Tax alert

Compensation for transfer of copyrights: social security exemption

Local contact

Hendrik Serruys

4 May 2023
Subject Tax alert
Jurisdictions Belgium

Following the changes to the tax regime for the transfer of copyrights as introduced by the Program Act of 26 December 2022, the previously announced social security exemption has finally been published in a Royal Decree of 7 April 2023.
 

Exemption social security contributions

In the past, the compensation for the transfer of copyrights and neighboring rights (“copyrights compensation”) in the context of the employment agreement was in principle subject to social security contributions based on a 2014 Court of Cassation ruling.

Under certain conditions, the new Royal Decree adds the copyrights compensation to the list of remuneration elements that are explicitly exempted from the ‘salary’ notion of article 19, §1 of the Royal Decree of 28 November 1969. As these elements are not considered to be salary, no social security contributions are due on these benefits.

This change has been retroactively implemented as of January 1st, 2023.
 

Scope of the exemption – which copyrights?

The copyrights which are in scope of the social security exemption have been determined based on the wording of the recently reformed tax regime for copyrights. In short, the exemption is applicable on income based on:

  • Transfer or license of copyrights and neighboring rights in the sense of Book XI, title 5 of the Economic Law Code (ELC) related to original works of literature or art (meant in article XI. 165 ELC) or to performances by performance artists (meant in article XI. 205 ELC);
  • With the intention of exploitation of these rights by the receiver;
  • Under the condition that:
    • The creator holds an “artwork certificate”; or
    • The transfer/license is granted with the intention of communication to the public, for public performance or for reproduction.

Although the legislator clearly wanted to create conformity between the tax regime and the social security regime, the Royal Decree includes no explicit reference to the tax legislation. This could lead to differences in interpretation between the tax authorities and the social security authorities. That said, the administrative instructions published by the social security in this respect indicate their intention to match the fiscal qualification of this income, even though we note that they are strictly speaking not bound by it.
 

Conditions

The exemption can be applied under the following conditions:

  1. During the four quarters of the calendar year, the amount of the copyrights compensation may not exceed 30% of the sum of:
  • the employee’s total salary subject to social security contributions; and
  • the total amount of copyrights compensation granted by the employer to the employee.

    Any excess amount will become subject to social security contributions. As long as this 30%-threshold is not exceeded, the social security exemption is uncapped, contrary to the tax regime for copyrights.
  1. Both the salary and the copyrights compensation must be determined in conformity with market practice, which the employer should be able to substantiate.
  2. The amount of the copyrights compensation must be declared in the DmfA-declaration of the quarter in which the compensation is granted. Based on the administrative instructions, this will need to be declared under a new code 47.

No social security exemption in case of salary conversion

The application of the exemption is precluded in case of salary conversion. While salary conversion will still be possible, the exemption from social security contributions cannot be applied if the copyrights compensation is a replacement or conversion of existing salary or remuneration elements (regardless of whether or not they are subject to social security contributions).

An exception will be put into place in the event that a salary conversion was already in place in 2022, but limited to the amount already granted as copyrights compensation (i.e. fiscally declared as such based on art. 17, § 1, 5° of the income tax code) or the difference between the remuneration declared to the tax authorities and the remuneration declared to the social security authorities for work performed in the execution of an employment contract, whichever amount is lowest.

Finally, in order for the social security exemption to be applicable in case of salary conversion, the amount that the employer intends to ‘convert’ must be communicated to the social security authorities before the end of 2023. More guidance on this will be provided by the social security authorities at a later stage.
 

Possibility for regularization

Finally, for employers for whom the exception to the prohibition of salary conversion can be applied, a regularization possibility for undeclared copyrights compensation for the period 2018-2022 is included in the Royal Decree. Regularization is due by 30 June 2023, and will lead to the exception to the salary conversion prohibition to look beyond 2022 in the event no copyrights compensation was in place in that year.

Regularized amounts will no longer give rise to social security contributions, interests or late payment fines.
 

Key takeaways & next steps

The much-discussed social security exemption for copyrights compensation has finally been implemented. The copyrights also envisaged by the new tax regime can be compensated without social security contributions being due (this does impact social security entitlements such as pension, which companies should take into account). A limitation of 30% of the total salary package is imposed, and both the salary and the copyrights compensation must be granted in accordance with market practices. The exemption will in principle not apply in case of salary conversion.

For many companies, however, the de facto way to implement such a compensation has been to grant a percentage of the salary as copyrights compensation, in which case there is technically a salary conversion. As such, these clients will only be able to use the social security exemption under certain conditions, and within further limitations, such as declaring the amount the employer intends to convert before the end of 2023.

Next steps:

  • Determine eligibility for copyrights compensation, both for tax and social security purposes;
  • Evaluate the applicable limitations to the amount of the social security exemption (30% maximum, possible limit in case of existing salary conversion, etc.);
  • Evaluate an approach to the payroll in light of these limitations.

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.