Belgium – Copyright income tax: lessons learned from recent case law from the Courts of Appeal
Written By
Partner
Belgium
As head of our Tax group in Brussels, my practice covers the full range of business tax matters, domestically and internationally, focusing on IP-related tax in life sciences, media and tech & comms.
Belgian tax law provides for a beneficial tax regime for the transfer of copyrights (and neighbouring rights). Remunerations paid for such transfer are eligible for a 15% tax rate. After a lumpsum expense deduction, the effective tax rate varies - roughly between 7.5% and 11%. A recent change of law extended the benefit to social security up to a certain threshold, no social security is due on such remuneration. Copyright is not limited to the ‘artistic’ sector, and therefore this beneficial regime has seen extensive implementation in a variety of sectors, both for employees as self-employed workers and company directors.
It will come as no surprise that the tax authorities are very active in questioning the application of this regime on various grounds, going from the qualification as author, the protection by copyright law, the specific anti-abuse rule for ‘professional use’ of the copyrights and the general anti-abuse rule or simulation doctrine.
Recent case law has been very interesting, particularly where the issues are at the crossroad of copyright law, tax law and tax procedural law.
Authorship
Tax authorities usually rely on the copyright law rule that an author must be able to evidence his authorship (particularly when he claims a third party breached his rights). Copyright law only provides for a rebuttable presumption that someone is the author if the work has been marked with his name or representative signature.
While the courts usually refer to the diverging tax procedural rule, i.e. that the tax authorities must be able to provide evidence that a taxpayer is not the author, the courts still also rely on what the taxpayer can bring to the table as evidence, considering that tax authorities can suffice with providing evidence that authorship is ‘unlikely’.
Copyright law protection
An interesting debate at the intersection between copyright law and tax law is how tax courts assess the ‘originality’ criterion for copyright protection. The tax authorities usually challenge originality on the basis of artistic considerations. A more recent point of discussion was the absence of originality because of the technical requirements to create the work which left no room for creativity.
A first case related to a lawyer whose written documents were deemed as unprotected by copyright law, because the required professional skills, the facts and the technical consideration, the laws and the ethics code are so restrictive that “a” lawyer would not be able to create a work that is the consequence of free and creative choices. The Court of Cassation overruled this decision. Nevertheless, in a second case relating to the design of plans to build a mobile laboratory, another court ruled that the technical requirements to be considered to draw those plans and the required skill of the taxpayer, the engineer did not have any free and creative choices (thus seemingly ignoring the point of view of Belgium’s highest court).
In summary, works established in a highly regulated and/or technical context will likely be scrutinized. Also, the courts don’t seem to be aligned in how to define ‘originality’ (and thus copyright protection) in those circumstances.
Anti-abuse rules
There are a number of anti-abuse rules which the tax authorities can theoretically invoke. However, in practice, claims on the basis of the ‘general’ anti-abuse rule or the simulation doctrine are rarely successful to recharacterize copyright income into professional income. Nevertheless, some courts hinted at a potential recharacterization risk if the taxpayer used to only have professional income and converted part of that same income as a remuneration for copyrights that had never been transferred before.
The ‘specific’ anti-abuse rule is a different story. This rule allows to re-characterise copyright income into professional income if the copyrights (or other intellectual property rights) are “used for” the purpose of the professional activity. Traditional case law stated that a professional activity resulting in copyrights does not mean the copyrights are “used for” that activity. In another context, , the copyrights should be a business asset and be used as such. If copyrights are passively transferred and subsequently exploited by the acquirer, then there is no such “use for” a professional activity. In a recent case, however, a court ruled that if the professional activity consists in creating copyrights and those copyrights are subsequently transferred in a multitude of licence agreements on a yearly basis, then one can consider that the copyrights have been “used for” a professional activity.
