Withholding tax exemption for shift work: imminent changes

In order to enjoy withholding tax exemption for shift work, the work performed in shifts must be identical in terms of content and scope. According to the Constitutional Court, the fact that this work must be the same does not conflict with the principle of equality and non-discrimination.

This ruling of the Constitutional Court threatens to undermine the application of the exemption. For this reason, the Government is currently working on reforming the tax measure until the end of 2026. This reform should provide companies with greater legal certainty concerning the application of the exemption.

Context

To benefit from the withholding tax exemption for shift work, your company must fulfil the following conditions:

• The work must be performed in at least two shifts of at least two employees;
• The content and scope of the work performed during the shifts must be same;
• The shifts must follow each other consecutively during the course of the day, without interruption. A break between consecutive shifts not exceeding 15 minutes, is not taken into account for this purpose;
• There should not be an overlap exceeding one-fourth of their daily workload between consecutive shifts;
• All employees working in shifts shall receive a shift premium. The shift premium must be at least 2% of the gross hourly wage and from 1 April 2024, the same must be included in a collective bargaining agreement, working regulations or employment contract.

Moreover, it can only be granted to employees who are employed in shifts for at least one-third of their working time during the month in question.

The scope of work performed during the shifts must be the same

The law does not clarify by which criteria 'the scope' of work must be evaluated, in order to determine whether or not the scope of work of the shifts is the same.

The interpretation of the concept of 'same work in terms of scope' must be derived mainly from case law, circulars, parliamentary documents and any standpoints that may be taken by the FPS Finance. Consequently, in practice, this condition creates the necessary problems of interpretation.

Questions submitted to the Constitutional Court

The questions submitted to the Court by the Court of Cassation relate to two cases that were heard by the Antwerp Court of Appeal.

The first case concerned a company providing car breakdown assistance, in which connection, the scope of work of the roadside assistance team varies according to peak and off-peak hours. According to the Antwerp Court of Appeal, the definition of shift work was not satisfied because the scope of work should be assessed at shift level and not at the level of each employee individually.

In the second case, the exemption was partly granted to an employer operating buses and coaches for public transport and school bus services operated by De Lijn. The Antwerp court accepted the exemption in respect of shifts that were "comparable" in terms of the scope of work. The Administration did not accept this because it would require that the scope of work be 'the same', not 'comparable'.

The Court of Cassation asked the Constitutional Court whether there was a violation of the principle of equality and non-discrimination to the extent that:

• only companies in which the shifts perform the same scope of work, such as in the industrial sector, can benefit from the exemption while companies in which the scope of work of the shift varies according to peak and off-peak hours are excluded from the exemption;
• the exemption excludes companies wherein the scope of work of the shifts is similar but not the same.

No discrimination or inequality

The Constitutional Court ruled that the principle of equality and non-discrimination is not violated in the two questions before it.

Based on the wage cost handicap that Belgium has in comparison to other countries, the legislator intended that the measure should strengthen the competitiveness of companies using shift work by compensating for the additional costs associated with shift work.

Although the legislator appears to have principally had shift work in the industrial sector in mind with the measure, it was explicitly chosen not to limit the scope of application of the measure to that sector.

In addition, the 'doing the same work in terms of scope' condition was intended to contain the cost of the measure and prevent abuse of the exemption.

According to the Constitutional Court, these are legitimate objectives to justify a distinction. In this sense, the Court ruled that it is not unreasonable for those companies in which the scope of work of the shifts is the same to qualify for the exemption, while it is not the case for those companies in which the scope of work varies according to peak and off-peak hours and for those companies in which the scope of work of the shifts is not the same but similar.

What will happen in the future?

As mentioned above, the law does not clarify by what criteria 'the scope of work' should be evaluated to determine whether the scope of work of the shifts is the same or not.

It therefore remained to be seen whether the Constitutional Court's ruling would provide a stricter interpretation of the concept of shift work in case of a tax audit. However, there was a risk of an increase in the disputes over the interpretation of the concept of ‘same work in terms of scope’.

For this reason, the Government is currently working on reforming the measure until the end of 2026. This transitional measure should provide companies with legal certainty when applying the exemption. The next government will therefore be faced with the issue of the necessary reform of the exemption.

The reform would still allow companies in which the scope of work of successive shifts is not the same, to enjoy an exemption, albeit a lower one, the ‘bis’ variant.

Impact on your business?

If you are applying the withholding tax exemption for shift work, it is important to be aware of the interpretation issues and possible risks related to the application of the exemption.

As the Government is currently working on reforming the exemption, it remains to be seen what it will look like in concrete terms and what the impact will be on your company. However, the choice between applying the existing exemption or applying the ‘bis’ variant will be a question to be assessed.

We are following developments closely. As soon as we know more, you will hear from us.

Source: GwH 8 February 2024, no. 21/2024, Finance Minister's press release.