The preceding events
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 September 2018, 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 either (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 (for example, because the entitlement to the benefit was included in the employment contract).
This implied that if a foreign parent company attributed benefits (shares, RSUs) directly to its Belgian subsidiary’s employees 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 Administrative Instructions of the 3rd quarter of 2018, the NSSO took up a different and very broad interpretation of the notion of ‘at the charge of the employer’. According to the NSSO’s changed position, a benefit will already be ‘at the charge of the employer’ and thus subject to social security contributions if its granting is the result of the mere activities performed by the employee in executing the employment contract or is linked to the employee’s function, which will – in principle -always be the case. Consequently, social security contributions will always be due, even if the Belgian employer in no way intervenes.
This NSSO interpretation follows a Brussels Labour Court of Appeal judgment of 7 March 2018 concerning commissions granted by a 'third party' (a French cosmetic brand) to the employees of a Belgian employer (a perfume store) on the sales they had achieved for the brand. That judgment did not interpret the notion of ‘at the charge of the employer’, but called upon the definition of ‘salary’ under Belgian employment law, i.e. ‘the counterpart of the work performed’. Referring to an old Supreme Court judgment of 20 April 1977, the Labour Court of Appeal stated that if the salary benefits were granted ‘as a counterpart for the work performed’ - as was the case with the commissions - then they are in any case ‘salary’ subject to social security contributions without it being necessary to check whether the employees ‘have a right’ to the benefits ‘at the charge of the employer’. The latter check would only be necessary if the benefits were not granted in return for the work performed.
In its very recent judgment of 20 May 2019, the Supreme Court has now confirmed this Brussels Labour Court of Appeal judgment.
Practical impact of the Supreme Court’s judgment
The NSSO, who was waiting for the Supreme Court’s judgment, will surely be strengthened by this ruling.
However, in our view, the NSSO’s Administrative Instructions go beyond the Supreme Court’s ruling, giving an even broader interpretation to the notion of ‘salary’ compared to what the Supreme Court has decided.
Indeed, whereas the Supreme Court clearly decided that benefits will be subject to social security contributions if they are 'the counterpart of the work performed', the NSSO states that they will already be deemed to be salary if the grant ‘is the result of the mere activities performed by the employee in executing the employment contract or is linked to the employee’s function’. With this interpretation, the NSSO seems to take the position that benefits are salary 'as soon as there is a link between the employment contract and the benefit', and therefore even if this benefit is not granted in return for the work performed.
Consequently, if the benefits (e.g. shares or RSUs) are granted ‘in return for the work performed’, even if it is by the parent company and the Belgian employer in no way intervenes in the plan, it will be extremely difficult, if not practically impossible given the Supreme Court’s judgment, to contest the levying of social security contributions.
However, if it can be demonstrated that the shares or RSUs are granted by the parent company to the employees of the Belgian subsidiary without being a counterpart for the work performed but, for example, with a view to increasing the involvement of the employees within the group, then in our view it can be argued on the basis of the recent the Supreme Court ruling, that social security contributions are not due. In practice, however, it will be very difficult to demonstrate that the benefits are not granted ‘in return’ for the work performed.
It can be expected that the NSSO will use the Supreme Court’s judgment to strengthen its position and will proceed with the levying of social security contributions on benefits, such as shares or RSUs, granted by the parent company to the Belgian subsidiary’s employees.
Moreover, in a statement following the update of its Administrative Instructions, the NSSO has indicated that the concerned adapted administrative instruction is not an innovation, but merely an explanation of its existing interpretation. This raises questions about any potential retroactive application of this altered position on grants that have taken place in the past, it being understood that the statute of limitation in this respect is 3 years.
The only way to try to avoid social security contributions seems to be to demonstrate that the benefits were not granted as a counterpart for the work performed but, for example, with a view to increasing the involvement of the employees within the group. The Supreme Court’s judgment leaves room for such argumentation; the Administrative Instructions of the NSSO, however, do not.