In its recently published Administrative Instructions for the third quarter of 2018, the National Social Security Office (“NSSO”) reopened the debate on the definition of “remuneration” which serves as a basis for the levy of social security contributions.

According to Belgian social security law, “remuneration” is defined as “(i) the salary or the benefit (in cash or in kind) (ii) to which the employee is entitled (iii) by virtue of his/her employment (iv) chargeable to the employer”. Four conditions must thus cumulatively be fulfilled in order for salary or a benefit to be subject to Belgian social security contributions.

The NSSO has recently taken on board a new interpretation of the notion “chargeable to the employer”. It considers that it suffices for “the granting of a benefit to be the result of activities performed in the execution of the employment contract with the employer or is related to the position the employee holds with the employer”, in order to be chargeable to the employer.

In addition, there is a preliminary draft bill which provides for salary withholding tax and tax reporting obligations in the hands of Belgian employers where remuneration (including fringe benefits such as stock options/shares) is granted by foreign affiliated companies to employees of the Belgian companies.

1. New NSSO position regarding the notion of remuneration

What is new?

For a long time, the majority of the legal scholars have interpreted the concept of “chargeable to the employer” (“ten laste van de werkgever”/“à charge de l’employeur”) in its financial meaning as being “directly or indirectly at the expense of the employer”.

Before the publication of its most recent Administrative Instructions, the NSSO took the position that remuneration is chargeable to the employer “when the employer – even if it does not bear the financial cost of the benefit – is the one the employee could address in case the benefit has not been granted.” This position was followed by the Supreme Court in its landmark decision of 10 October 2016 (see our Alert of October 2017 in this respect). In the case at hand, the grant of a benefit was confirmed in the employment contract with the employer, whereas the financial burden thereof was borne by the sister company only. The Supreme Court decided that in such a case the benefit was chargeable to the employer, qualifying as “remuneration” and thus subject to social security contributions.

Following this decision, the issue was to verify whether the Belgian employer is / can be seen as financially and/or legally liable towards the employees in relation to a benefit being granted by a third party. In this context, it could still be argued that such benefit does not classify as “remuneration” and therefore is not subject to social security contributions when the employment contract – nor any other contractual document – does not make any reference to the granting of such benefit.

In its Administrative Instructions for the third quarter of 2018 the NSSO suddenly changed its position. The new position provides for a broader interpretation of the notion “chargeable to the employer”. It considers that it suffices that “the granting of a benefit is the result of activities performed in the execution of the employment contract with the employer or is related to the position the employee holds with the employer”, in order for the benefit to be chargeable to the employer.

The NSSO takes the view that remuneration is subject to social security contributions when granted by a (foreign) parent company to employees of a (Belgian) company simply “by virtue of their employment”, even without any intervention whatsoever by the (Belgian) company in the granting of such remuneration.

In that framework the Brussels Labour Court of Appeals seems to have adopted a similar position in a decision of 7 March 2018. In this decision the Court of Appeals stated that individual sales commissions directly paid by a third party to employees qualify as remuneration notwithstanding the fact that the employee would not be entitled to claim the granting of this remuneration directly from his employer. The simple fact that these commissions are granted to the employees “in virtue of their employment” justified social security contributions to be paid for. We have been informed that an appeal with the Supreme Court has been lodged against this decision, which can thus not (yet) be considered as final.

Impact?

This new interpretation by the NSSO of the concept “chargeable to the employer” does not seem to leave any margin to the employer to avoid the burden of social security contributions if benefits are directly granted by a foreign parent company to an employee of a Belgian company, even when the Belgian employer does not intervene in any way whatsoever. Further clarification will have to be awaited from the Supreme Court. Such an interpretation is indeed said to be considered as contra-legem. When stating that social security contributions are due as soon as benefits are granted to employees simply “by virtue of their employment”, the condition of “chargeable to the employer” is excluded. As a result, the concept of remuneration is reduced to three conditions instead of the four required by law.

2. Forthcoming changes regarding salary withholding tax and tax reporting obligations in case of remuneration granted by foreign companies to employees of affiliated Belgian companies

Pursuant to the political agreement reached by the Belgian government in July 2018 (of which we have seen a preliminary draft bill prepared by the Cabinet of Finance), remuneration (including fringe benefits such as stock options or shares) granted by foreign companies to employees of affiliated Belgian companies will become subject to both salary withholding tax and reporting obligations as of income year 2019.

Under the current law, the Belgian company is not liable for a salary withholding tax provided that it does not actively intervene in the payment or attribution of remuneration, nor is the foreign affiliated company provided that it does not have a permanent establishment in Belgium which intervenes in the grant of the remuneration. For the same reasons, neither the Belgian company nor the foreign affiliated company have in principle a reporting obligation, i.e. the issuance of salary slips, in relation this remuneration.

The preliminary draft bill now provides for a legal fiction by means of which any salary or benefit received by an individual from a foreign company as a result of the exercise of his/her professional activity for the benefit of an affiliated Belgian company will be deemed to have been granted by said Belgian company. As a consequence, the Belgian employer will be deemed liable for the salary withholding tax of the salary or fringe benefits granted and will consequently also be obliged to issue fiscal salary slips in that regard.

A transitional measure will be introduced for any remuneration (including fringe benefits) paid or granted in 2018 thereby already imposing a stand-alone reporting obligation to the Belgian employer in the same circumstances.