Tax equalized schemes forgotten in the new taxation regime for expatriates executives transferred to Belgium in discussion at Parliament.

Nice December 6th 2021

The new taxation regime for expatriate executives transferred to Belgium in discussion at Parliament.

The main point is that executives paid on the basis of a net remuneration (net take home pay basis) in a tax equalization scheme will be excluded from this new regime.

Indeed, one of the requirements to benefit from this scheme is that, when transferred in Belgium, the executive must have a gross remuneration related to the services performed in Belgium, excluding non-taxable allowances, of 75.000 € at the time of the granting of the scheme and during its entire duration (Explanatory Memorandum pages 18, 19, 20 and 21) - See note infra please.  However, in a tax equalization scheme ... there is no gross contractual remuneration.

In the new system of the Program Law, we now reason in terms of gross remuneration. The starting point is, let us say, 100 of gross remuneration at the time of hiring in Belgium (Art. 32, § 3,2° C.I.R 1992 inserted by Article 13 of the Bill), to which we add 30 (let us assume the maximum) of non-taxable allowances for reimbursement of expenses specific to the employer, we calculate the tax and we have the net.

Nothing is said about the remunerations attributed in a tax equalization scheme, i.e. the same mistake as in the August 8th, 1983 Circular but in the opposite direction. What will happen indeed in a tax equalization scheme under the new regime ? At the time of the transfer, we start from, say, 50 (the so-called basic salary), we substract the hypothetical taxes of the country of origin from on the basic salary, we add the allowances for rents and cost of living increases (calculated on the basis of tables used throughout the world), the transfer bonuses ... etc. (it is only two or three years after arrival that the reimbursement of Belgian taxes will be included). The result is a non-contractual, non-stable "gross remuneration", which will be modified as soon as the first Belgian tax is paid. This could exclude certain American expatriate executives, or others who are paid on a net basis, from the new system, since (1) there is no contractual gross remuneration and (b) the minimum gross remuneration of €75,000 might not be reached. Indeed, when an executive is transferred on a net basis, the Belgian tax is not included in the "first gross remuneration", which is not the case for transfers on a gross basis (obviously, in a tax equalization scheme the tax is only taken into account when calculating the gross remuneration when it is reimbursed by the employer, i.e. in the third year following the arrival). So when an expatriate hired on a gross basis will receive 75.000 € the one hired on a net tax equalized basis will, the first two years, receive, e.g, 55 and not meet the threshold to get the special tax status.

There is no mention in the bill of such schemes and method of compensation through tax equalization. How to calculate the 30% lump sum compensation? Through an internal computation adding up everything paid at the time of the transfer, although this calculation is not considered by the lawmaker? By considering the so-called basic salary as the gross salary, whereas it is only a net salary? Where are we going? Are we still going to work through interpretative administrative circulars?

What a change compared to the Circular of 8 August 1983, as if in almost forty years American investments are no longer desired. History reminds us that this 1983 Circular was drafted with the sole concern the transfer of expatriate executives on the basis of a tax equalisation scheme. We find a basic salary, deductions for hypothetical taxes in the country of origin, housing allowances, cost of living allowances, expatriation bonuses, Belgian tax refunds (after the first enrolment, i.e. the second or third year after arrival), etc. It was only after the publication of this Circular in 1983 that the administration, realising that all the executives transferred on the basis of gross remuneration had been forgotten, published the famous "Technical Note" with its "hair-raising" calculations to reconstruct ... a fictitious remuneration scheme based on a tax equalisation, since we find in this "Technical Note" a basic salary, various allowances and a tax differential. For the ones transferred on a gross remuneration basis the non-taxable elements of the 08.08.1983 Circular i.e. the above-mentioned allowances, had indeed to be "extracted" from it.

As of today December 6th 2021 I have not seen one article pinpointing this error. From the so-called last big four to most of the "experts" commenting the matter. Merely appaling.

Stephen G Hürner

Note:  New article 13, § 3: << The following cumulative conditions must also be met by the taxpayer referred to in paragraph 2:
          2° to collect, from the employer or the company referred to in paragraph 2, subparagraph 1, 1° or 2°, a 75.000 € remuneration per calendar year, in respect of services rendered in Belgium;
          3° ...... The remuneration referred to in the first paragraph, 2°, means the gross remuneration, before deduction of social security security contributions, excluding ....reimbursements of expenses referred to in paragraph 5 >>.