Preferential copyright regime significantly restricted

Since the introduction of the Monfils Act in 2008, creative entrepreneurs have been able to benefit from a favorable tax regime for income derived from the transfer of copyright. At the end of October, however, the De Croo government approved a preliminary draft that significantly restricts this form of tax optimization.

Why is payment in copyright so attractive?

Copyright protects all original works of “literature or art” and grants the author a number of exclusive rights. The concept of a “work of literature or art” is interpreted broadly. For example, original software is also protected by copyright, since written source code has long been classified as a literary work.

In other words, not only writers, journalists and musicians enjoy copyright protection; photographers, architects, lawyers, copywriters, marketers, designers, IT professionals, etc. can also rely on it. 

Since the introduction of the Monfils Act in 2008, income from the transfer of copyright has been regarded as movable income, even when it is created or obtained in the context of professional activities. This results in a substantial reduction in the tax burden, since movable income is taxed at a withholding tax rate of 15%, which is far more advantageous than if this income were taxed as professional income. In addition, a flat-rate expense deduction can still be applied to copyright income, which makes the regime particularly attractive for creative professionals.

Self-employed persons who transfer their copyright to a client (or to their own company), or employees to their employer, can therefore be compensated for this in a tax-efficient way. The scheme was originally introduced to give the creative sector a helping hand. 

Restriction of the favorable regime

It comes as no surprise that this preferential regime has proved highly attractive and that entrepreneurs, especially in recent years, have been finding their way to it ever more often. It not only supports creation and innovation, but also helps ensure that Belgium remains competitive in a number of sectors.

Given the broad interpretation of copyright, many different sectors rely on this preferential regime. Apparently, this is a thorn in the side of certain political currents in our country. In the context of the recent budget negotiations, Minister of Finance Vincent Van Peteghem (CD&V) put forward a preliminary draft aimed at curtailing this system. The core of the De Croo government has already approved it.

Van Peteghem’s preliminary draft refers to eliminating alleged abuse of the preferential regime. The 2008 law was allegedly never intended to open up the preferential regime to software developers or other commercial sectors. The regime was supposedly meant solely to support the traditional artistic sector and must be brought back to that essence.

From now on, the tax benefit would only be available to performers in the arts and literature who transfer a copyright-protected work to a third party ‘for communication to the public or for public exhibition or performance’.

Criticism

That justification for excluding, among others, the IT sector from the preferential regime has drawn considerable criticism. Writing original software has long been recognized as a literary work, as follows from European regulations. To enjoy copyright protection, an IT professional or architect must meet the same conditions as writers or artists—no more and no less.

The fact that, from now on, the tax authorities will allow only “artistic” works intended for communication to the general public to benefit from the preferential regime does not seem consistent with the foregoing principles. The question therefore arises whether treating taxpayers who create and/or transfer a copyright-protected work differently is not contrary to the principle of equality.

Architects and IT professionals risk being left out entirely, while freelance journalists and wedding photographers, for example, will also see their tax benefits significantly curtailed. A transitional period of one year is provided, but as from 2024 the restriction will in principle be maintained.

A more concrete definition of the criteria to be applied is not yet available. Given the negative reactions the preliminary draft has triggered, enforcing all of this will probably not proceed without difficulty.

Wij volgen dit verder op. Heeft u vragen over de fiscale optimalisatie aan de hand van de overdracht van auteursrechten of over de praktische gevolgen van de inperking voor ondernemers die momenteel van het gunstregime genieten? Aarzel dan niet om ons te contacteren. Onze cel Intellectuele Eigendom staat u graag bij.