On 20 December 2022, the parliamentary committees agreed on a version of the bill containing the tax reform for income generated through the transfer or licensing of copyrights and related rights (cf. our blogpost of 27 October 2022 announcing this tax reform).
Tomorrow, 22 December 2022, the draft bill is expected to be discussed and voted in the plenary session of the Chamber.
Below, we cover two of the most important changes of this proposed copyright tax reform: the narrowed scope and changed rules regarding the absolute and relative cap.
New personal and material scope
The proposed tax reform entails a limitation on the personal and material scope of the beneficial tax regime for income generated through copyrighted works.
Whereas the current personal scope is interpreted as being linked to copyright and related rights in the broad sense (including software), the proposed rules take on a different approach. They require (i) the original author to have an artwork certificate (kunstwerkattest / attestation du travail des arts), or (ii) that the rights holder transfers the rights or grants a license for the purposes of public communication, public performance, or reproduction.
This way, the legislator intends to go back to the roots of the original beneficial tax regime for copyright, which was introduced to support the artistic sector. According to the legislator, this beneficial tax regime has now evolved into a fully-fledged remuneration method in sectors that are sometimes distant of the artistic sector (e.g. the consultancy, architect, marketing, software development sector, etc.).
The narrowed material scope of the tax benefits might be one of the most controversial parts of this intended tax reform. Income generated through the sale or licensing of the copyright on software is excluded, limiting the scope to “real" artists subject to the risks, volatility, and postponed rewards inherent to the traditional arts sector. The legislator sees no reason to apply the beneficial tax regime to “authors" with a contractually guaranteed, regular, and stable income. As the bill makes a clear distinction between the “traditional" arts versus software, some fear that this intended tax reform may lead to the Belgian software development industry becoming less interesting for investors.
For authors falling under the current regime but not the newly proposed one, the proposal introduces a short transition period: they will benefit from the regime in income or calendar year 2023 (assessment year 2024), albeit based on halved brackets. The full exclusion will apply starting from income year 2024 (assessment year 2025).
The new tax plan stipulates that the first bracket of copyright income (up to 64.070 EUR for the assessment year 2023) will be taxed at a rate of 15%. In addition, one can deduct flat-rate expenses up to a maximum of 12.815 EUR.
Furthermore, there are also financial thresholds: the already known absolute cap of 64.070 EUR remains under the new regulation (cf. our blogpost of 27 October 2022). Any income above this limit will not be considered movable income and can thus not benefit from the low rate of 15%. On top of that, the application of the beneficial tax rate is also subject to the condition that the annual average gross income from copyright and related rights received during the previous four taxable years should not exceed the amount of 64.070 EUR.
Furthermore, the legislator introduced the 'relative cap': the ratio between the remuneration obtained for copyrights and the total compensation for the entire performance cannot exceed 30%. The remaining 70% of the total compensation will lose the qualification of movable income and will be taxed as professional income. This means that there will be situations where, under the old regime, a person can benefit from the preferential rate for his entire copyright income and, as of the new legislation, can only enjoy this favourable rate to the extent of 30%. The 30% rule only applies as of the assessment year 2026, for the assessment year 2024 there is a 50-50 ratio, and for 2025 there is a ratio of 40-60. Nevertheless, this remains a drastic change.
Although the legislator believes that the relative cap already existed in practice and merely provided a legal framework, we do not share this opinion. In reality, a pro-rata arrangement is provided for the general remuneration and the remuneration resulting from the transfer of copyright. The latter is not the same as the regulation introduced by the legislature whereby part of the remuneration for copyrights is qualified as movable income and part of the remuneration for copyrights as professional income.
The plenary session of the Chamber will discuss and possibly adopt the current (or amended version) version of the text on 22 December 2022.
If adopted, the new rules will have an enormous impact in various sectors. Whereas for example novelists, poets, scenarists and composers remain able to apply the beneficial tax regime, consultants, architects, marketeers, software developers, etc. will generally no longer be able to benefit from this beneficial tax regime (unless in certain specific situations).
In the past, many rulings have been issued in various sectors in which the application of the beneficial tax regime was confirmed. These rulings may not remain valid once the new tax regime is adopted, and taxpayers may want to seek alternatives to mitigate the negative impact on the employees' net income.
In any case, we will keep on closely following any legal developments regarding this tax reform. If you have any questions regarding your business in relation to these newly proposed rules, do not hesitate to contact us.