Belgian corporate tax deduction rejected for stock option plan cost recharged by foreign parent company

Written by Nicolas de Limbourg 9 July 2014


Court of Appeal of Brussels confirms four-year old decision of Court of First Instance of Brussels.

We refer to our HRS Headline of 26 May 2010. On 25 June 2014, the Court of Appeal of Brussels confirmed the decision of the Court of First Instance of Brussels of 16 April 2010. According to this decision, a capital loss on shares that was charged back by a South-African parent to its Belgian subsidiary in the context of a stock option plan was considered to be not deductible under article 198, 7° of the Income Tax Code (ITC).

The Court of Appeal did not challenge the professional character of the expense (article 49 of ITC) but, ignoring the fact that this expense was not a capital loss on shares under Belgian accounting law, decided that the mere invoicing of this capital loss did not alter the nature of such expense for the Belgian company. On that basis, the Court of Appeal confirmed that the expense was not tax deductible for the Belgian employer.

This decision is important for two reasons. Firstly, it confirms that equity incentive related expenses that are charged back by foreign headquartered companies to their Belgian subsidiaries are in principle deductible professional expenses under article 49 of the ITC. Secondly, where such invoiced expenses include capital losses on shares (and we may expect other expenses the deduction of which is explicitly prohibited by the ITC), they may not be tax deductible to that extent.

Following this decision, achieving a corporate tax deduction of foreign based equity incentive related expenses may appear to be increasingly complex and challenging as the nature of the amount invoiced to the Belgian employer may not be clearly identified or the expenses may not mirror costs actually expensed in the financial statements of the foreign parent in accordance with foreign applicable accounting rules.

In the light of this last decision, we thus strongly recommend Belgian employers to review their respective foreign parent’s hedging structures implemented in connection with equity incentives, if any, the applicable charge back agreements and the nature of the costs that they will be invoiced in relation to such incentives.