Publication date: 12/10/2018
The Belgian government is contemplating to introduce a more general reporting and tax withholding obligation for Belgian companies/subsidiaries when benefits (such as free shares or shares at reduced price) are directly granted by the foreign parent company to its employees or remunerated directors.
Furthermore, in its new Administrative Instructions for the 3rd quarter of 2018, the National Social Security Office (NSSO) has given a very broad interpretation of what is to be understood as ‘salary’ subject to social security contributions. As a result, benefits, such as shares and RSUs, attributed by a foreign parent company to the employees of a Belgian group company or subsidiary will be subject to Belgian social security contributions, even if the granting took place without the Belgian company making any ‘intervention’.
1. Tax reporting and withholding obligation
Currently, Belgian companies only have a tax withholding obligation when “intervening” with respect to benefits (such as free shares or shares at reduced price) directly granted by the foreign parent company to its employees or remunerated directors. Furthermore, the Belgian (employing) subsidiary only has the obligation to report the benefits granted by the foreign parent company on a salary form in case of “intervention”, or when the cost is recharged by the foreign parent company.
Similar as for stock options falling within the scope of the Belgian Stock Option Law of 26 March 1999, the reporting obligation on behalf of Belgian companies is contemplated to become more generalized. The reporting obligation for Belgian companies would be broadened to all benefits related to the employees’ and remunerated directors’ professional activities, also if granted by the foreign parent company and even when there is no “intervention” by or if the costs are not recharged to the Belgian subsidiary. This broadened reporting obligation would be applicable for all income received as of 1 January 2018 (!).
For income received as of 1 January 2019, the Belgian (employing) subsidiary would also have a withholding obligation regarding benefits granted by the foreign parent company to its employees and remunerated directors.
The above would evidently only be applicable to individuals having a direct professional relationship with the Belgian subsidiary. Benefits granted to individuals working for a foreign parent company, which also has a Belgian subsidiary not having a direct professional relationship with the individual concerned, are not envisaged.
2. Social security
For a ‘benefit’ to be regarded as ‘salary’ subject to social security contributions, Belgian law requires that 4 cumulative conditions are met:
- the benefit must be in cash or measurable in cash
- the employee must be entitled to this benefit
- the benefit must be granted as a result of the employment of the employee; and
- the benefit must be at the charge of the employer.
This last condition, namely being ‘at the charge of the employer’ is to be understood as either ‘directly’ or ‘indirectly’.
Up until recently, the NSSO considered that the granting of a benefit was ‘indirectly’ at the charge of the Belgian employer and thus subject to social security contributions, if (i) the Belgian employer ultimately bore the financial burden, or (ii) the Belgian employer acted as a ‘point of contact’ to which the Belgian employees could turn, i.e. if the Belgian employees could claim the payment from their employer (e.g. because the entitlement to the benefit was included in the employment contract).
This also implies that if a foreign parent company attributes benefits (shares, RSUs) directly to the employees of its Belgian subsidiary without the costs being charged to the latter or the latter serving as a ‘point of contact’, then the shares or RSUs could be granted without the payment of social security contributions.
However, in its new Administrative Instructions, the NSSO has now taken up a different and very broad interpretation of the notion ‘at the charge of the employer’. According to the NSSO’s new position, a benefit will already be ‘at the charge of the employer’ if its granting is the result of the activities performed in execution of the employment contract or is linked to the employee’s function, which will always be the case. Consequently, social security contributions will always be due, even if the Belgian employer in no way intervenes.
The NSSO’s new interpretation can be criticized as it reduces the ‘at the charge of the employer’-condition, which must be a separate condition, to the third condition for a benefit to be regarded as salary, i.e. the fact that the benefit must be granted “as a result of the employment”.
It remains to be seen how the courts will deal with this new interpretation and whether they will reject this interpretation as not being in line with the 4 cumulative conditions set by law.
3. Practical impact
The abovementioned intended changes with respect to social security, tax withholding and reporting could have an impact on multiple areas, triggering e.g. a cost increase, cash flow issues for the individuals, tax and social security audits, etc.
Should you require further information or advice, Tiberghien and Altius Lawyers are very willing to provide further guidance.