New reporting and tax withholding obligations
The Belgian income tax and social security system used to rely on the existence of a strong nexus -with either a Belgian employer or a Belgian corporation - to impose social security charges and withholding or reporting obligations on compensation paid to employees. Absent such a nexus, compensation earned and/or paid outside of Belgium could escape either social charges or any withholding and reporting obligations or both. Other jurisdictions have long understood the benefit of the OECD promoted “enhanced relationship” framework where the tax (or social) authorities more routinely shift the burden of transparency and full compliance, on the shoulders of an allegedly more reliable intermediary than an individual taxpayer or employee.
It is along those lines that the Belgian government has revisited its compliance cycle and process and is seriously considering shifting gears around the concept of “horizontaal toezicht” or “enhanced relationship”.
Change in social security position
The Belgian Social Security Office has changed its position as to the nexus requirement which used to require the existence of a P&L charge to trigger Belgian social charges. An amendment of its administrative instructions made it indeed clear that its firm intention is to close this loophole. It provides that Belgian social charges are systematically due on incentives or other advantages paid by a foreign company to the employees of a Belgian subsidiary. The fact that the cost of these incentives or advantages is not invoiced to the Belgian company could no longer be used as an argument to avoid the payment of Belgian social charges.
In our view, serious questions can be raised about the legal validity of this change in the position of the Belgian social security authorities. However, a Belgian company would be obliged to go to court in order to challenge the amended position.
New reporting and tax withholding obligations
As a result of the new Budgetary Agreement so-called “Job’s Deal” in the summer months, the Belgian Parliament has voted on January 31st, 2019 several measures deemed to contribute to the fight against tax and social fraud.
Based on the new legislation, Belgian related entities would be required to report all remuneration paid or attributed to the beneficiaries working for the benefit of the Belgian entities. This catch-all obligation - which primarily targets share-based incentive programs - would greatly contribute to the above-mentioned objective pursued by the Belgian authorities, i.e. to gather upfront all compensation elements and report it automatically on a prepopulated tax form.
So far, the reporting of compensation elements provided by foreign headquartered groups on Belgian annual salary statements was explicitly foreseen for stock options accepted within 60 days (cfr. Stock Option Law of 26 March 1999). With this new measure, any remuneration attributed outside Belgium would need to be reported by the Belgian related entity.
In addition, Belgian related entities must retain and remit withholding taxes on all those grants or payouts made outside Belgium. Needless to say that this new measure would require a heavy involvement of both the Belgian entity and the foreign headquarter to set-up new transparency rules resulting in payroll and financial arrangements.
The extended reporting obligation rules would apply to any compensation attributed as of 1 January 2019 and the new withholding tax requirements would be applicable as of 1 March 2019. Those new measures would be applicable irrespective of the following usual considerations:
- Involvement of the Belgian subsidiary in the award process and;
- Cross-charge or not to Belgium.
At the same time, Belgian tax authorities have recently confirmed that share based incentive programs were at the top of their priority list by launching several tax audits which are primarily focusing on foreign equity plans.
Next steps
Belgian companies being part of foreign headquartered groups should
REVIEW their current reporting process for foreign incentive plans.
QUANTIFY the potential impact for both the organization and the beneficiaries (especially on the funding of social security and withholding taxes).
COMMUNICATE to key stakeholders in view of the potential adjustment of the payroll process.
How EY can help
EY Belgium can help companies to be prepared for the implementation of those new measures.
ANALYSIS Analysis of the current reporting and withholding tax process and quantify financial and administrative implications;
COMMUNICATION Draft the necessary communications to all stakeholders;
IMPLEMENTATION Support to amend current payroll processes to comply with these possible new requirements;
EXECUTION Assistance in drafting, amending global incentive programs and managing change for both the organization and the beneficiaries.