1. Starting point is the copyright
The Act on Copyright and Neighbouring rights of 30 June 1994 (hereinafter: Copyright Act) grants copyright protection to authors of literary works and artistic works and neighbouring rights to the performance of performing artistes.
Are eligible for protection: inter alia, writers, artists, painters, designers, copywriters, performers (musicians, actors) but also marketers or software developers as long as the work or performance falls under the scope of copyright protection.
As a general rule the Copyright Act provides that, even if these works are accomplished in the context of an employment contract, the property rights belong to the employee.
With computer programs on the other hand there is a legal presumption of transfer in favour of the employer.
In order to exploit these intellectual or artistic performances, it is necessary for the employee to agree, in exchange for remuneration, to the transfer of his property rights to the employer within the framework of the employment contract.
Hereafter, we examine the social and tax law aspects of this remuneration in the employee-employer relationship.
2. Social law aspects: the judgement of the Belgian Supreme Court of 15 September 2014
In the case that forms the basis of the Courts judgement, social security authorities claimed social security contributions on the remuneration that employee-musicians received in exchange for the transfer of property rights they had created in a music group in which they were connected by means of an employment contract.
The Labour Court of Appeal of Ghent, by a judgement of 6 January 2011, ruled against the social security authorities by emphasizing that the delivery of artistic performances creates a personal property right for the performer, even if delivered in an employment relationship". The Court further added that "this cession of neighbouring property rights has to be treated separately from the services provided by the performing artist-employee, for which he is compensated as an employee (and therefore receives a salary)."
Social security authorities appealed to the Supreme Court who annuled the decision of the Ghent Labour Court of Appeal, with the following arguments.
First, the Court interprets the salary concept within the meaning of the Social Security Act. It is based on Article 14, §1 Social Security Act and Article 23, paragraph 1 of the Law on the general principles of Social Security which refers to Article 2 of the Law on the salary protection.
Should be considered as salary according to this article, "the salary in money and advantages that can be expressed in money to which the employee is entitled under his employment contract at the expense of the employer.
Subsequently, the Court refers to Article 35, §3, paragraph 1 of the Copyright Act which provides in the explicit transfer by the employee to the employer for as long as the performance falls within the scope of the agreement (i.e. activities agreed in the contract) or its statute.
The Supreme Court concludes "from the aforementioned legal provisions and their interaction" that this remuneration must be qualified as salary and argues as follows.
The remuneration (...) for the transfer of the property rights to which an employee has committed itself when entering the employment contract, is a quid pro quo for the transfer of rights in relation to a performance, which has occurred during the performance of the employment contract. That remuneration is therefore, as a rule, a benefit to which the employee is entitled pursuant to his employment contract and is thus part of the salary on which social security contributions are calculated.
However, the exact scope of this decision is still unclear.
It is not yet determined if it should be also considered as a salary if the employee later than when entering into the employment agreement, either during the performance of the agreement or at the termination thereof, commits itself to the transfer of its property rights.
In its final consideration, the Court also emphasizes the fixed nature at the remuneration and the fact that it was paid during the actual time of employment.
We now have to wait for new disputes to be settled by the Court in order to solve these and other questions.
However, it seems appropriate to pay social security contributions on this remuneration that is paid to employees.
3. Tax law aspects "agreement in line with reality
It is known that the legislator introduced since 2008 a favourable tax regime (Act 16 July 2008) in respect of the remuneration for the transfer of copyright and neighbouring rights.
This income is, up to € 56.450 (€ 57.080 for the tax year 2015) considered as a movable income and subject to a 15% withholding tax (after deduction of an attractive expense amount).
Above this ceiling the income referred to above is considered as a movable income unless its origin is founded in the professional activity.
In the case of an employee who transfers its copyrights to his employer, the excess of this ceiling is treated as professional income and that portion is taxable at the marginal rate.
Employees can also benefit from this favourable tax regime. The Administrative circular (Ci. AAFisc Nr. 36/2014 (no. Ci.RH.231/631.675) of 4 September 2014) provides an explanation on how the employer has to deal with this tax regime in practice.
First of all, to qualify this remuneration properly, a division is necessary between:
- The remuneration as consideration for the exercise of his profession, which is taxable as a professional income;
- The remuneration obtained following the transfer of the copyright or neighbouring rights.
Nevertheless, up to now, there is still uncertainty. Since there is no legal chart or reference to determine the amount that specifically relates to the transfer of copyright, the question arises how the size of the remuneration has to be calculated.
The circular provides in four possible situations:
- If the contract provides in a scale of apportionment or in a separate remuneration dependant on the professional income (the exercise of the profession itself or the transfer of copyright or neighbouring rights), reference is made to this scale of apportionment as provided in the contract;
- If the contract particularly provides in an overall remuneration for the transfer of copyright or neighbouring rights, the rights are considered to be transferred or granted for free;
- If the contract only provides in a transfer of copyright or neighbouring rights, and not in the performance of the artist, the entire remuneration will be considered refering to the transfer;
- If the contract does not provide in a transfer of copyright or neighbouring rights, the favourable tax regime is not applicable and there is not an a priori application of the movable income.
Notwithstanding these situations strongly emphasize on the will of the parties to capture the scale of apportionment by contract, the circular contrasts sharply with the practice of the ruling commission. Up to now, there are still doubts about the correct interpretation.
It is possible that a scale of apportionment for the remuneration for a transfer of copyrights, as agreed in accordance with the circular, is nevertheless held back by the ruling commission, depending on the region in which the taxpayer requests a ruling from the inspection service.
As a matter of fact, soon appears the phantom of a fraud or anti- abuse provision. Pursuant a number of parliamentary questions, the Minister of Finance tried to calm things down by providing clarity.
In essence, the minister states that the agreement must "be in line with reality.", where it is emphasized that the circular gives an explanation of the general principles, but that the tax qualification of such income must be assessed on a "case by case" basis.
Since fraud can only be assumed if infringements are committed with the intention of fraud or to commit damage, only those who deliberately avoid taxes are targeted.
4. Consequences in practice?
It is not new that the employer must make a split between the remuneration he pays to his employee for the exercise of his profession and the fee for the transfer of copyright.
Fiscally, this remuneration is considered as a movable income, subject to the favourable rate of 15 % withholding tax. As a result, the partial remuneration of the employee on the basis of copyright still remains beneficial. It now appears that the scale of apportionment on the level of the remuneration may be agreed by a contract as long as the agreement is "in line with reality."
However, employers have to keep in mind, since the judgement of the Supreme Court and from an employment law perspective, that this remuneration is qualified as "a salary" with as result that social security contributions are due.
It is recommended that employers, who want to make use of the favourable tax regime to pay their employees, verify the most recent interpretations of the qualification of that remuneration.
We are monitoring these developments closely.