In the past, the Tax Ruling Service has taken several decisions whereby it was not excluded that the grant of warrants/options on Beveks/Sicavs or the grant of quoted options could be considered as an improper use if such grant would be considered ‘disproportionate’ in comparison with the conventional attributed remuneration. The Tax Ruling Service never specified what should be regarded as disproportionate.
In their recent newsletter, the Tax Ruling Service sheds light on how they believe the term ‘disproportionate’ should be interpreted. According to the Tax Ruling Service the portion of the remuneration granted in warrants or options cannot exceed 20% of a defined maximum threshold:
For employees this threshold is defined as follows:
1) The monthly gross remuneration x 12,92 (including holiday pay)
2) The 13th month
3) The variable gross remuneration
For self-employed the threshold is composed of:
1) The fixed yearly gross compensation (subject to wage withholding tax and social security contributions for self-employed)
2) The variable yearly gross compensation
In both situation, the components mentioned above are taken into account prior to deduction of mandatory personal social security contributions, however benefits in kind need to be excluded from the calculation basis.
Some things remain a.o. unclear:
– will additional guidance be issued for grants of warrants or OTC products in the context of personal services companies?
– on which basis did the Tax Ruling Service conclude that granting more than 20% in warrants/OTCs is ‘disproportionate’ (i.e. how is the 20% cap determined?)
– how does the cap apply to beneficiaries/expats under the application of Ci.RH.624/325.294 dd. 08.08.1983 -especially in situations whereby the maximum limit of non-taxable allowances (€11.250 or €29.750) is not met and may fluctuate between the moment of the bonus attribution and the end of the income year.
In effect as from 1 January 2018… and the potential side effects
Based on the newsletter, The Ruling Office has decided that the 20% limit is only applicable for warrants/options which are granted to remunerate activities performed as from 1 January 2018. From this, it can be derived that bonuses paid in 2018 for activities performed in 2017 are not in scope of this “new” interpretation.
However, for companies whose performance period falls partially in 2017 and partially in 2018, the 20% limit could potentially result in a headache. In such situations, it is recommended to seek further advice from the Tax Ruling Service on how to interpret the 20% limit.
Serious change in the bonus landscape
The use of warrants and options on BEVEK/SICAV is wide-spread in Belgium. Despite the 20% cap is referred to in two particular cases, the message in the newsletter of the Tax Ruling Service is clear for the settlement of variable pay by means of warrants or OTCs products as from performance year 2018. Employers are therefore, strongly recommended to review their current variable pay practice. In this respect, PwC can assist with:
– how the 20% cap impacts your current variable pay practice
– advice on the redesign of your broader reward practice
– explore alternative settlement methods in the context of flexible reward that are not hit by the 20% cap
– facilitate contacts with the Advance Ruling Office for your particular case where needed
Further questions or require assistance? Don’t hesitate to contact Christiaan Moeskops, Luc Legon, Bart Van den Bussche or your local PwC contact.