In a landmark case of September 5, 2022 (S.210007.N) the Belgian Supreme Court has quashed a ruling of the Ghent Labor Court of Appeals of April 20, 2020, which held that social security tax is due on equity compensation (in the form of RSUs) granted by the ultimate parent company to employees of a Belgian affiliate.
In the case at hand, both in first instance and on appeal, the Belgian social security administration claimed payment of social security tax on the value of RSUs granted, paid for and borne by the ultimate US parent to the employees of its Belgian affiliate. Its claim was upheld both in first instance and on appeal, although on different grounds.
Now the Supreme Court has quashed the decision on appeal, by holding that an entitlement to a benefit, which is not the consideration for labor performed, is ‘compensation’ (‘loon’/’rémunération’) for the levy of social security contributions only if it is “borne” by the employer. The Court explicitly stated that this is the case where the employer has undertaken the commitment to grant the benefit and where the benefit is thus actually granted by the employer to the employee.
As a reminder, the key question is whether benefits granted (paid for and financially borne) by a third party to employees of a Belgian based employer are subject, as ‘compensation’, to social security contributions. Under Belgian law benefits must be borne by the employer in order for them to attract social security tax.
In a number of cases over the past few years the Supreme Court has had the opportunity to finetune its jurisprudence on this matter, e.g. by holding that a legal obligation incumbent upon the employing entity to grant the benefits (although actually paid for by a third party) suffices to meet this legal requirement (October 10, 2016, Roularta). In a 2019 case, the Supreme Court upheld the decision of a Labor Court of Appeal that had considered a benefit that was granted by a third party as compensation and hence subject to social security contributions, on the basis of the factual consideration that it had been awarded by this third party as a counterpart for the execution of the employment contract with the employer (May 20, 2019, Sisley). In its legal analysis this case was confirmed by a more recent decision of the Supreme Court (March 14, 2022, PSA Finance) where salespersons in a car dealership received a bonus from a third party (a financing company) upon sales of such car financing. The Supreme court upheld the Labor Court of Appeals ruling that such bonus (although granted and paid for by a third party) was paid in clear consideration for the labor performed at the car dealer. As the legal ground (or “causa”) for granting the sales bonus was the performance of the employment contract, the bonus inevitably constituted the counterpart for the performance of labor and was therefore subject to social security tax.
After the Sisley case many commentators and practitioners openly held that the grant of any equity compensation, in the form of stock, RSUs of otherwise (except perhaps for stock options, because of its specific regulation) would from now on always be subject to levy of social security tax, even if paid for, granted and borne by a third party (such as the listed parent or ultimate holding company). They argued that the condition of ‘being borne by’ was no longer relevant in practice, as the Supreme Court appeared to have amalgamated this condition with the obvious requirement that the benefit be granted ‘by virtue of the employment relationship’ (as is most often although not always the case).
As a result many commentators refuted the position (as held by our client, the plaintiff in the Supreme Court proceedings) that whenever a separate causa can be proven, distinct from the mere performance of the employment contract, underlying from a legal perspective the commitment to grant the benefit undertaken by a third party (which obviously pays and bears the cost of such benefit), the condition of being borne by the employer is no longer fulfilled and the benefit is not subject to social security tax.
These commentators now appear to be proven wrong by the Supreme Court’s September 5 ruling.
Fully aligned with its case-law as cited above the Supreme Court acknowledges that the grant of equity by a third party can have a causa that can be distinguished from the mere performance of the employment contract; if the causa is the performance of the employment contract, then the benefit is subject to social security tax, irrespective of who pays the benefit (Sisley and PSA Finance). When the employing entity has undertaken the commitment to grant the benefit, then it is subject to social security, regardless of who actually pays or bears the cost of the benefit (Roularta).
On the other hand – and this is the actual crux of the Supreme Court’s most recent decision – if there is a separate causa, and the third party (and not the employer) has taken the contractual or legal commitment to grant (pay for and bear the cost of) the benefit, the benefit is not borne by the employer and it is therefore not considered as compensation subject to social security tax (see also: DE KOSTER, P. ‘Mijlpaalarrest inzake loonbegrip voor heffing van sociale zekerheidsbijdragen?’, note to Cass., 20 May 2019, J.T.T., 2019, 342-344).
About the authors
Pieter De Koster is a partner in Bird & Bird's International HR Services group in Brussels with over 30 years' experience of advising on contentious and non-contentious issues in employment and benefits.
As Counsel in Bird & Bird's International HR Services group in Brussels, Cecilia Lahaye has in-depth experience in employment and civil law litigation, with a practice that spans an array of employment and social security law matters.