Employment taxes

Liability of Directors of Belgian Companies to the Social Security in a European Context

The fourth subparagraph of Article 3(1) of Royal Decree No 38, such as interpreted by the Constitutional Court, provides that any person designated as director of a company liable to Belgian tax, which does not manage the company from Belgium, is irrebutably presumed to pursue in Belgium a professional activity.

Questioned by the Labour Court of Brussels, the European Court of Justice decided on 27 September that, for the company director who manages a Belgian company from another Member State, the non-rebuttable nature of the presumption that they pursue their activity in Belgium is contrary to European Law.

Indeed, the Court considers that the "location of exercise" of the professional activity must receive a uniform definition and be understood as referring to "the place where, in practical terms, the person concerned carries out the actions connected with that activity".

Therefore, persons designated as directors of a Belgian company can now prove that they pursue their activity from another Member State, and be exempt from liability under the Belgian social security regime for self-employed persons because of such activity.

In addition, this decision might have an impact on the qualification of the director's activity, and even on the determination of the State of liability, since it is for the State within which the activity is in practical terms pursued to determine whether it constitutes an employed or self-employed activity.

Action point

Determine the State within which the company director's activity is in practical terms pursued, as well as the qualification given by such State's legislation to the activity of the director (employed or self-employed activity), and its eventual impact on the determination of the State of liability.

Non-compete Agreement Concluded After the Severance Notification But Before the Effective End of the Employment Contract: Indemnity Exempt from Social Security Contributions

It was generally admitted that a non-compete indemnity was exempt from social security contributions only if, among other things, the non-compete agreement was concluded after the effective end of the employment contract.

The Supreme Court nuances this principle in a judgment of 19 March 2012. In this case, two agreements were concluded on the same day between an employee and his employer: on the one hand, a transactional agreement on the termination of the employment contract (after the severance notice), and on the other hand, a non-compete agreement. Parties also agreed that the employment contract would effectively end only on the second day after the conclusion of those agreements. In addition, the employment contract did not contain a non-compete clause.

The Supreme Court decided that even if paid by virtue of an agreement concluded after the severance notification, but before the effective end of the employment contract, the non-compete indemnity is not necessarily awarded because of the termination of the employment contract: it does not therefore constitute remuneration subject to social security contributions.

This ruling reduces the importance of the exact moment of the conclusion of a non-compete agreement concluded within the framework of the termination of an employment contract. In order for a non-compete indemnity to be exempted from social security contributions, such an agreement should not necessarily be concluded after the effective end of the employment contract. Note that the exemption from social security contributions always requires that the non-compete indemnity does not constitute, in reality, a veiled indemnity in lieu of notice.

Note that this judgment does not concern the validity conditions of the non-compete clause.

Italian Labour Reform: What Will the New Year Bring?

By Valeria Morosini of Toffoletto De Luca Tamajo e Soci (the Italy member of Ius Laboris)

On the 27th December 2011, a new law that will greatly reform certain aspects of Italian labour law was published in the Italian official gazette. The law will enter into force at the beginning of the new year and will bring major changes to company tax deductions and pensions.

Starting in January 2012, companies will receive tax deductions as a reward for employing workers under the age of 35 and female employees; these two groups make up the largest percentage of unemployed persons in Italy. However, the biggest change will come in the area of pension reform.

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Tax Circular on 'Project Private PC'

The contribution an employer makes towards what an employee pays for a computer and/or related material can be exempted from tax under certain conditions and within certain limits.

Since 1 January 2009, a new exemption scheme has applied in such situations and the tax authorities have now published a circular on this subject (circular of 11 July 2011).

This scheme is aimed at employees whose annual taxable remuneration does not exceed 21.600 EUR (not indexed amount) or 30.540 EUR for the 2012 tax year.

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Compensating Employees' Professional Mileage: The Maximum Amount of Compensation has Changed

As from 1 July 2011, the maximum amount of the fixed mileage compensation is set at 0.3352 EUR per kilometer. 

This fixed amount can be granted to an employee who uses his own vehicle (car, motorcycle or moped) to travel for his employer. For tax purposes, travel between the place of residence and the fixed place of employment cannot be considered as a professional travel and hence cannot be regarded as "travel on behalf of the employer".

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New Tax Exemption for Severance Pay

The Belgian Official Gazette has published the Act based on which the remuneration received by employees during their notice period will be exempt from tax up to an amount of 425 EUR (not indexed). As from 1 January 2014, the exempt amount will be doubled. The same exemption applies when the employee receives a severance pay.

This exemption, however, involves some limitations. Thus, there is no exemption when the employment contract is being terminated:

  • by the employee;
  • during the trial period;
  • for serious cause; or
  • for the purpose of accessing a pension or bridging pension regime.

Neither does the exemption apply in case of termination of an employment contract for a definite period or for a specific work assignment.

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Seniority Premium: The Tax Authorities Tune to the NOSS

In its circular of 23 May 2011, the Belgian tax authorities tuned their position with regard to seniority premiums following the recent clarification issued by the National Office of Social Security (NOSS).

For the seniority premium to be exempted from social security contributions and tax, a number of conditions must be met.

The NOSS had already indicated that the seniority premium can only be granted twice in an employee's career: a first time at the earliest in the calendar year in which the employee completes 25 years of service, and a second time at the earliest in the calendar year in which the employee completes 35 years of service.

For reasons of consistency, the tax exemption must also be conditional to the fact that the premium is granted at the earliest at 25 or 35 years of service, without it being required that it is granted at the moment this seniority is acquired.

A seniority premium which is awarded for the first time to celebrate 30 years of service thus meets the conditions for tax exemption.

It remains of course important that the premium is linked to the seniority of the employee. Premiums awarded for reasons other than seniority remain excluded from the beneficial tax regime.

The (new) exemption applies retroactively to seniority premiums awarded or paid as of 1 January 2006.

Business Trips Abroad: New Flat Rate Allowances

With the ministerial decision of 28 April the new list of flat rate daily allowances, which the Federal Public Service Foreign Affairs grants to its employees who undertake "short business trips" abroad, is approved. In this regard, short business trips are those not lasting longer than 30 calendar days.

These daily allowances cover costs for meals and other small expenses for which it is not always possible for the employee or for the manager who is on a business trip abroad to obtain receipts.

The costs for staying overnight and the travel costs to and from abroad do not fall within the scope of the allowances.

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Tax Status of French Frontier Workers Employed in Belgium: New Circular Letter

The double taxation agreement between Belgium and France foresees a special tax regime for salaries of residents of the French frontier zone who are employed in the Belgian frontier zone.

While the general rule foresees taxation of salaries in the state where the activities are carried out, employees that enjoy this special regime remain taxable in their state of residence, namely France, even though they are employed in Belgium.

This regime was changed by an annex of 12 December 2008 to the double taxation agreement and this annex entered into force on 17 December 2009. The Belgian tax administration has published various circular letters dealing with the regime as its practical concrete application has raised many questions since its entry into force.

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Work Stability Indemnity: Not Submitted to Social Security Contributions

Certain collective bargaining agreements compel the employer to follow a specific procedure when dismissing an employee. In general, an employer's failure to respect such procedure entitles the employee to a so-called work stability (or security) indemnity.

In accordance with social security regulations, such indemnity is excluded from the remuneration submitted to social security contributions since it is "an indemnity due in the event of non-respect by the employer of his legal, contractual or statutory obligations."

However the National Social Security Office (NOSS) presents a contrary opinion in its 'Instructions to employers.'

In its judgment of 10 May 2010, the Brussels Labour Court of Appeals invalidated the position of the NOSS concerning an indemnity provided for in the insurance industry (collective bargaining agreement of 8 November 1987). The court thus confirmed that social security contributions were not due on these indemnities.

This case-law can also be applied to other industry sectors or companies where collective bargaining agreements contain similar work stability clauses.