Key takeaways
1. Following the Sisley case-law, the ONSS has taken a quite aggressive approach when it comes to social security and equity based compensation granted by the foreign parent company to employees of the Belgian subsidiary. According to the ONSS, such equity based compensation should as a rule be considered 'salary subject to social security contributions'. As a result thereof, a number of companies have started applying social security contributions, which has a quite substantial cost impact: employer social security contributions (some 27%) are levied on a non-capped remuneration, in addition to which further labour law implications must be considered (e.g., vacation pay on equity based compensation, equity based compensation to be included in the calculation basis of the indemnity in lieu of notice, etc.).
2. The Antwerp Labour Court of Appeals' decision puts a stop to the unbridled extension of the concept 'salary subject to social security contributions' and allows for a more nuanced approach. One has to look at the wording reflected in the employment contract; if it does not contain equity based compensation related wording all underlying factual circumstances (including, but not limited to, the wording reflected in the relevant plan rules and the grant process) then need to be taken into account in order to assess whether the equity grant can be considered the foreign parent company's own undertaking.
3. Importantly, the Court adds that the mere fact that the Belgian subsidiary proceeds to wage tax withholding and reporting is, by itself, not sufficient to conclude that employee social security contributions are due.
In depth
In order to corroborate the position that employee social security contributions should not (or no longer) be applicable, it is key that the foreign parent company, at the exclusion of the Belgian subsidiary, undertakes to award equity based compensation and is legally and financially fully responsible. The foreign parent company's own undertaking should be corroborated through the whole equity grant process in that:
- The Belgian employment contracts should not contain wording pointing to equity based compensation.
- The relevant equity rules and agreements should be initiated at the level of the foreign parent company, without intervention from the Belgian subsidiary, and preferably also outline that the purpose is to bind employees long term to the group's activities.
- The foreign parent company should decide as to which Belgian employees are entitled (it being understood that the Belgian subsidiary can make non-binding suggestions).
- The financial cost should be borne solely by the foreign parent company (i.e., there is no charge back to the Belgian subsidiary).
- The Belgian subsidiary should not be the contact point for employees having questions regarding their possible equity grant.
- Etc.
Practical implications
While it is not clear at this point in time if and on what ground the Belgian social security administration for employees ('ONSS'/'RSZ') could intend to file an appeal with the Supreme Court, it may be appropriate to review plan rules and award agreements, as well as grant procedures and wording in the Belgian employment contracts to determine whether this latest court decision warrants a policy change when it comes to (not) applying Belgian employee social security contributions in relation to equity based compensation.
This decision is a welcome pause and is a good opportunity to review equity documents and grant procedures to determine whether a policy change is warranted and, if so, whether there are grounds to claim a refund of employee social security contributions paid over the last three years.
If the outcome of such a review would not be favorable, the question arises as to whether the situation can be improved /amended (e.g., by altering the set-up and/or the underlying documents) so that a clear break with the past can be established which can be used as an argument to no longer apply social security contributions going forward.
On the other hand, if the outcome of the above analysis is positive, companies may, depending on the position that has been taken hitherto:
- Either continue (not) applying social security contributions.
- Or discontinue applying social security contributions, either by way of a 'hard stop' or in a less daring manner by continue paying 'under reservation' and in parallel claiming back the contributions so paid. In both situations, it would be recommended to file a claim aiming at obtaining a refund of social security contributions paid over the last three years.
Please reach out to your regular Baker McKenzie contact if you would like to discuss further the implications of this recent development and/or options available.
