by Astrid De Smet
Back in 2021, the Minister of Finance announced that copyright royalty payments were set for increased monitoring. This resulted in a multitude of tax audits and enquiries, both in terms of personal and corporate income tax. The possibility of claiming future copyright royalty payments was further tightened with the introduction of a new regulation on 1 January 2023. Want to keep enjoying the same benefits as under the favourable copyright tax regime going forward? Then you need to make sure you respect all tax restrictions but also that your contract meets all the necessary requirements. Here, we briefly set out some key areas to consider.
For an overview of the tax rules setting quantitative limits on the maximum amount that can be paid by applying different amounts and percentages, please refer to our previous article 'Royalties after the fiscal reform'. On a separate note, the concept of 'copyrighted work' itself is the biggest constraint on compensation payments. In recent years, this term has been interpreted in a broad sense, allowing IT consultants, for example, to label part of their billed services as copyright fees. Now, people are trying to curb this by returning to the crux of the concept. A work is copyright-protected only when the work is the result of creative activity, the work is expressed in a tangible form (it must be discernible with the senses) and it is original (reflecting the author's personality or creative spirit).
The strict application of this concept made us fear that copyrights would be restricted to the obvious sectors such as art, music/film productions, performing arts, etc. However, audits showed that these fears were unjustified and in sectors such as virtual reality games, app development, product photography and media presentation, copyright fees were still accepted, provided all other conditions were met and, in particular, that the work actually qualified as copyrighted.
To substantiate any claim that your work is indeed subject to copyright protection, your contract must clearly state what it is exactly you are creating so that it can be inferred from that description that your work meets the conditions to be copyright-protected. Vague, generic descriptions are now a thing of the past. Not able to identify specific works that meet the latter criteria? If so, you should consider not issuing copyright royalties anymore or make use of the gradual transition scheme.
In a number of inspections, while existing contracts were being accepted for past dealings, additional requirements were being prescribed for the future. While there is no discernible consistent pattern to all this, there seems to be a common thread: the stricter application of copyright transfer conditions, which have actually been enshrined in law for many years.
Firstly, ‘with regard to the author, all contracts must be proved in writing’. Without any written agreement, you will immediately be caught out, as this is typically one of the first things to be requested during any inspection or request for information.
Any remuneration granted in exchange for the licence or concession on the copyrighted work must be proportionate to the revenue, costs and profits actually realised by said work. Therefore, it is advisable to include a formula to determine any remuneration under the agreement, making sure to use terminology from the corresponding tax legislation wherever possible. Some inspectors have even gone a step further and required that, when creating different types of work, the contract should include a pro rata division of remuneration for the time the author spent on each type of work. For example, if an author spends on average 80% of their labour hours on creative work (with the other 20% being spent on administrative tasks), of which 50% is spent writing lyrics, 20% creating designs and 10% composing music, then the total remuneration for each of these works should be divided according to the same ratio and included as such within the contract.
In addition, Article XI.167 WER provides that ‘The transfer or licensing of any property rights relating to future works is valid only for a limited time and to the extent that the type of works covered by the transfer or licence has been determined’. A number of inspections therefore required that open-ended contracts be changed to fixed-term contracts, with a duration of three years considered acceptable in this regard. It is also worth noting that the tacit (and therefore automatic) renewal of fixed-term contracts is no longer deemed acceptable, as in practice these would amount to open-ended contracts. Any contracts can only provide for explicitly worded extensions.
Any forms of exploitation for which works may be used should also be clearly stated: ‘For each form of exploitation, the author's remuneration, scope and duration of the transfer or licence must be explicitly defined’. Previously, we generally formulated these as broadly as possible so that all possible forms of exploitation would be covered. During inspections, we were then told that only the forms of exploitation applicable in the given context should be included in the agreement. Once again, this appears to be a correct application of what is already provided by law. By definition, agreements involving as yet unknown forms of exploitation are therefore excluded.
On a legal level, copyright law has not witnessed any drastic changes. The differences we are seeing are primarily in its application, with tax authorities seemingly adopting a much tougher stance than they did before. The days when the tax authorities would be satisfied with a written agreement with broad, (overly) generic provisions seem to be over for good. If you plan on paying out copyright royalties in the future, make sure that your contracts contain sufficient detail and are tailored to your specific situation. Make sure you pay enough attention to the description of the different types of works, forms of exploitation, calculation of royalties and their breakdown between the completed works according to your time commitment per type of work.
If you have any questions about the above, don't hesitate to get in touch with one of our experts!
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
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