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In the past weeks, two important developments have challenged the current Pillar Two framework as implemented in Belgian domestic legislation:
- Ongoing political discussions & policy statements from the US and the G7 have fundamentally changed the trajectory of the OECD Pillar Two project, as solutions are being explored to ensure the co-existence of Pillar 2 legislation and United States policy objectives.
- Legal action has been brought before the Belgian Constitutional Court in an appeal to annul the UTPR articles in Belgian domestic legislation. The Court has referred a preliminary question to the European Court of Justice regarding the validity of these articles.
G7 statement on Global Minimum Tax (Pillar Two)
On 27 June 2025, the G7 released a joint statement announcing an agreement on a “side-by-side system” approach to the OECD Pillar Two framework. Pursuant to this agreement, it is intended that OECD Pillar Two taxes would not apply to U.S. parented groups.
This statement addresses policy concerns from the United States regarding the Undertaxed Profits Rule (UTPR) charging mechanism, as introduced by jurisdictions implementing Pillar Two legislation, which the US views as 'unfair foreign taxes.’ In response, the proposed US IRC Section 899, included in the One Big, Beautiful Bill Act (OBBBA) would have imposed withholding tax and BEAT retaliatory tax measures on jurisdictions implementing a UTPR charging mechanism. Following discussions within the framework of the G7 agreement, the United States agreed to withdraw Section 899 from the OBBBA.
Under the proposed side-by-side system, U.S. parented groups and their foreign subsidiaries would be exempt from the Income Inclusion Rule (IIR) and UTPR, due to the existing U.S. minimum tax rules to which they are subject. According to the G7 statement, a side-by-side system would include measures to maintain a level playing field, address base erosion and profit shifting risks and simplify the administration and compliance framework of Pillar Two. Changes would also be considered to the Pillar Two treatment of substance-based non-refundable tax credits to align them more closely with the treatment of refundable tax credits.
The G7’s statement shows a strong commitment to preserve QDMTTs for all multinationals and IIRs/UTPRs for non-US parented groups, but it is not a formal agreement. Reaching consensus and formal agreement among OECD members will take time. The G7 statement leaves open many unanswered questions, with further statements and updates likely in the near future. In the meantime, companies must navigate both systems, as current QDMTT, IIR, and UTPR rules still apply in over 55 jurisdictions, including Belgium.
Belgian Constitutional Court refers UTPR challenge to European Court of Justice
On 17 July 2025, the Belgian Constitutional Court (Case 104/2025) has referred a preliminary question to the European Court of Justice in a case lodged where the undertaxed profit rule (UTPR) established by Council Directive (EU) 2022/2523 (and implemented in Belgian legislation) is being challenged.
The UTPR would require Belgian entities to pay top-up tax on under-taxed profits from other group entities located outside Belgium, without considering the financial position of the Belgian entity. The party seeking annulment of the UTPR articles argues that this requirement violates principles of equality, non-discrimination, property rights, and fiscal territoriality. Prior to conclude on this matter, the Belgian Constitutional Court now asks the Court of Justice of the European Union to assess the validity of the underlying articles and whether the directive's provisions align with European Union treaties and fundamental EU rights (principles of equality, non-discrimination, property rights, and fiscal territoriality).
Depending on the answer of the European Court of Justice, this could have far reaching effect on the existing Belgian Pillar 2 framework but could also set a European precedent for other member states.
In case of any further questions regarding these developments, please do not hesitate to reach out to your trusted EY person of contact.