The announced reform of the copyright/software tax regime – status update

Related to the budget agreement of October 11th of prime minister De Croo, the Federal Government expressed its intentions to change the taxation regime of copyright income in Belgium. In the meantime, the Council of Ministers decided to go forward with the proposed law to incorporate these changes into the Personal Income Tax Code.

Despite multiple legislative amendments and press coverage, taxpayers still appear to be in legal limbo regarding the possible application of this tax regime. Moreover, a transition period will also be introduced with effect from 1 January 2023 for companies facing the (possible) abolition of the current copyright income tax regime.
 

Background

In short, a specific tax regime for copyright income has been introduced in 2008, resulting in a – in principle – flat taxation of 15% on the movable income received. Movable, as the transfer of copyright, was and still is considered a movable transaction. The law of 2008 has ended several decades of discussion on the qualification of such income, either professional, movable, or diverse.

The so-called underlying protected work of art can be either copyright sensu stricto (ie. Artists, copywriting, media, marketing, etc.) or software & databases. Both are currently embedded in the Code of Economic Law which the tax measure (art 17, §5 ITC) refers to.

As from the moment clarity was provided by the Belgian government and the Belgian tax administration regarding the qualification of this income, the deducted withholding taxes on movable income have increased over the past decade. As a result of the mandatory reporting obligation in the personal income tax return, since the tax year of 2012, the amount of reported copyright income has – as anticipated - further increased.

Next to the copyright sensu stricto, the Minister of Finance has confirmed in 2009 that software-protected work also qualifies as a ‘protected work of art and literature’, in line with international conventions applied in over 150 countries worldwide, including Belgium. As a result of this clarification, the regime has become embedded in the technology and ICT sector broadly, as well as in banking, services, public, and various others.
 

Tax reform

In view of the budgetary exercise, the Belgian government has decided to review the current application of the tax regime for copyright and software rights. The ambition is to limit the application of the tax regime to the beneficiaries who were originally in scope at the time of the introduction of the regime in 2008.

Despite public statements that the scope would be restricted within the IT sector (inter alia), the banking, the technology, the service, the fashion, the marketing, etc. it appears that the current draft laws still leave room to continue the application of this tax regime within (some) functions within the aforementioned industries. More so, the explanatory memorandum explicitly states that it cannot be the intention to deny certain professional categories access to this tax regime. Normal conclusion as a work of art or literature can be created by anyone, regardless of sector or industry. The Minister did not use the legal occasion to clarify nor wipe out the above. It remains to be seen which further clarifications will be made in this regard.

In what follows, we will provide a breakdown of the new tax regime as it is foreseen to be applicable as from the income year 2023.

When is the new tax regime applicable?

In the new article 17 §1, 5° ITC, reference is no longer made to the entire book XI of the Economic Law Code (Intellectual property and company secrets, including specific titles for computer programs and databases). Instead, reference is only made to title 5 of book XI (copyrights and neighboring rights – or an analogue foreign law), i.e. seemingly not including the sections on computer programs and databases.

Furthermore, the tax regime will be applicable to the income:

• That relates to original works of literature or art (meant in art. XI. 165 ELC) or to performances by performance artists (meant in art. XI 205 ELC)
• With the intention of the exploitation of these rights by the receiver
• Under the condition that the original rightsholder holds a "work of art certificate" 
• OR, that the rightsholder, within the framework of the transfer in accordance with the first three indents, assigns his work to a third party in order to communicate it to the public, to use it for public performance or for reproduction purposes.

The tax regime can also be applied in case the income is derived through a managing organization as meant in the Economic Law Code (e.g. SABAM).
 

Additional conditions

In the situation that the above conditions are fulfilled, some additional conditions have been foreseen in the sense that the revenue from the transfer of the copyrights is to be considered as movable income unless and to the extent that:

• The ratio between the compensation for the transfer of copyrights and the total fee (including the transfer of the copyrights as well as compensation for the work delivered), exceeds 30%. This condition is only applicable in case the total fee includes compensation for the work delivered (i.e. not in case the fee only includes the transfer of copyrights);
• It exceeds EUR 37.500 (non-indexed)
• And provided that the average income from the previous four taxable periods does not exceed the maximum of EUR 37.500 (non-indexed).

Within these limits, the revenue is considered movable income.
 

Taxation

The movable withholding tax remains at 15% on the part not exceeding 30% or the absolute maximum of EUR 37.500 (non-indexed). After that, the normal taxation rules apply depending on the qualification of the income (30% tax rate if it can still be considered as movable income, progressive tax rates will be applicable if it should be considered as professional income).
 

Transition period

The aforementioned rules and changes apply as of the income year 2023. However, there are some transitionary rules in very specific situations at hand;

• The above-mentioned 30%-ratio between the compensation for the transfer of copyrights and the total fee will be set at 50% for the income year 2023, 40% for the income year 2024, and 30% from income year 2025 and onwards;
• The taxpayers that benefitted from the previous tax regime, but who do not fall under the scope of the new regime, can still apply the previous regime during income year 2023 if they were indeed taxed on income covered by this regime during income year 2022, and bearing in mind that:  
  • All of the above conditions apply (with respect to the ratio, etc.);
  • The absolute maximum amount is cut in half, and will be reduced to EUR 18.750 (non-indexed).
  • The scales for the lump sum deductible professional costs are also cut in half. 

Taking into account the above, all previously concluded rulings will principally become invalid as per 01/01/23, except for what is mentioned for companies in the transition period.
 

Social security exemption

The new law proposal foresees a possible exemption of social security contributions for the compensation for the transfer of copyrights. The potential implications thereof should be properly analyzed taking into account each specific situation at hand.
 

Next steps

In the coming days and weeks, we will continue to follow up on the new law and engage in personal conversations to discuss the possibilities/action points for your organization. There are still many unclarities at this point and we understand that you still have many doubts/uncertainties with respect to your situation.

We, therefore, invite you to direct your questions and remarks to your trusted EY advisors. Furthermore, we will also host a webcast on December 9nd, 2022 at noon, see the enclosed link here.