Since the third quarter of 2018, the National Social Security Office (NSSO) has substantially broadened its interpretation of what is considered to be part of a 'salary' subject to social security contributions. As a result, benefits in general – and shares and restricted stock units (RSUs) in particular – attributed by a third party (eg, a foreign parent company) to employees of a Belgian (group) company will, in principle, be subject to Belgian social security contributions.
The NSSO's new position was strengthened by the Supreme Court's Sisley ruling of 2 May 2019, which confirmed the Brussels Labour Court of Appeal's judgment that if salary benefits (in that case, commissions) are granted as a counterpart to work performed, they constitute part of an employee's salary which is subject to social security contributions even if they are granted by a third party. In such cases, it is unnecessary to check whether the employees have a right to the benefits 'at the charge of the employer'.
However, if it can be demonstrated that the benefits (eg, shares and RSUs) are not a counterpart to work performed (eg, they are not performance related, but are granted to increase employee involvement in the company group), the Supreme Court's judgment leaves room to argue that these benefits are not automatically subject to social security contributions. In such cases, it would still be necessary to check whether the employees have a right to these benefits at the charge of the employer.
Traditionally, a benefit that is not financially borne by the employer is still at the charge of the employer if the employees can claim the benefit from their employer (ie, if their Belgian employer acted as a point of contact).
In its 20 April 2020 ruling in Esko, the Ghent Labour Court of Appeal considered RSUs granted by a US parent company to the employees of its Belgian subsidiary. The court broadly interpreted the at the charge of the employer concept and held that if the incentive plan stipulated that nothing contained in the plan constituted an employment contract between the employee and the US company, the employee could discuss their entitlement to the benefit only with their Belgian employer (eg, if the employee believed that they were wrongly deemed to be ineligible to receive the RSUs). This was further reinforced by the fact that the Belgian subsidiary recommended potential participants in the stock incentive plan to the US parent company.
If followed, this case will make it even harder, if not impossible, for international groups to avoid the payment of social security contributions.
No appeal to the Supreme Court has been filed (yet) in Esko.
Two cases, two different angles, same result
Sisley
The first ruling that forms the basis of the NSSO's amended position is the Sisley ruling of 7 March 2018.
In this case, the Brussels Labour Court of Appeal stated that commissions granted by a third party (French cosmetic brand Sisley) to the employees of a Belgian employer (perfume store Planet Parfum) on the sales that they achieved for the brand were to be regarded as a part of their salary subject to social security contributions. The judgment called on the definition of 'salary' under Belgian employment law (ie, a counterpart to work performed).
Referring to an old Supreme Court judgment of 20 April 1977, the Brussels Labour Court of Appeal stated that if the salary benefits were granted as a counterpart to work performed – as was the case with the commissions – the employees would by definition have a right to these benefits at the charge of their employer, even if the benefits were being granted by and at the expense of a third party. The Supreme Court has subsequently confirmed this ruling.
When applied to share-related benefits, this means that if shares or RSUs are granted in return for work performed (eg, they are performance based), they will be subject to social security contributions even if they are granted by the parent company.
However, if they are not granted as a counterpart to work performed (ie, they are not performance related but are granted to, for example, increase employee involvement in the company group), the Supreme Court ruling leaves room to argue that they will not automatically be subject to social security contributions, but only if the employees have a right to the benefits at the charge of the employer.
Esko
In the recent Esko case, the Ghent Labour Court of Appeal focused on the at the charge of the employer concept.
If not the counterpart to work performed (see Sisley), a benefit will constitute part of the employee's salary and will be subject to social security contributions if it:
- is granted as a result of the employment of the employee; and
- the employee is entitled to the benefit, either directly or indirectly, at the charge of their employer (Article 2 of the Salary Protection Act).
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 the Belgian employer:
- ultimately bore the financial burden; or
- acted as a point of contact to which its employees could turn if they did not receive the benefit.
This implied that if a foreign parent company attributed benefits (eg, shares and 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, the shares or RSUs could be granted without the payment of social security contributions.
This former position of the NSSO stemmed from Supreme Court case law – notably, the 12 October 2016 ruling which stated that a benefit granted to employees of a subsidiary, although attributed and financially borne by the parent company, must still be considered to be granted at the charge of the subsidiary employer if the employees concerned could claim the benefit from their employer based on the conditions of their employment (in this case, the entitlement to the benefit was included in the employment contract).
However, in its Administrative Instructions of the third quarter of 2018, the NSSO interpreted the at the charge of the employer concept more broadly. According to the NSSO's new 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. Therefore, the NSSO now seems to take the position that benefits constitute part of an employee's salary as soon as there is a link between the employment contract and the benefit, which will, in principle, always be the case.
In Esko, the Ghent Labour Court of Appeal also addressed the question of whether a benefit, particularly RSUs granted by a US parent company, should be considered as being at the charge of the employer (ie, the Belgian subsidiary).
This ruling also referred to the Supreme Court's 10 October 2016 judgment, but interpreted it broadly.
The Ghent Labour Court ruled that since the stock incentive plan in question stated that nothing in the plan constituted an employment contract between the US parent company and the Belgian employee, it implied that a Belgian employee who believed that they were wrongly deemed to be ineligible for RSUs on the basis of the plan could turn only to their employer, the Belgian subsidiary.
This was further reinforced by the fact that the Belgian subsidiary recommended potential participants in the stock incentive plan to the US parent company.
Whereas, in the Supreme Court ruling of 10 October 2016, the right to the benefit was included in the employment contract with the Belgian employer so that the employee could address their employer on this basis, the Ghent Labour Court of Appeal rapidly decided on the basis of the plan, almost as a matter of course, that the employees could address only their employer.
Both cases address different aspects of the same question – namely, are social security contributions due on share-related benefits granted by a parent company to its Belgian subsidiary's employees?
While Sisley focuses on the counterpart to work performed argument, Esko evaluates the at the charge of the employer concept.
When viewed together, it seems that:
- if share-related benefits are granted in return for work performed (eg, if they are performance related), social security contributions will be due, even if the benefits are granted by a parent company and the Belgian employer does not intervene (eg, Sisley); and
- if share-related benefits are not granted as a counterpart to work performed (eg, they are granted to increase the employees' involvement in the group), they risk being rapidly and almost automatically regarded as being at the charge of the employer, especially if the Belgian employer proposes participants to the parent company (eg, Esko).
It remains to be seen whether Esko will be appealed in the Supreme Court and whether other courts will share the Ghent court's view.
