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The latest tax loophole to be tackled: royalties payments

Some types of phorographer would still be covered, others may not. © Natashia Shukla for Unsplash

Among the package of measures being prepared by finance minister Vincent Van Peteghem (CD&V) to tackle tax evasion is one most people will not be familiar with: the widespread use of royalty payments.

Royalty payments, or payment for intellectual property rights, are a form of remuneration used to reward artists like TV dramatists, actors, recording artists and so on. Every time the work of Jennifer Aniston or Beyoncé is broadcast in public, the artist receives a fee.

It was that section of the taxpaying public that was being addressed in 2008 when then-finance minister Didier Reynders (MR), not a European Commissioner, introduced a new regime to help such artists.

Instead of having to pay the full amount of tax on a single payment that may have taken a year to arrive – such as in the case of an actor in a film – royalty payments would only be taxed at 7.5% after costs (of up to 50% of earnings) were deducted, for the first tranche of €16,680, and at 15% thereafter.

The system, rather unexpectedly, was soon adopted by other professions, including journalists, photographers, architects, engineers, consultants, accountants, professors and software developers, many of whom saw part of their remuneration converted into royalties and taxed at a very favourable rate.

That led to objections, and while the IT industry was allowed an exemption, the tax rulings authority has ruled against many applications.

Artists and creators will continue to be paid in royalties taxed at 7.5% up to €62,000, but the problem arises in deciding what activities exactly qualify as creative or artistic. Developers of software, for example, would qualify, but those whose work involves debugging would not. An art photographer would qualify, but a press photographer might not.

The precise details of Van Peteghem’s plan are still to be hammered out, but the general principle will be to weed out those arrangements which have only been put in place to improve an employee’s remuneration package, and not to fulfil the purposes for which the royalties system was put in place originally.