Copyright: a new defeat for the tax administration

The Court of Appeal of Brussels made an important judgement on 6 October 2016 in the debate on the scope of Article 37 of the Income Tax Code, a legal provision which provides that the income from property is reclassified as professional income when the original asset is assigned by the recipient to the exercise of his or her professional activity. In this case, the tax administration had described the amounts received by a photographer as “remuneration”. The latter had signed various contracts relating to the concession of rights of works he had created, namely photos montages for various companies.  The judgement does not specify if the licenses granted were exclusive. The taxpayer acted through the intermediary of an artists’ agency, in such a way that the administration deemed that he was linked to the commissioning company by a work contract. In accordance with its historical thesis – the theory of the link – the tax administration felt that the repetitive nature of the signature of the concession contracts as well as the relationship with the professional activity of the taxpayer justified the classification of the copyright royalties as professional income. According to the tax administration, it was clear that the royalties the photographer obtained came directly from his professional activity.

So what! Contrary to what the tax administration has insisted upon for ages, it cannot proceed to a reclassification of income on the basis of Article 37 based on the existence of a link. The legal text is clear: the assets at the origin of the income must have been assigned to the exercise of a professional activity.

The Court of Appeal does not contradict this. According to the Court, the taxpayer conceded his right to use the works to a third party. It is therefore this third party who uses the work in a commercial manner. It specifies that the rights effectively came into being during the professional activity; however they were not assigned by the taxpayer to his professional activity. In its judgement, the Court also made reference to the judgement of the Supreme Court of 22 January 2010 which the latter devoted to the theory of the source. According to this theory, property income cannot be taxed as profits, unless the law provides for this.