure fall within scope and coordinate advice accordingly.

Accounting and tax return considerations

Groups must consider how to reflect potential UTPR liability in their financial statements and how to approach Belgian tax filings while the law remains contested. Positions taken should be documented, internally consistent and supportable if later examined. Where there is genuine uncertainty pending a CJEU ruling, that uncertainty should be recorded transparently rather than ignored. Coordination between the tax function, external advisers and auditors is essential to ensure that the accounting treatment and the filing position are aligned. Applicable financial-reporting standards may contain specific guidance on accounting for Pillar Two income taxes, which should be applied.

Risk management: documentation, audits, and defending positions before the tax authorities

Because the legal position may not be resolved for some time, risk management becomes a practical discipline in its own right.

Document retention and modelling records

Retain the full working papers behind every calculation: the effective tax rate computations, the jurisdictional qualification analysis, the assumptions on side-by-side status and effective rates, and the version history of each model. Contemporaneous, well-organised records are the foundation of any credible position and will be invaluable if the Belgian tax administration examines the group’s treatment.

Administrative engagement and rulings

Where the position is genuinely uncertain, groups may consider engaging with the Belgian tax administration and, where appropriate, exploring an advance ruling on discrete questions through the competent ruling service. Early, constructive engagement can reduce the risk of surprise assessments and may assist in managing outcomes where the underlying law is in flux. Any such engagement should be planned carefully and supported by the documentation described above.

Litigation readiness

Finally, groups should preserve their ability to challenge assessments if necessary. That means keeping detailed records, protecting time limits, and monitoring both the CJEU docket and the relevant Belgian court decisions so that positions can be adjusted quickly once the law is clarified. Maintaining litigation readiness is a reasonable precaution rather than an overreaction.

Comparison: factors driving UTPR exposure

Where to follow developments and read the primary materials

Readers who advise on Belgian and cross-border structures will want to track developments across several official sources. The Belgian Constitutional Court publishes its judgments on its website; the CJEU’s case search (CURIA) carries the docket entries for pending references; and the Commission and OECD pages set out the relevant Pillar Two materials. The consolidated text of the Belgian minimum-tax law is available via the Belgian Official Gazette / e-Justice. For contextual guidance, see the Global Law Experts Private Client, Belgium resources.

Conclusion and next steps

Belgium’s Pillar Two UTPR remains a live legal and financial issue for cross-border groups. An administrative side-by-side package or a draft transposition law is not, by itself, sufficient to remove statutory exposure while the enacted rules remain in force. With the validity of the underlying EU provisions capable of being tested before the Court of Justice, and with expedited treatment far from guaranteed, groups should treat this as a period of managed uncertainty rather than resolution. The disciplined response is to map the structure, run the relevant qualification and effective-tax-rate tests, model exposure, document rigorously and consider provisional positions.

We will update this analysis as the Belgian courts and the CJEU publish further materials; readers should verify all case references and dates against the primary sources below.

This article is for general information only and does not constitute legal or tax advice. Positions should be assessed against the specific facts of each group and confirmed with a qualified adviser before any action is taken.

Sources

1. EUR-Lex, Council Directive (EU) 2022/2523 (Pillar Two)
2. Court of Justice of the European Union (CURIA), case search
3. Constitutional Court of Belgium, decisions
4. OECD, Pillar Two / GloBE rules and related material
5. European Commission, Taxation and Customs Union
6. Belgian FPS Finance (Service public fédéral Finances)
7. Belgian Official Gazette / e-Justice (Moniteur belge / Belgisch Staatsblad)