Belgian Constitutional Court requests CJEU to decide on compatibility of UTPR with EU Law
On July 17, 2025, the Belgian Constitutional Court referred a case (available in Dutch / French) to the Court of Justice of the European Union (CJEU) for a preliminary ruling concerning the compatibility with EU law of the Undertaxed Profits Rule (UTPR) as introduced through Council Directive (EU) 2022/2523 of December 14, 2022.
The UTPR allocates amongst Constituent Entities (in this case, in Belgium) top-up tax arising in respect of the low tax income of a foreign Constituent Entity that is not captured through a Qualified Domestic Minimum Top-up Tax (QDMTT) or through the Income Inclusion Rule (IIR) (that imposes top-up tax on a parent entity in respect of its low-taxed subsidiaries). Member States were generally required to start applying UTPR for fiscal years beginning on or after December 31, 2024.
The referral to the CJEU follows an appeal which sought to annul the UTPR provisions in the Belgian Law on minimum taxation. The appeal challenged the requirement for a Belgian entity within an MNE group to pay a UTPR top-up tax on low-taxed profits of group entities located outside Belgium, without considering the financial position of the Belgian constituent entity.
The Belgian Constitutional Court noted that the UTPR provisions under Belgian law are based on the EU Directive and that ruling on the matter is therefore outside of its competence. Consequently, the Court referred the issue to the CJEU, asking whether Articles 12 to 14 of the EU Directive are in breach of European rights and legal principles, including the right to property, equality and non-discrimination, freedom of establishment and service provision, legal certainty, and fiscal territoriality.
For previous coverage on the request to annul the Belgian rules implementing the UTPR, please refer to E-News Issue 199. For more details on the CJEU referral, please refer to the report prepared by KPMG in Belgium.
CJEU to rule on the application of the French tax consolidation regime with respect to final losses incurred by non-resident subsidiaries
On July 21, 2025, two requests for a preliminary rulings were published in the Official Journal of the European Union in cases C-287/25 and C-288/25. The requests were raised by the French Supreme Administrative Court (Conseil d'État) on April 16, 2025, and concern the compatibility with EU law of national legislation that precludes, in the context of a consolidated tax group, the offsetting of final losses incurred by a non-resident subsidiary against the group's overall profits.
Both cases concern a French parent company leading a consolidated tax group under French tax law. Under the regime, a French parent company can become the sole entity liable for corporate tax on the overall profits of the group, provided certain conditions are met, such as holding at least 95 percent of the capital of the subsidiaries that are part of the group, continuously throughout the financial year. However, the regime typically applies only to group members with their registered office in France.
With respect to the financial year ending in 2015, the French parent entity considered losses incurred by Belgian and Latvian subsidiaries of members of the tax consolidated group to be final. The French parent entity therefore used these losses to offset profits generated by the tax group. The use of the foreign entities’ losses was challenged by the French tax authorities on the grounds that they were incurred by non-French entities.
Initially, both the Administrative Court of Montreuil and the Court of Appeal in Paris ruled in favor of the French parent company, allowing the offsetting of these final losses against the group's profits. The referrals by the Conseil d'État to the CJEU now follows an appeal by the French Ministry of Economy and Finance arguing that non-resident subsidiaries should be excluded from the tax consolidation regime, citing previous judgments in cases C-446/03 and C-337/08 to support this position.
Key questions raised by the referrals include:
- Objective comparability: the Conseil d'État poses the question in a context where the state of residence the tax consolidation group parent has waived its taxing rights over the profits of a non-resident subsidiary (either through national territoriality rules or a double taxation convention). In this context, the Conseil d'État questions whether a resident parent company wishing to form a single tax entity with a resident subsidiary is in a comparable situation to one wishing to form a single tax entity with a non-resident subsidiary, in so far as each seeks to benefit from the advantages of the tax consolidation regime.
- Freedom of establishment: If the situations are deemed objectively comparable, the Conseil d'État asks whether the inability to offset final losses of a non-resident subsidiary within a tax consolidation regime is compatible with the EU freedom of establishment under Article 49 of the Treaty on the Functioning of the European Union (TFEU). Alternatively, the Conseil d'État questions whether the impossibility to offset final losses should be regarded as the refusal of a tax advantage that in itself (i.e., distinct from tax consolidation rules) constitutes a disproportionate restriction incompatible with the freedom of establishment.
CJEU to rule on the unequal treatment of foreign investment funds compared to equivalent Spanish investment undertaking
On July 14, 2025, the request for a preliminary ruling in the case C-139/25 was published in the Official Journal of the European Union. The requests were raised by the Spanish Supreme Court on February 17, 2025, and concern the taxation of foreign investment funds, specifically addressing the free movement of capital under Article 63 of the TFEU.
The case concerns a non-resident collective investment undertaking (CIU), which is resident in the United States and fulfills the conditions for treatment as a regulated investment company (RIC). In Spain, non-resident CIUs are subject to the income tax for non-residents (IRNR) at a rate of 15 percent on dividends received from investments in Spanish shares. Resident CIUs, however, are taxed at a rate of 1 percent for corporate tax purposes. The non-resident CIU argues that such unequal treatment is not fully neutralized under the respective double tax treaty (DTT) and constitutes a restriction on the EU free movement of capital. Hence, it had sought repayment of the difference between the tax withheld at 15 percent and the 1 percent, claiming that it should be treated similarly to a Spanish-resident CIU. The Spanish tax authorities rejected the claim, leading to a series of appeals culminating in the referral to the Supreme Court.
The Spanish Supreme Court seeks clarification on whether situations may arise where any restriction on the free movement of capital stemming from the legislation on IRNR can be considered neutralized for certain non-resident entities, which are equivalent to a resident harmonized investment fund. In particular, the Supreme Court considers the scenario where the non-resident investment fund can elect (under a DTT and domestic laws) to deduct the full withholding tax amount paid in Spain from its residence country's corporation tax but chooses to transfer the tax credit to its shareholders even though such a decision is binding on it with regard to all income derived by it.
