Belgium: Recharged Costs And Expenses Of Stock Option Plans Not Tax Deductible For The Belgian Employer

Last Updated: 13 October 2014
Article by Howard M. Liebman and Werner Heyvaert

On June 25, 2014, the Brussels Court of Appeal confirmed an earlier ruling (dating from 2010) from the Tribunal of First Instance. The tribunal had found that costs and expenses in connection with an international stock option plan recharged by a South African parent company to its Belgian subsidiary are not tax deductible by the latter to the extent a capital loss has been suffered on the shares that had to be acquired in order to be delivered to Belgian optionees following the exercise of their stock options.

Under Belgian corporate income tax rules (Article 198, §1, 7º, Income Tax Code 1992), capital losses incurred on the sale of shares are, in principle, not tax deductible for corporations by virtue of the participation exemption regime. Although this has been disputed for some time, the Belgian tax authorities and the majority of court decisions take the position that this rule also applies when a Belgian corporate taxpayer acquires shares at a high price in order to deliver them to an optionee exercising his or her stock options at a discounted price (normally the fair market value of the shares at the time of grant or vesting).

Until recently, it was less clear what the tax treatment should be for costs and expenses incurred by a non-Belgian group company, e.g., a foreign parent company, when recharged to the Belgian subsidiary in connection with stock options granted to and exercised by employees or other optionees of that Belgian subsidiary. Under this scheme, the costs and expenses booked by the Belgian subsidiary are not (entirely or partially) earmarked as a capital loss on shares in the commercial books of the Belgian subsidiary, and there are good arguments to treat them as personnel (labor) costs for accounting purposes. Except if the tax law explicitly provides differently, the tax treatment of costs and expenses follows the accounting treatment. As a result, many practitioners in Belgium have taken the position that the total amount of recharged costs and expenses should in fact be tax deductible for the Belgian subsidiary.

In the case at hand, the taxpayer adhered to that position and contended that the costs and expenses that were recharged to it by its South African parent company did not (partially) constitute capital losses on shares and, therefore, should be tax deductible subject to the normal conditions, i.e., that the costs and expenses are properly documented and meet the arm's-length standard. However, both the Tribunal of First Instance and now also the Court of Appeals ruled that to the extent the recharged costs embody or include the amount of any capital loss on the shares that were sold to the Belgian employees and other optionees at a discount, they should then not be tax deductible for the Belgian subsidiary, as if the latter would have otherwise incurred the capital loss directly.

The first commentaries to the Court of Appeals ruling indicate that there is no unanimity among commentators and that there is a good chance that the taxpayer will take the case to the Court of Cassation for a definitive decision.

No Corporate Income Tax on an Undervaluation of Shares Acquired by Belgian Holding Company

Following a very long and winding road in several courts, it has finally been confirmed that Belgium cannot impose corporate tax on any undervaluation of or underpayment for shares acquired by a Belgian corporate taxpayer. Thus, when a Belgian corporation buys shares at a price below fair market and subsequently sells those same shares at the higher market value, the capital gain so booked qualifies, in principle, for the participation exemption. For more than 10 years, the Belgian tax authorities have contended that the difference between the low purchase price and the fair market sales price constitutes a so-called undervaluation of assets, which is an element of any Belgian corporate taxpayer's taxable base (Article 24, 4º, Income Tax Code 1992). Following a ruling from the European Court of Justice ("ECJ") (see below), the Belgian Court of Cassation (Supreme Court-equivalent) has now confirmed that there is no legal basis to impose tax on any undervaluation of assets. Hence the normal rules of the participation exemption will apply.

More specifically, on October 3, 2013, the ECJ ruled that there is no EU rule that forces enterprises to mark up the accounting value of shares in order to bring them in line with the higher fair market value (no mark-to-market principle). Case C-322/12, Gimle S.A. By contrast, the Belgian tax authorities had contended that any failure to mark up the substantially-below-fair-market acquisition value of a participation constitutes an infringement of the "true and fair view principle" contained in the Fourth Council Directive 78/660/EEC of July 25, 1978. As a result, such a failure should give the authorities the right to impose corporate tax on the difference between the low acquisition price and the substantially higher fair market value, in accordance with Article 24, 4º of the Belgian Income Tax Code 1992.

Since it was the Belgian Court of Cassation that submitted the issue to the ECJ in the form of a preliminary question, the court still had to render its final verdict based on the ECJ's ruling. At last, on May 16, 2014, the Court of Cassation confirmed that it would follow the view of the ECJ that no accounting rule had been breached by the taxpayer when it refrained from marking up the acquisition value of its participation in its statutory books to reflect the (higher) market value. As a result, the capital gain that was crystallized in the books of the taxpayer when it sold the participation at market value constituted a capital gain on shares, which is eligible for the participation exemption (Article 192 Income Tax Code 1992), if all other relevant conditions are satisfied.

Quite a few cases along the same lines were pending in various Belgian tribunals and courts, and most were put on hold pending the outcome of the Gimle case. It can be expected that those cases will now be settled in accordance with the outcome described above.

"Protectionist" French Excise Tax on Certain Types of Beer Complies with EU Law

On September 13, 2014, it was reported by the trade press that the European Commission had found that the increase by 160 percent of French excise tax on certain types of high-alcohol-content and luxury beers that was introduced on January 1, 2013 did not fall afoul of the free-market principles of the EU.

Under pressure from a coalition of domestic brewers, Belgium had complained to the Commission that the sharp increase of a very specific excise tax in France was, in reality, aimed at hindering the sale of beers that are typically brewed in Belgium and exported to France. Belgium felt that the French tax was aimed at protecting the domestic French beer and wine producers because it was so specifically tailored in terms of the types of beers it targeted in practice.

However, after a second complaint from Belgium, the Commission stuck to its initial conclusion that the additional French excise tax is not sufficiently specific to be earmarked as a protectionist measure shielding the French market from beers imported from Belgium.

The Belgian brewers have allegedly lost €58.6 million in sales since the introduction of the increased French tax on January 1, 2013. At the time of writing, it was not clear yet whether or not Belgium or (a coalition of) Belgian brewers would take the case directly to the European Court of Justice. Normally, when the Commission declines a complaint, the odds of obtaining a favorable ruling from the ECJ are against the complainants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions