The final act in the litigation of social security tax on third party grants of equity to Belgium based employees

Regular readers of our Newsletters may recall our feature article, Landmark Supreme Court ruling: equity compensation granted by the parent company and social security tax on the Belgian Supreme Court landmark case of 5 September 2022 (S.210007.N). In its ruling, the Supreme Court quashed the ruling of the Ghent Labour Court of Appeal which had (wrongfully) held that social security tax is due on equity compensation in the form of RSUs granted by the ultimate parent to employees of a Belgian affiliate.

The Supreme Court meticulously reaffirmed the legal concept of “benefits” subject to social security tax: unless they constitute the consideration for labour performed, these benefits must be borne by the employer; this is the case where (i) the employer has undertaken the commitment to grant the benefit and where (ii) the benefit is thus actually granted by the employer to the employee.

The case was then referred to the Antwerp Labour Court of Appeal for it to examine the facts against the backdrop of this clearly outlined legal framework.

In its decision of 20 November 2023 (2023/AA/16), the Antwerp Labour Court of Appeal now takes the opposite view to the one held by the Ghent Labour Court of Appeal and, in line with the above ruling of the Supreme Court, holds that in this particular case the grant of RSU’s did not constitute any consideration for labour performed (‘tegenprestatie voor arbeid’/’contrepartie du travail’).

Furthermore, the Antwerp Court considers that, in the given circumstances of the case, the benefit of RSU’s was not borne by the employer since (i) no financial cost of the benefit was financially borne by the employer, (ii) the only commitment to grant RSU’s (and any contractual documentation underlying such grant) was issued by the granting ultimate parent (and not by the employer), and (iii) the causa for granting the RSU’s is therefore not the performance of labour but the wish of the third party to retain talent. Moreover, the grant of RSU’s is not as such consideration for the labour performed for the employer since the grant reflects an autonomous decision of the ultimate parent which is unrelated to the actual performance of the employment contract with the Belgian employer, and unrelated to the salary payment obligation of the employer of the beneficiaries.

With this decision of the Antwerp Labour Court of Appeal the final act in this ongoing saga which started in Spring 2015 seems to have been written, notwithstanding the Social Security Office’s right to bring the case before the Supreme Court on other legal grounds than the one(s) brought before the Court in its 2022 decision.

This landmark case has the benefit of finetuning the concept of ‘a benefit borne by the employer’ in line with previous Supreme Court rulings, in the sense that a benefit is deemed not to be borne by the employer if (i) the benefit is granted, financed, paid for and actually financially borne by a third party (as a necessary but insufficient condition) (contrary to the 2016 Roularta case), (ii) the third party (to the exclusion of the employer) has and can prove its own unilateral or contractual ground for the grant (contrary to the 2019 Sisley case), and (iii) based on such separate own causa, the grant cannot be seen as the consideration for the labour services performed (contrary to the 2019 Sisley and 2020 PSA cases).

Furthermore, the Social Security Office had also insisted on the fact that, under tax laws, RSUs are considered as the counterpart for work performed and that the same should apply under social security laws. This argument was also rejected by the Court: different legal definitions apply as regards the concept of “wages” within these distinct fields of law. As a result, the fact that the Belgian affiliate was required to withhold taxes on these benefits does not necessarily imply that these must be considered as consideration for work.

Although the Antwerp Labour Court seems to have laid to rest an issue that has been quite contentious over the past years, following the clear legal beacons as provided by the Supreme Court in its decision, one must bear in mind that this decision was rendered on the basis of the facts and circumstances in this particular case. Whether social security contributions are due will therefore depend on an individual assessment of each concrete factual situation, using the parameters outlined above. But commentators, especially those who looked at this issue through a “tax lens” and who systematically advised corporates to pay social security contributions on equity issued by (foreign) parents may now wish to reconsider and take an employment/social security law outlook to this matter. After all, as this Court decision clearly shows: “The things that you are li’ble to read in the (tax) Bible, … it ain’t necessarily so”.