Tax-Efficient Compensation for the Transfer of Copyrights (Part I)
Part I: General considerations
The transfer of copyright benefits from a very favorable tax treatment. Indeed, up to a gross income of €59,970 (assessment year 2019), only 15% tax is levied on the remuneration for the transfer of copyright. In addition, a lump-sum expense deduction can be applied, which can amount to up to 50% of the income.
For whom?
The scheme applies to income from the assignment or licensing of copyrights or related rights. In other words, it does not apply to income received for the creation of the work itself, but rather to income derived from the exploitation of the economic rights linked to the copyright-protected work.
To fall under this regime, it must first be assessed whether the income indeed relates to the transfer of copyrights, related rights, or statutory licenses.
Copyrights are rights linked to the exploitation of a copyright-protected work. These may include literary works as well as artistic creations. The works must result from the intellectual or artistic effort of the creator, be sufficiently original, bear the personal imprint of the author, and be expressed in a concrete form. Literary works include not only literature, but also scientific works, lectures, photographs, architectural plans, brochures, and even computer programs (software and databases).
Related rights concern remuneration paid to artists, musicians, or actors who “perform” a copyright-protected work created by someone else.
The lump-sum tax regime applies exclusively to natural persons. More specifically, employees, company directors, and sole proprietors can receive compensation for the transfer of copyrights to their employer, company, or client.
Distinction from professional income
The qualification of remuneration received for the assignment or licensing of copyrights or related rights as movable income is absolute for the first tranche of €59,970 (assessment year 2019).
The portion of income exceeding the aforementioned limit of €59,970 may be considered professional income if the copyrights are linked to the exercise of a professional activity. In other words, above the threshold of €59,970, such income remains in principle movable income (albeit subject to 30% withholding tax instead of 15%), unless it is closely connected to a professional activity. In that case, the portion exceeding €59,970 is treated as professional income and taxed in personal income tax at the marginal rate.
According to the circular of 4 September 2014, the qualification of income (movable vs. professional) is determined based on the legal and factual elements (e.g. contractual provisions, the status of the “author”, invoices, etc.) specific to each case.
Even when copyrights, related rights, or statutory licenses are involved, it is not possible to subject all income to the favorable lump-sum regime (even if the income is below the €59,970 threshold). A distinction must be made between income received for the creation or performance of the work itself and income derived from the economic rights linked to the copyrighted work. The former is generally considered professional income, while the latter qualifies as copyright income.
It is essential that this distinction can be clearly demonstrated, for example by means of a written agreement. Otherwise, the tax authorities may assume that the transfer of copyrights is made “free of charge.” The agreement must clearly specify which works are covered—since not all creations are protected by copyright—and must state the remuneration or at least how it will be calculated in the future.
The circular of 4 September 2014 states that there is no predefined table or fixed allocation rule for splitting income for tax purposes. Any allocation between movable and professional income must be made primarily based on “the provisions of the agreement reflecting the parties’ intentions.” Therefore, the contractual terms must be examined to determine the scope of the agreement and the nature of the compensation. The Belgian Ruling Commission (DVB) has, in its decisions, provided guidance on the portion of income that may be treated as copyright income.
What if the income is obtained through a company?
As indicated above, to qualify for the lump-sum tax regime, the transfer must be made to a natural person. When income is obtained through a company, it falls under corporate income tax and is taxed accordingly. However, authors operating through their own company may in some cases still benefit from this regime. Even if they have transferred the economic rights of their creations to their company, they retain their moral rights as natural persons, and the company can grant them compensation (copyright remuneration). In this situation, the company pays remuneration to the individual. The individual must have an agreement with their company stipulating that the company manages the copyrights.
To apply or not?
Given the popularity of the copyright tax regime, targeted tax audits may occur in the future, focusing not only on formal aspects but especially on the substance of the arrangement. The created work must qualify as a “copyright-protected work.” The relevant legal provisions, such as those in Book XI of the Code of Economic Law, are by nature not precisely defined. Moreover, it is not yet clear which criteria the tax authorities will apply. Currently, only advance rulings provide some guidance. For example, the Belgian Ruling Commission recently held that, in a specific case, individuals partly engaged in giving training sessions, developing calculation modules, and writing advisory reports could not benefit from the favorable copyright regime due to insufficient “personal creation.” Caution is therefore advised when applying this regime.