In the recent coalition agreement, a remarkable decision was taken regarding the copyright tax optimisation regime. The minister of Finance Vincent Van Peteghem (CD&V) – in his own words – wants to tackle the “abuse” of this regime. He would reportedly do this by limiting the regime to “real” artists. The specifics are not yet clear. Below, we address some hypotheses. In any case, there is no doubt that some leading organisations are bracing themselves to challenge these changes head on. Fully justified in our opinion.
What does the tax regime for royalties entail?
The copyright tax regime was created in 2008. The intention was to create uniform tax treatment for all income out of royalties. Previously, this was not the case, resulting in much legal uncertainty. Creative people in all kinds of professions often did not know how best to monetise the income from their creative work and how it should be treated for tax purposes. Moreover, these same creative people often appeared and still appear to be in very unfavourable negotiating positions with the clients they work for. In short, they needed a helping hand, which is why the “Monfils Law” introduced a system that favourably taxes creative people on their income from copyright and related rights royalties on a fixed and transparent basis.
The initial aim was clearly to support all creative professions in earning income from all the copyrighted work they create and that irrespective of their social status as self-employed person or employee, irrespective of the type of work or its artistic quality, irrespective of the quantity of works (there is a maximum amount of royalties allowed though). Software developers, writers, architects, painters, musicians, actors: anyone who created content protected by copyright could rely on this regime. On our website (in dutch) you will find a lot more information on the functioning and concrete application of the regime.
The copyright tax regime has been very successful over the past 15 years in every possible creative sector. Creativity is widespread in the Belgian economy and it is today’s creative entrepreneurs who are building tomorrow’s economy every day. But creative entrepreneurship brings with it financial uncertainty, and that in a country already burdened by high labour costs anyway. In a number of -particularly digital- sectors, international competition is fierce. For instance, the relatively small financial advantage that the favourable regime provides to small self-employed people, consultants and employees has proven to be particularly valuable in the economic strengthening of not only the already mentioned art sector and software developers, but also app builders, game developers, copywriters, photographers and cinematographers, layouters and UX designers, creatives at advertising agencies, architects, clothing designers, furniture designers and a very wide range of other entrepreneurs, up to and including the attorneys writing this post.
Why this sudden change?
But all that seems to be over soon…
The Belgian federal budget agreement of early October 2022 only mentions it in a few words, but for the attentive reader it is clear: the government wants to curb the supposed “abuses” of the copyright regime and thus recover “up to 75 million euros” in revenue. Those “abuses” would consist of software developers and other creatives in more “commercial” sectors using the favourable regime in large numbers, even though, according to some, it was not initially intended for them at all.
In this regard, it sometimes seems a bit as if the pressure to victimise the software sector comes mainly from the art world. “Real” artists would fear that the whole copyright tax regime would be sacrificed for austerity reasons. Therefore, the choice was made to push the software sector out of the boat before the boat as a whole started sinking….
But this has been going on for quite some time
There have long been discussions with the Belgian tax ruling authority and the tax authorities about the application of the regime. Remarkably, it is rarely about the height of the amount paid out in royalties. Rather, it is about the type of work on which copyrights are claimed. And that is where the tax authorities have come to some ridiculous decisions on several occasions:
- “A work is only protected by copyrights when it is accessible to the public.” This is a quote from communication with a government official from the tax collections department. However, a work is already copyrighted when it has a concrete form and meets the originality requirement. In this way, the tax authorities are attempting, quite erroneously, to create a further requirement.
- “The [Belgian ruling agency] is of the opinion that in this case, the taking of photographs and the creation of newsletters and flyers is a purely advertising activity. Therefore, the works created by the business manager cannot be considered copyright works.” This is a quote from the 2020 annual report of the Belgian tax ruling service (Office of Preliminary Decisions in Tax Matters). The (lack of) publicity is also not a requirement of copyright protection, let alone a ground for exclusion.
Unfortunately, we could fill a book with such completely erroneous assertions by the tax authorities and the ruling service. It is clear that the tax departments have no understanding of copyright law. The copyright nature of works is blindly disputed with fallacies and unsubstantiated allegations of abuse in the hope of discouraging the author from further recourse to this favourable regime.
The reason for this seems simple to us: money and envy. The High Council of Finance stated that as much as €399.3 million worth of copyrights were declared in 2020. A parliamentary question (in dutch) and answer revealed that the government stands to gain 121.4 million if the copyright regime is abolished and the income reclassified as professional income. The current government claims (in dutch) to collectively gain 112.5 million in revenue in 2023 and 2024 with their plan. That may seem like a lot, but it is nothing compared to the total cost of corona measures of 35 billion and the huge costs associated with the energy crisis. The limited revenue the government would gain from a distortion of this well-functioning tax regime never outweighs the significant disadvantages to the creative sector. When all is said and done, this is about a personal reckoning by the Belgian political parties CD&V and PS who have never been fans of the regime. They believe without any evidence that the regime is being abused.
The target: software developers
The arrows are mainly aimed at the numerous software developers in our country. According to some, they are “abusing” the regime and were never meant to be able to invoke it. Those who say this also clearly have no understanding of copyright law, nor knowledge of its origins.
Computer programmes were always protected by copyright. This protection was then further enshrined in a separate law arising from a European directive. Software, like any other copyrighted work, must meet the requirement of originality. Moreover, this requirement must be fulfilled in the same way as for general copyright protection. Thus, software that meets the requirements of a concrete form and originality is protected by copyright. Moreover, nowhere in the preparatory works does it state that the legislator intended to exclude copyrighted work in the form of software from the favourable regime.
In 2011, senator Wouter Beker asked a parliamentary question to the minister of Finance at the time whether computer programmes are covered by the copyright tax regime or not? The answer left no room for debate:
“[…] computer programmes are not at all excluded from the scope of the (First) Act of 30 June 1994 on copyright and related rights, although, moreover, they are the subject of special legislation.
On the contrary, Article 1 of the aforementioned law states that computer programs “are protected by copyright and are assimilated to literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works”. […]
Excluding income from the assignment or concession of computer programs from the income referred to in Article 17, §1, 5°, of WIB 92 (on the grounds that the Law of 30 June 1994 on computer programs is not expressly mentioned therein) is unjust and, moreover, discriminatory.
By adopting a separate law (the Second Law of 30 June 1994), the legislator simply wanted to make it clear that this is a border zone to which specific rules apply. But the directive protects computer programmes as “works of literature”” (own translation and emphasis)
Thus, the argument that it was “never intended” by the legislature that software developers could also invoke this regime does not hold water. More than that, this argument is unfair and discriminatory. The legislator knew very well in 2008 that a software developer creates copyrighted works as much as an author, screenwriter, musician, director, designer, illustrator, …
The reason why software developers are target number one of this administration is quite obvious. A review of prior rulings shows that most rulings were issued for software developers, followed by marketers and architects. A subsequent exclusion of these groups from the regime would have the biggest impact.
Moreover, the targeting of these groups is based on the mistaken assumption that “artists” always lead a poor and insecure existence and that software, application, UX and game developers, designers, copywriters, creatives in the advertising world, would all be wealthy self-employed people who do not need any help and cut corners anyway.
But there is more
Except for a few keyboard warriors, you may not literally read that software developers are really being targeted as the big abusers. There is no doubt in our view that they are enemy number one by all means, but it seems plausible to us that other sectors will be hit as collateral damage. We are thinking, for instance, of architects, marketers and – unfortunately for us – lawyers. The government’s purported aim is to bring the personal scope back in line with “the original intent” of the regime. And that is precisely where the shoe pinches….
The original texts did not at all intend to restrict the regime to certain sectors, let alone exclude certain professions. The original purpose of the regime was merely to provide some incentive to anyone who creates copyrighted work and -so the parliamentary discussions at the time testify- “to treat all copyrights in the same way”. It is irrelevant who creates the work or in what form the work is created. Thus, the argument to go back to “the original intention of the legislator” clearly does not hold water in any case.
Based on the limited information leaked so far, it seems that the government wants to limit the scope of the regime to those who actually create “art”. But what is art? According to the Belgian musician Stijn Meuris in his famous song, it is “that look in her eyes”, but that may not be what the government is aiming for. We sense a considerably narrower interpretation coming … One thing is already clear: according to the government, computer programmes are not art. Incomprehensible, because the concept of copyright rightly covers a very wide range. This way, it is irrelevant to have endless discussions about the extremely vague and personal concept of “art”. What for one person is a work of art appropriate for the halls of the Tate museum in London, is for another a urinal that would be better placed there in the toilets.
Are all artists unequal before the law?
The Belgian constitution states that all Belgian citizens are equal before the law and provides for a ban on discrimination. The finance minister clearly does not agree with this regarding individuals who create copyrighted works. The planned adjustments to the regime would lead to an unequal and arbitrary situation.
Specifically for taxes, the Belgian constitution also provides for a fiscal equality principle. This means that every taxpayer in the same situation should be treated in the same way. Different treatment is possible only when strict conditions are met for this. In each case, there must be an objective and reasonable justification for the criterion used to determine the distinction.
Let us be clear: this justification does not and never has existed. It is purely about a personal hunt for certain users of the copyright tax regime, at the instigation of a few politicians who want to profile themselves. Any subjective division of copyright works on the basis of presumed artistic merit that elevates some copyrighted creations to -fiscally favourable- art and condemns others without question to existence as flat commercial products is, in our view, totally unconstitutional and should be challenged.
The proposed measure is neither legally nor economically justifiable
If pushed through, this would actually create de facto different types of copyright, in function of a highly subjective assessment by the government: “artists” who create “artistic value” will be treated favourably for tax purposes. But other creatives, who create equally copyrighted content, but whose creation is unfortunately not sufficiently “artistic” in the subjective eye of the taxman, will be excluded. Who then decides who is and is not an artist and which works deserve to be tax-rewarded and which do not is highly unclear. I am already looking forward to a debate on the artistic beauty of a piece of perfect software code. Mathematicians and computer nerds (and we use that name as an honorary title in this case) can at least stare at it for hours and dream away….
Moreover, there is the threat of incalculable legal disorder here. After all, the line between software developers and other professions is not easy to draw. Our clientele includes digital artists, who use software code to create digital art installations, UX designers, who are actually designers, but use code in the process, app builders, who use code in addition to visual design, functionality and form, … We are curious to see how and where the line should be drawn…
After all, the economic damage will be enormous. The software sector in Belgium in particular is under heavy pressure anyway due to outsourcing to low-wage countries, and companies are struggling to compete and avoid a permanent brain drain. Taxingly penalising the people who keep this sector alive with their creative work for their hard work on the basis of the above reasons seems very difficult to reconcile with all the expensive promises to make Flanders and Belgium a leader in the knowledge economy… Worse still, in many other countries software developers do enjoy a fiscally favourable copyright regime, resulting in an additional competitive disadvantage.
All well and good, but what does this mean for you?
The best defence is a good attack. In the coming weeks, advocacy organisations are likely to take a public stand against this. Contact these organisations and discuss how you can contribute.
If you want to be on the safe side, we can already inform you that the new regime is scheduled to start in 2023 with a 2-year transition period. Unfortunately, not much other useful information is publicly available at the moment. In any case, we are following up on this.
Questions about copyright or the tax concession regime?
If you read this article to the end, chances are that we have advised you at some point for your tax optimisation or that you are taking advantage of this favourable regime. We would be happy to make time for you. Feel free to call or email Bart Van den Brande at email@example.com or Matthias Vandamme at firstname.lastname@example.org or +32 492 249 516 or book a free online consultation with Bart right here.
Questions about this topic?
This article was written by Matthias Vandamme who has left our firm a while ago.