Since the third quarter of 2018, the National Social Security Office (NSSO) has substantially broadened its interpretation of what is to be understood as ‘salary’ subject to social security contributions. As a result, benefits in general, and shares and RSUs in particular, attributed by a ‘third party’ (e.g. a foreign parent company) to the 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 ruling of 2 May 2019 in the Sisley case, which confirmed the Brussels Labour Court of Appeal’s judgment that if salary benefits (in that case, ‘commissions’) are granted ‘as a counterpart for the work performed’, then they are in any case ‘salary’ subject to social security contributions, even if granted by a third party and without it being necessary to check whether the employees have a right to the benefits ‘at the charge of the employer’.
However, if it could be demonstrated that the benefits (shares, RSUs) are not the counterpart for the work performed (e.g. they are not performance-related, but are granted with the intention of increasing employee involvement within the company group), then the Supreme Court’s judgment leaves room to argue that these benefits are not automatically subject to social security contributions. In such a case, 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 payment of the benefit from their employer, i.e. if their (Belgian) employer acted as a ‘point of contact’.
In a recent ruling of 20 April 2020, the Ghent Labour Court of Appeal, in the Esko case, regarding RSUs granted by a US parent company to the employees of its Belgian subsidiary, gave a very broad interpretation of this ‘at the charge of the employer notion’. The court held that if the incentive plan stipulated that nothing contained in the plan constituted an employment contract between the employee and the US company, then the employee could only address his or her Belgian employer for an entitlement to the benefit, e.g. if the employee believed that he or she would wrongly be ineligible for the RSUs. This would be further reinforced by the fact that the Belgian subsidiary recommended potential participants in the stock incentive plan to the US parent company.
This case, if followed, would make it even harder, if not impossible, for international groups to escape social security contributions.
No appeal to the Supreme Court has been filed (as yet) in this Esko case.
Two cases, two different angles but with the same result
The Sisley case
The first ruling that formed the basis for the amended NSSO 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' (the French cosmetic brand, Sisley) to the employees of a Belgian employer (Planet Parfum, a perfume store) on the sales they had achieved for the brand were to be regarded as salary, subject to social security contributions. The judgment 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 the employees by definition would 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. This ruling was subsequently confirmed by the Supreme Court.
When applied to share-related benefits, this means that if the shares or RSUs are granted ‘in return for the work performed’, e.g. if they are performance-based, then they will in any case be subject to social security contributions, even if granted by the parent company.
However, should it appear that they are not granted ‘as a counterpart for the work performed’ (not performance-related but, for example, with a view to increasing employee involvement within 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’.
The Esko case
In the recent Esko case, the Ghent Labour Court of Appeal has focused on this ‘at the charge of the employer’ notion.
Indeed, if not the counterpart for the work performed (see the Sisley case), a benefit will be salary subject to social security contributions if the benefit is granted as a result of the employment of the employee, who is entitled to this benefit, either directly or indirectly, ‘at the charge of his/her employer’ (Article 2 Salary Protection Act).
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 its employees could turn if they did not receive the benefit.
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.
This former NSSO position stemmed from the Supreme Court’s case law and notably its ruling of 12 October 2016. In that 2016 ruling, the Supreme Court stated that a benefit granted to the employees of a subsidiary, although attributed and financially borne by the parent company, was still to be considered ‘at the charge of the subsidiary employer’ if the employees concerned could claim the payment of 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 3rd quarter of 2018, the NSSO took 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 the granting of the benefit 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 are salary ‘as soon as there is a link between the employment contract and the benefit’, which will, in principle always be the case.
In the recent Esko case of 20 April 2020, the Ghent Labour Court of Appeal also addressed the question of whether a benefit, and in particular RSUs granted by the US parent company, should be considered as being ‘at the charge of the employer’, i.e. the Belgian subsidiary.
This ruling has also referred to the Supreme Court’s case-law of 10 October 2016 (see the NSSO’s former position), but has interpreted this 2016 judgment in a very broad way.
The Ghent Labour Court has ruled that since the stock incentive plan stated that nothing included in this plan constituted an employment contract between the US parent company and the Belgian employee, it implied that a Belgian employee who believed that he would wrongly be ineligible for RSUs on the basis of the plan, could not turn to anyone other than his employer, the Belgian subsidiary.
This would be 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 his/her employer on this basis, the Ghent Labour Court of Appeal has very rapidly decided on the basis of the plan, almost as a matter of course, that the employees 'could only address their employer'.
Conclusion
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?
Whilst the Sisley case focuses on the ‘counterpart for the work performed’ argument, the Ghent Labour Court of Appeal in Esko has evaluated the ‘at the charge of the employer’ criterion.
When put together, it seems that:
- If the share-related benefits are granted ‘in return for the work performed’ (e.g. if they are performance-related), then social security contributions will in any case be due, even if they are granted by a parent company and the Belgian employer in no way intervenes (the Sisley case);
- If the share-related benefits are not granted as a counterpart for the work performed (e.g. they are granted to increase the involvement of the employees in the group), then they risk being very rapidly and almost automatically regarded as being ‘at the charge of the employer’, especially if the Belgian employer proposes participants to the parent company (the Esko case).
It remains to be seen whether a Supreme Court appeal will be filed against the Esko ruling and whether or not other courts will share the Ghent Court’s view.
To be continued.
PHILIPPE DE WULF
Partner
ESTHER SOETENS
Managing Associate
