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Copyrights’ tax regime: get ready for version 2.0!

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Belgium

New tax regime for copyrights!

Our break down of the new reform, what it means for you; as well as the opportunity to join our Webinar on this reform on December 9th. Click here to register
On the 18th of November 2022, the Belgian Federal Government has come to an agreement (amongst others) on the reform of the tax regime of incomes derived from copyrights.

As this tax regime has been heavily used by various sectors (IT, marketing, media, architects, etc.), needless to say that its reform is expected to have a tremendous impact and might require relevant actions for these taxpayers.

This insight summarizes the current regime and addresses the expected amendments. Please be advised that the described amendments are subject to change as there is some way to go before a vote in the House of Representatives (this vote is expected by the end of the year).

Current copyrights’ tax regime
Since August 2008, incomes derived from copyrights (in the broadest sense) have benefitted from a preferential taxation regime. These incomes qualify as movable income and are taxed at a preferential flat rate of 15% (up to a maximum of 64.070 EUR for tax year 2023).

Furthermore, lump sum cost deductions of 50% (up to 17.090 EUR for tax year 2023) and 25% (from 17.090 EUR to 34.170 EUR for tax year 2023) are available on qualifying incomes, leading to remarkably beneficial effective tax rates (see table below). 
 

In recent years, the (sometimes overgenerous or abusive) application of this tax regime has been heavily criticized and was particularly scrutinized by the Tax Authorities. This led to waves of tax audits (during which the Tax Authorities often took very strict, even contra legem, positions) and the adoption of a much tougher line by the Ruling Commission.

In this context, the Minister of Finance announced (quite some time ago) his commitment to reform the copyrights’ tax regime.

Copyrights’ tax regime version 2.0
Last Friday, the Federal Government finally agreed on a pre-draft law. As we shall see below, this planned reform will substantially reduce the attractiveness of the tax regime given the many new ceilings and safeguards envisaged.

Firstly, although this reform aims at returning “to the original objectives” of the regime, “namely the application of an appropriate tax regime to incomes received irregularly and randomly in the course of artistic activities”. Although the Minister of Finance had previously announced his intention to exclude certain professions from its scope (e.g. IT developers, consultants, architects, lawyers), all professions should remain eligible for this special tax regime.

Secondly, the regime will remain available to incomes derived from the assignment or licensing by the original owner, his/her heirs or legatees, of copyrights and related rights on original literary¹ or artistic works referred to in Article XI.165 CEL or to performers' performances referred to in Article XI.205 but will be subject to new important (material and personal) limitations.

Such assignment or licensing will, for instance, have to be made with a view to the exploitation or actual use, except in the case of an event beyond the control of the contracting parties, of these rights in accordance with honest practices in the profession, by the assignee, the licensee or a third party.

Furthermore, the original holder of the copyrights will need to either hold a certificate of “artistic work” or to assign or license these rights to a third party for the purpose of communication to the public, public performance or reproduction².

Thirdly, new ceilings will apply to qualifying incomes:
  1. the total remuneration for the assignment or licensing of copyrights and related rights cannot exceed 30% of the total remuneration (the total remuneration includes the copyright related remuneration) of the rightholder;
  2. to the existing threshold (37.500 EUR to be indexed, i.e. 64.070 EUR for tax year 2023) an additional limitation is added based on an average copyright income calculation of the four preceding taxable periods.
The 30% ceiling will only apply to the assignment or licensing of copyrights and related rights:
  • if accompanied by the performance of a service;
  • when the remuneration for the assignment or licensing of copyrights and related rights is received subsequently, independently of the initial remuneration, which also contains remuneration for the performance.
Fourthly, and lastly, the scope of the anti-abuse provision contained in Article 344(2) of the ITC will be amended to include transfers of copyrights and related rights.

Transitory regime
As the planned reform will significantly change the tax regime, a transitional regime is foreseen to allow taxpayers to “adapt to the new rules”.
The 30% ceiling will start at 50% and be gradually reduced:
  • 50% for the tax year 2024;
  • 40% for the tax year 2025;
  • 30% from tax year 2026 onwards.
Taxpayers who are eligible for the current regime but who will be excluded from the new regime will be able to benefit from the current regime during 2024 tax year with the following limitations:
  • the ceiling of EUR 37,500 (EUR 64,070 for the 2023 tax year) will be reduced by half;
  • the lump sum costs deduction ceilings of EUR 10,000 (tranche of 50%) and EUR 20,000 (tranche of 25%) will be reduced by half.
Conclusions: get ready! 
As this reform is expected to enter into force on 1 January 2023 and shall be applicable to income paid or allocated as from 1 January 2023, swift and substantial impact is expected for relevant businesses.

Hence, it is very important for these businesses to take action and adapt. This possibly includes requesting a new ruling (as soon as the Ruling Commission agrees to deal with the issues related to the new regime).
 
In order to prepare yourself for this, we invite you to attend the webinar we will be giving on Friday 9th of December from 13:00 to 14:00 (click here  to register)

In the meantime, in case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.  

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[1] In accordance with Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs, computer programs, including preparatory design material, are protected by copyright and assimilated to literary works within the meaning of the Berne Convention.
[2] According to the explanatory memorandum, “communication to the public, public performance or reproduction” may take different forms, in particular written, graphic, photographic, cinematographic or sound, and be carried out on different media: material, digital or other, by different modes of transmission: editorial, radio, television, theatrical, scenographic, museographic, by computer network, digital platform, metaverse. This is to be interpreted in accordance with the case law of the Court of Justice of the European Union (e.g. judgment of 31 May 2016, Reha Training, C-117/15, EU:C:2016:379, paragraphs 41-44, and the case law cited therein).
 

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