Recent developments with regard to anti social fraud measures
The Belgian Government has introduced new measures to combat social fraud. The two main areas that the measures seek to target are:
- The improper use of self-employed status arrangements
- The inappropriate application of the European Social Security Regulations resulting in an exemption from Belgian social security, certified by an A1 certificate of coverage.
Companies active in Belgium, especially those using self-employed contractors, or seconding employees to Belgium from other jurisdictions, should be aware of the following recent developments:
- The “anti bogus self-employment legislation” in four business sectors
The tightened rules entered into force on 1 January 2013 and apply to the construction, security and surveillance, transport and cleaning sectors. The rules may be extended to other sectors in the future.
- A European social security anti-abuse provision
If the European Social Security Regulations are considered to be intentionally abused, the A1 certificate may be deemed to be invalid. This new provision enables the Belgian social security administration to claim Belgian social security contributions, even where the A1 certificate has not been revoked by the issuing Member State. This particular anti-abuse provision was enacted in the Progam Law of 27 December 2012 and entered into force on 10 January 2013.
- The prior declaration, known as “Limosa”, has been challenged but is still in place
Limosa is a statutory declaration that is required by the Belgian authorities. It applies to all employees and self-employed persons who work in Belgium temporarily or partially and is a declaration of their activity in Belgium.
The Court of Justice ruled its judgment of 19 December 2012 that the Limosa for self-employed individuals contravenes the freedom of services rules. The Belgian Government has announced it will adjust the Limosa legislation in order to preserve the Limosa declaration for the self-employed. We believe that the Limosa declaration for employees will not be subject to major conceptual changes.
1. New “anti bogus self-employment legislation”
Specific socio-economic criteria have been enacted in order to identify artificial bogus self-employment arrangements in four particular business sectors: construction, security and surveillance, transport and cleaning. If, in line with these criteria, the contractor is deemed to have insufficient entrepreneurial liabilities and responsibilities, a refutable presumption of the existence of an employment relationship comes into play.
This presumption may be refuted by reference to a service agreement which stipulates the will of the parties to enter into a self-employed relationship. However, the wording of the contractual arrangements is not in itself sufficient. The actual execution must show that the contractor can freely organize their work and working time. In order to enhance the level of legal certainty in this field, it will be possible to obtain a social ruling in the future. However, it is not yet known when the social ruling committee will become operational.
The criteria may be extended to other business sectors in the future, but is not applicable to professional relationships between family members. The Belgian courts may refer to these socio-economic criteria when assessing whether the contractor has sufficient freedom to qualify as self-employed.
2. European social security anti-abuse provision
Despite the EU case law of the Court of Justice (Fitzwilliam, Barry Banks and Herbosch Kiere), the Program Law of 27 December 2012 empowers the Belgian social security administration and courts to set aside A1 certificates of coverage unilaterally.
If the Belgian social security administration believes the European Social Security Regulations are held to be intentionally abused, the A1 certificate will be deemed invalid.
The Belgian social security administration are empowered to claim Belgian social security contributions if the correct application of the EU regulations indicate Belgium as the competent Member State.
The burden of proof, however, lies with the social security administration. If the administration cannot establish intentional abuse, the A1 certificate will be respected by the Belgian social security administration and courts.
In addition to the social security anti-abuse provision, the Program Law of 27 December 2012 enacts a general anti-abuse provision. The acts of evasion and avoidance of Belgian social law still has to be determined by Royal Decree.
Belgium is proceeding with these elements of anti-avoidance legislation, even though there is an acknowledged potential for conflict between the authority of Belgian domestic law and that of the EU Directive governing social security (which should, in technical theory prevail). It may be that there will be future rulings of court cases around this conflict, but it is clear that Belgium plans to pursue perceived cases of abuse.
3. Limosa notification
The Court of Justice ruled in its judgment of 19 December 2012 that the Limosa for self-employed individuals contravenes the freedom of services. The Court of Justice did not rule on the Limosa for employees. Therefore, the prior declaration remains fully operable for employees pursuing professional activities in Belgium temporarily or partially, and who are employed by an employer located outside Belgium.
The Court of Justice considers that a prior declaration (for self-employed) in itself is not contrary to the freedom of services. However, the scope of the Belgian Limosa declaration for self-employed individuals is too broad and the level of information is too detailed in view of its general fraud prevention purpose.
The Belgian Government has announced that the legislation will be adjusted in order to preserve the Limosa declaration for self-employed individuals. There is little ground to believe that the Limosa declaration for employees will be subject to major conceptual changes. Meanwhile, even though according to EU law individuals may not rely directly on the judgment before the national courts, Belgian courts may not impose sanctions in cases of non-compliance.
The Limosa will remain a powerful fraud prevention and detection tool. From November 2011, the Belgian social security administration opened the Limosa data for other governmental bodies via a web based application.
- Clients should, irrespective of the business sector, review the service agreements under self-employment arrangements with independent contractors in order to assess the effectiveness of the arrangements.
- Clients should review assignment structures and cross border working time in order to ensure that any A1 certificate that has been put in place is clearly justified by the merits of the assignment, and would not be open to potential allegations of intentional abuse by the Belgian authorities.
- Ensure that the Limosa declaration for employees is in line with the data on the A1 certificate.