Belgian exemption of withholding tax for night and shift work – clarification as to the scope of application (Judgment of 9 September 2024)

On a separate note, a recent, still-unpublished judgment from the Court of First Instance of Walloon Brabant (9 September 2024, nr. 23/389/A) addressed whether the relief amount could be applied on the professional withholding tax other than the one withheld on fixed remuneration, and whether it could be calculated on an annual basis.

1. Background 

Belgian tax legislation has, for two decades now, provided a tax incentive to promote the night and shift work in Belgium under the form of a partial professional withholding tax relief (the “relief”).

The intent of the legislator, as it appears in the legislative history of 2003 was to relieve the employer from remitting to the Belgian State part of the professional withholding tax effectively retained on the amount of the shift premium granted to eligible workers.

However, as such premium is typically paid within the same envelope as the fixed remuneration, calculating the amount of the relief based on the professional withholding tax specifically retained on the premium would have made the application of the system overly complex. 

The legislator has thus preferred, for the sake of simplicity, to determine the amount of the relief based on a percentage of the fixed taxable remuneration (including the shift premium) attributed to the eligible workers. Since the 2018 reform, the amount of the relief is calculated on a collective base, that is on the total amount of the fixed taxable remuneration of the employer’s group of eligible workers, and no longer at the level of each eligible worker individually. Currently, this relief amounts to 22.8% (or 25% for continuous work) of said fixed remuneration.

In an unpublished judgment of the Court of First Instance of Walloon Brabant, an employer argued that although the relief is calculated on the fixed taxable remuneration, it may also apply on the professional withholding tax on variable pay elements (such as holiday pay, end-of-year bonus or arrears of remuneration) when for a given period the relief amount exceeds the professional withholding tax retained on fixed remuneration. The same employer also supported that the relief amount must be determined on an annual basis, allowing the transfer of the unused part of the relief of a given month to the following one, if need be.

2. Judgment

Facts – A Belgian company claimed for tax year 2018 the application of the relief on the fixed remuneration attributed to its eligible workers. However, in certain months, the professional withholding tax retained on the fixed remuneration was insufficient to fully absorb the relief, resulting in part of it being lost.

In 2022, four years later, the company claimed from the tax authorities and subsequently in court refund of professional payroll tax, based on the following arguments :

• Rather than being forfeited, the portion of the relief that exceeded the professional withholding tax retained on the fixed taxable remuneration could have been applied on the withholding tax retained on the other components of the eligible workers’ remuneration such as holiday pay, end-of-year bonus or arrears of remuneration; and
  
• The relief should have been calculated on an annual basis. 
  

Decision – The Court decisively rejected the company’s arguments:

• The Court found that the wording of the relevant legal provision (Art. 275/5 of the Belgian Income Tax Code) is clear and unambiguous as it relates to which professional withholding tax the relief may apply to: 

“Companies where shift work or night work is performed, which pay or allocate a shift premium and which are liable for withholding tax on this premium […] are exempted from paying to the Treasury an amount of withholding tax equal to 22.8% of the total taxable remuneration of all employees concerned by this paragraph, including shift premiums, on condition that the said withholding tax is deducted in full from this remuneration and these premiums.

The taxable remuneration, including shift premiums, referred to in the previous paragraph is the taxable remuneration of workers determined in accordance with Article 31, paragraph 2, 1° and 2°, excluding holiday pay, the end-of-year bonus and arrears of remuneration’”.

In the Court’s view, the ad-hoc definition of the concept of “taxable remuneration” is relevant not only for the calculation of the relief itself, but also when determining on which portion of the professional withholding tax the relief may apply. 

Essentially, the Court held that the relief could only apply to the professional withholding tax the effective withholding of which is required by the legal provision (i.e., the said withholding tax to be retained on this remuneration and these premiums within the meaning of the ad-hoc definition).

• According to the Court, a reading of the relevant legal provisions and regulations indicates that the relief must be calculated monthly, in line with the professional withholding tax.
  

The Court further noted that arguing otherwise would conflict with the intent of the 2018 legislative reform, which sought to simplify the measure (by allowing the relief to be calculated on the total taxable remuneration of all eligible workers as a group, rather than individually), since calculating the relief annually would make the application of this tax measure unnecessarily complex.

3. Takeaway

The recent decision issued  by the Court of First Instance of Walloon Brabant is concise yet clear: in the judge’s view, the relief may only apply to the professional withholding tax effectively withheld on the (fixed) taxable remuneration (including the shift premium) of the eligible workers and must be calculated monthly. 

Although this decision is not in favor of taxpayers, it should not cause concern for most employers currently applying the relief. The employer’s position in this case is, in our experience, not commonly shared by many beneficiaries of the tax measure.

Lastly, since this decision was made in the first instance, the employer can still appeal, hoping for a different outcome.