Summary

• Article 275⁵ of the Income Tax Code 1992 (ITC92) provides for companies organising shift work for an exemption from transferring to the Treasury a part of the withholding tax amounting to 22.8% of the taxable remuneration of eligible shift workers.
• To be qualified as a company where shift work is organised, it is required that the successive teams perform the same work “in terms of its scope”. This condition often raises conflicting interpretations between taxpayers (who consider that the scope of work should be similar) and the Revenue Services (requiring an identical scope of work).
• The law of 2 May 2024 containing various tax provisions (FR | NL) introduces a "bis" regime which eliminates this difficulty by making it possible to apply for a pro-rata exemption in favour of companies where the scope of work is distributed asymmetrically amongst successive teams.
• This new “bis” regime allows more companies that organise shift work to benefit from the tax incentive, yet raises many questions.

Background of the legislative amendment

Companies that organise shiftwork and pay shift premium to their workers are exempted from transferring to the Treasury a part of the withholding tax withheld from the taxable remuneration of  the shift workers.[1] This support measure will soon mark its twentieth anniversary.[2]

Over time, this exemption has gained in importance. Initially, it amounted to 1% of the taxable remuneration of eligible shift workers. This percentage has since been regularly increased and currently stands at 22.8%.

The Court of Audit’s Report of 2019 and the Follow-up Report of 2023 highlight a significant annual increase in costs for the Belgian State, accompanied with a lack of cost control and a deficiency in targeted tax audit. The Court of Audit recommended clarifying the concept of shift work in the law to remove the ambiguity that results in lengthy discussions during tax audits and causes legal uncertainty for taxpayers.

However, when the law of 28 March 2022, which extensively rewrote article 275⁵ ITC92, was adopted, the opportunity to clarify the concept of shift work was not seized, due to a lack of political consensus on how to do so while maintaining budgetary neutrality and without significantly restricting the scope of application of the tax incentive.

Disputes arising from differing interpretations between taxpayers ("broad" interpretation) and the Revenue Services ("strict” or “literal" interpretation) have become increasingly common. Such a dispute led to a decision by the Constitutional Court on 8 February 2024, further to a preliminary question from the Supreme Court. This ruling indicates that the literal (strict) interpretation advocated by the Revenue Services is not unconstitutional, meaning it is permissible. However, this does not imply that the strict interpretation must necessarily prevail, as another interpretation (a broad one) is not ruled out.

It is now up to the Supreme Court to settle the matter and determine whether the broad interpretation (as supported by the taxpayer and upheld by the Antwerp Court of Appeal) constitutes a proper application of tax law.

This decision of the Constitutional Court has raised serious concerns amongst employers who organise shift work (and for whom the wage tax incentive is essential to preserve their competitiveness). These companies fear that the Revenue Services will tighten its stance based on this decision of the Constitutional Court to apply (interpret) the legal provision strictly. This could result in disproportionate tax adjustments, even for companies where shift work is undeniably present.

It is in this context that the Government's initiative to introduce a temporary "bis" regime comes into play, aiming to provide a remedy to employers keen to benefit from the support measure but facing asymmetric distribution of work among successive teams. Such circumstance would potentially result in a complete rejection of the tax incentive during tax audits if the strict interpretation of the legal provision were to be applied.

The requirement that teams must perform the same work in terms of its scope often leads to conflicts between taxpayers and the Revenue Services

The conditions for being considered as a company that organises shift work seem relatively straightforward at first glance: [3]

1. The work is carried out in (at least) two teams, each with (at least) two workers;
2. The teams perform the same work “both in terms of its content and its scope”.
3. The teams succeed each other without interruption during the course of the day, with a tolerance for a maximum interruption of up to 15 minutes between consecutive teams.
4. There is no overlap of more than one-fourth of their daily tasks between consecutive teams.

However, these seemingly straightforward conditions have, in recent years, been the subject of several legislative amendments, administrative guidelines, a published FAQ, and multiple court rulings. In particular, the second condition - that the teams must perform the same work “both in terms of its content and its scope" - has led to lengthy discussions between the Revenue Services and taxpayers. The Revenue Services often interpret this provision strictly, insisting on an identical rather than a comparable scope of work. This regularly results in rejections during tax audits.

The case concerning an operator of public transport and school transport buses of the Flemish Transport Company (De Lijn) accurately illustrates the interpretation issues relating to the concept of “the same work in terms of its scope” for successive teams.

This company applied the wage tax incentive related to the driver’s remunerations. The Court of Appeal in Antwerp considered the duration of the shift as a criterion to assess whether the scope of work was the same (Antwerp, 19.01.2021, final judgment): "Thus, the scope of work of bus services can be measured based on the total daily working time of a team. When it is thus established that the morning team works three hours more in total than the afternoon/evening team, the scope of work is not comparable." The Court found that only certain lines met this criterion to qualify for the support measure.

In summary, the Court of Appeal in Antwerp asserted that it is sufficient for the total daily working time of the teams to be comparable to satisfy the condition of "same work in terms of its scope". In such cases, the wage tax incentive must be granted.

The matter did not end there. The Revenue Services lodged an appeal to the Supreme Court, arguing that the Court of Appeal made an erroneous application of the tax law by admitting work of "comparable" scope (rather than “identical”), despite the law requiring teams to perform "the same" work in terms of its scope. Subsequently, the Supreme Court decided to refer a prejudicial question to the Constitutional Court to verify whether the strict interpretation (literal, “same" meaning "identical" and not “comparable”) is discriminatory (Supreme Court, 31 March 2024, intermediate ruling):

"Does Article 275/5 of the ITC92 violate the constitutional principles of equality and non-discrimination in that companies [...] where successive teams do the same work both in terms of its content and its scope [...] can benefit from the wage tax incentive, whereas companies whose teams perform work of comparable scope and meet the same conditions otherwise [...] cannot benefit from the wage tax incentive?”

The Constitutional Court ruled on 8 February 2024, that the strict interpretation of the provision, namely identical scope of work, constituted a justified and acceptable form of discrimination considering the purpose of this provision and its budgetary impact. This means that a strict interpretation (identical scope of work) as argued by the Revenue Services is not contrary to the Constitution. However, this does not imply that the broader interpretation (sufficiently similar scope of work), as upheld by the Court of Appeal, would not be acceptable.

In practice, the Supreme Court will now have to determine whether the broad interpretation upheld by the Court of Appeal was in accordance with the tax law.

This ruling of the Constitutional Court has caused great concern among taxpayers currently dealing with tax audits or those seeking to benefit from the tax incentive for shift work. As the Minister of Finance pointed out, this Ruling has highlighted the uncertainty in this matter and threatened to completely undermine the support measure.

The new “bis” regime offers a solution in the form of a pro-rata exemption

In order to provide some legal certainty to companies wishing to benefit from the wage tax incentive and to maintain Belgium’s competitiveness, the legislator inserted a new paragraph 1/1 into article 275⁵ ITC92.

Unfortunately, this legislative amendment does not resolve all interpretation issues. The requirement that successive teams must perform the same work “in terms of its content" can still lead to disputes and conflicting interpretations. However, a comprehensive reform of the tax measure will be for the next legislature:

“Ideally, a reform of the exemption from withholding tax for shift work should be developed by the government in the short term. Due to the limited time remaining until the end of the current legislature, such a reform is unfeasible within the time remaining for the present government."[4]

Regarding the condition of work of the same scope, the legislative amendment gives companies the option to choose for the “bis” regime when the scope of work is distributed asymmetrically between successive teams:

1. Companies can apply the exemption even if the scope of work of successive teams is not equal. The requirement of "work of the same scope" does not necessarily imply an "identical" scope of work. The asymmetry of the scope of work is accepted and integrated into the calculation rules as follows:

1. For a given month, the amount of the exemption is calculated on the total remunerations of the shift workers, at the rate of 8%;
2. Subsequently, for each day involving shift work in that month, the difference in scope of work of the successive teams is determined on the basis of the team with the lowest scope of work (A), as well as the total scope of work performed by the successive teams (B);
3. The scope of work difference for that month is then determined by the ratio A/B;
4. The amount obtained in the first step (see 2.a.) is reduced by the percentage obtained in the third step.

This means that a new "bis" regime is created, with a proportional approach, which coexists with the "all or nothing" regime that was previously known and remains applicable.

2. It emerges from parliamentary works that there can only be shift work if there is a certain level of collaboration for the execution of the same work.[5] Workers who do the same work together as a team should not simply be divided into smaller teams with the aim of maximising the exemption from withholding tax. An artificial splitting of a group of workers into smaller teams with the aim of maximising the exemption could even be considered tax abuse.

3. The legislative amendment does not constitute an interpretation of the existing regime (which remains unchanged) but introduces a "bis" regime that will apply to remuneration paid or attributed until 31 December 2026. This (temporary) "bis" regime does not implicitly confirm or invalidate the strict interpretation of the condition of “work of the same scope” for companies that do not opt for this new "bis" regime:

"The implementation of the change included in the amendment must not result in the prevailing exemption for shift work being rigidly assessed. The objective has never been for an equal scope of work to literally manifest itself in reality as being of identical scope in all cases.. [...] For example, it is not excluded that, if in a production environment, a morning team of 100 workers is followed by a team of 95 workers, it may still be a work of equal scope, so that is not necessary for this company to change anything in practice."[6]

4. Furthermore, the company can choose to apply the existing “classical” regime. This means that a company can alternate between the existing (“classical”) regime in months when the scope of work of successive teams is undeniably the same (sufficiently similar) and the "bis" regime in months where successive teams have such an asymmetrical scope of work that it cannot reasonably be considered to be "same work in terms of scope." In the former case, the company can benefit from the full exemption, while in the latter case the proportional exemption will be applied. Although this choice option is advantageous for companies, its implementation will complicate the monthly calculation of tax incentive.

This new "bis" regime has been declared to be retroactively applicable to "remunerations that have been paid or attributed from January 1, 2021." According to article 368/1 of the ITC92, "the claim for refund of withholding tax expires three years after 1 January of the year following the one whose year designates the taxation period." Therefore, companies have until the end of 2024 to file a claim for refund based on the "bis" regime for remunerations paid since 1 January 2021.

Great! What’s in it for me?

The new article 275⁵, §1/1 ITC92 provides a pragmatic and fair solution for the future. Companies that previously did not claim the benefit of the wage tax incentive because they believe they could not meet the requirement of “same scope of work” can reconsider the situation in light of the "bis" regime.

The situation is somewhat different for the past. The “bis” regime clearly offers a solution to companies currently undergoing audits for the years 2021 and beyond when the requirement of "same work in terms of scope" raises concerns. Companies that had not applied for the wage tax incentive due to significant differences in the scope of work of successive teams also seem to be able to apply the new "bis" regime. In principle, these companies could apply for retroactive implementation. However, it remains to be seen how the Revenue Services will respond to such requests. And what about companies whose audits have already been concluded with the rejection of the exemption due to variations in the scope of work? Can these companies still challenge such adjustments and request the application of the "bis" regime? And what about companies who obtained a tax ruling under the existing “classical” regime granting the exemption for certain teams while excluding others due to asymmetry in the scope of work? Can these companies now (or retroactively) apply the “bis” regime to these other teams without risking non-compliance with the ruling and consequently losing the legal certainty associated with it?

The legislative amendment provides companies that organise shift work with more options to apply the wage tax incentive. These companies are now faced with the challenge of making the most of these opportunities.

AKD is available for any assistance regarding this matter. If you have any questions regarding the wage tax exemptions, do not hesitate to contact Frédéricq Jacquet [fjacquet@akd.eu], Yannick Vandenplas [yvandenplas@akd.eu], or your usual contact person at AKD.

This communication is intended for general informational purposes and represents the author's personal perspective.

AKD does not offer professional advice or services through this communication and shall not be liable for any losses incurred by relying on its content. AKD's experts are available to assist you in understanding the tax implications of night and shift work arrangements, adjusting your payroll and reporting processes, identifying your tax obligations, and assessing your company’s eligibility for, or claiming (retrospectively), the benefit of the wage tax incentive.

[1]              Article 275⁵ Income Tax Code 1992 (ITC92).

[2]              The exemption scheme already applied to remuneration paid or granted in 1 July 2004.

[3]              To qualify for the exemption, additional conditions must be met. For instance, employees must have worked in shift or night shifts for at least one-third of their total working hours during the month for which the benefit is sought, and all shift workers must receive a shift premium.

[4]              Draft bill containing various fiscal provisions dated 22 March 2024, 3865/006, page 60, unofficial translation.

[5]              Ibid., page 63.

[6]              Ibid., unofficial translation.