Copyright reform – Situation Update (26/12/2022)

All of us have followed the debates in the press and on social networks relating to the reform of the copyright tax regime. With debates in the House being over, it is now possible to undertake a thorough analysis of the text finally adopted and presenting no substantial changes comparing to the draft initially supported by the Government.

The initial project, led by the Minister of Finance, aimed to drastically reform the copyright tax regime for a combination of budgetary and ideological reasons. The main stakeholders negatively impacted by the reform were to be IT Professionals, architects and journalists, without prejudice of others.

The reform

The text remaining the same, the content of the reform can therefore be summarized as in my post of November 24 and therefore that:

• The copyright regime will only apply to income from the transfer or licensing of works referred to in Book XI, Title 5, of the Code of Economic Law, which would restrict its scope to "classic" literary works and would exclude computer programs (Book XI, Title 6) as well as databases (Title 7);

• The proceeds of the (copyright) assignment must be actually exploited (without this concept being clear at this stage);

• Provided that the beneficiary holds a certificate of work in the arts or, alternatively

• That in the context of the assignment or licensing, the copyright owner (i.e. the creator) assigns his copyrighted work or related rights to a third party for the purpose of its communication to the public, public performance or reproduction;

• The rights may no longer exceed a cap of 30% of the total remuneration, including the remuneration for the services provided. However, there will be an adjustment period with a 50% cap in 2023, 40% in 2024 and 30% as of 2025;

• Deductible expense packages will be reduced by half.

The only input brought by parliamentary debates: a confirmed desire to ban computer programs and databases from the scope of the new text, although on a questionable legal basis.

A single nuance conceded by the Minister: the removal of the words “restrictive interpretation” in the minutes of the debates, suggesting that the text would be of broad interpretation and could nevertheless include the IT sector.

The result? A needlessly complicated text, economically damaging and generating legal uncertainty in an economy disrupted by war, inflation and an uncertain energy supply.

This new version of the Tax Code therefore leaves a legal blur, clearly designed to give carte blanche to the administration in its interpretation. The tax will therefore not be, concretely, established by law but by the means of circulars (published or not) and guidelines (written or verbal), which raises the question of the legality of the whole process.

Result of the reform

In the light of these debates, it appears that the IT sector has been excluded from the regime… and has not.

Indeed, the new regime still refers to the notion of literary and artistic work as understood in civil law.

The concept of copyrighted work is indeed a matter of European law, the same goes for the computer program, which the European legislator has not "only assimilated" to a literary work within the meaning of the Berne Convention, since it also falls directly within the scope of copyright as such.

On the contrary, the text of the directive is clear: the computer program is a literary work within the meaning of the aforementioned Convention and shall be protected if it is “original in the sense that it is the author's own intellectual creation. No other criteria shall be applied to determine its eligibility for protection” (Article 1, §3, of Directive 2009/24 on the legal protection of computer programs).

Consequently, the computer program is well protected under general copyright, without prejudice to the existence of a sui generis right.

Another interpretation, as suggested by the text of the reform, that would result in treating the computer program differently from general copyright, would likely be incompatible with European law and potentially discriminatory.

What now?

A key element to keep in mind, the reform provides for a one-year transitional period. Authors benefiting from copyright for the year 2022 will still be able to benefit from the old regime for the year 2023.

Beyond lies uncertainty. Legally, the reform does not reform anything, since the computer program is a literary work within the meaning of the Berne Convention. It is also easily susceptible to be reproduced, which would bring it under the conditions of the new regime.

In practical terms, however, it is the interpretation of the tax administration that one will have to fear. Though unelected, it will have a large autonomy to implement its vision and leverage the costs and the duration of legal proceedings (especially in Brussels, where the backlog is considerable) to corner the uncombative taxpayer.

The risks of discrimination, contradiction with the parliamentary documents and violation of European law are therefore very much real. Moreover, remedies against the text of the reform before the Constitutional Court are also possible.

We can therefore expect future litigation, with taxpayers having solid arguments to challenge the legality of the new regime.

Either way, the competitiveness of several key economic sectors is bound to be harmed. One cannot imagine, for example, an IT development company taking the risk of a major tax correction (and fines) in the long run based on a restrictive - though illegal and discriminatory - interpretation of the Tax Code and sign up for a lengthy trial (though this would be for management to decide and likely depend on legal insurance coverage).

The same will be true for an architecture firm, to the detriment of recruitment and junior associates’ experience.

Conclusion

Finally, it would be difficult to end this post without expressing one’s dismay at the decisions adopted and the drama we were all witnesses of, if not victims.

Indeed, we can never repeat enough to what extent this reform, which attacks a cutting-edge sector in a punitive way and in which Belgium was becoming an international reference, goes against European objectives of promoting intangible assets and a knowledge-based economy as well as current and future challenges in IT, cybersecurity, artificial intelligence and the data industry.

The spectators of this drama will also have been surprised by the discourse from the parties allegedly boasting their support to the concerned sectors (particularly the IT professionals) while having supported the reform in Government and during the negotiation of the 2023 budget.

Indeed, claiming to have successfully intervened on a point of pure semantics during parliamentary debates (in Commission and during the Plenary), when the basic text has not changed at all, can only be surprising when so little seems to have been done at the level of the State Secretary for Digitalization and Administrative Simplification, i.e. from where the much-needed support was expected.

All this to obtain a less readable law than the previous one, increase the tax pressure on a sector supposedly promoted in the country and a freewheeling administration in the application of a new text whose constitutionality is debatable.

We will nevertheless salute the “last stand” of the Mouvement Réformateur, albeit with a bitterness.

In a nutshell, a Belgian story.