It should be noted that the transfer by a taxable person of the medium of the work is subject to VAT, as is the transfer or granting of copyright over this work.
The artist or author will sometimes be required to carry out a set of operations of different natures (for example, a delivery of goods and a provision of services, different deliveries of goods, different provisions of services).
The VAT treatment of such a set of transactions is not easy. The rules on location, rates and exemptions are not the same for supplies of goods and services.
Thus, the design of a specific software that is made for the particular needs of a company will always be considered as a service, even if this software is delivered on a cd-rom.
The transfer of the material support of the protected work to the assignee or licensee of an intellectual right constitutes an accessory service to the assignment or grant of the intellectual right. The transfer of the material support is here the accessory of the operation, which relates, as a principal, to the transfer or the concession of an intellectual right.
If none of the operations is the main one in relation to the others, they must each be subject to VAT separately. Such a distinction should not be made if there is a “close link” between the transactions which would make the splitting artificial from a VAT point of view. The existence of the close link must be assessed in the hands of the beneficiary of the transaction.
It seems to us that the primary intention of the parties – as resulting notably from the general conditions of the NFTs exchange platforms – is to operate a (digital) delivery of the property of the digital work of art AND not to associate it with a transfer (or concession) of copyright.
If the parties were nevertheless to articulate the sale of the property (the NFT) and the copyright therein (distribution, reproduction, rental or lending,…), it will be necessary to determine whether :
- One operation is principal and the other is incidental; or
- No one operation is primary to the other.
In the absence of administrative instructions (circular, manual or VAT commentary,…), it is thus the AGREEMENT which will be able to best prepare the VAT system that the administration will have to apply in the event of control.
The support of the work
Conditions for the submission of the sale to VAT
According to Article 2, first paragraph, of the VAT Code, a supply of goods is subject to VAT if the following 4 conditions are met:
- the transaction must be a supply of goods within the meaning of Article 10 of the VAT Code;
- the supply of goods must be made for consideration – the purchaser must be obliged to pay a consideration – or be treated as a supply of goods (Articles 12 and 12bis of the VAT Code). In the latter case, the transaction is treated as such as a supply of goods for consideration by the mere material fact referred to in article 12 or article 12bis of the VAT Code;
- the delivery must take place in Belgium;
- the supply must be made by a taxable person acting in the course of his economic activity.
VAT is effectively due on the supply of goods insofar as no exemption or special scheme is applicable (Articles 39 to 44bis and 56bis of the VAT Code; see “Book II: Determination of the taxable amount and the applicable rate – Chapter 8: Exemptions for exports, intra-Community supplies and acquisitions, imports and international transport – Chapter 9: Exemptions referred to in Article 44 of the VAT Code” and “Book V: Special schemes – Chapter 15: Special schemes”).
A special profit margin tax regime applicable to second-hand goods, works of art, collectors’ items or antiques is also provided for by article 58, § 4, of the VAT Code (see “Book V: Special regimes – Chapter 15: Special regimes”).
If, for example, a private collector sells to an antique dealer (taxable reseller) a work of art that he has acquired from a taxable sculptor, the antique dealer will be able to apply the margin system.
The taxable reseller must mention on his sales invoice: “supply subject to the special tax regime of the profit margin. V.A.T. not deductible” (see below xxx).
Read: VAT Commentary – BOOK I: Tax liability and taxable transactions – Chapter 2: Supply of goods and The author and the artist facing the tax, Watelet s. Implications of the new flat-rate taxation regime of copyright and related rights..
Notion of delivery of goods
The sale envisaged here concerns only the transfer of the material property to be distinguished from the transfer of the intellectual property of the work (see 2.1.3.2. below), that is to say the transfer or concession of all or part of the author’s rights on the work or even the joint transfer of the material property and the intellectual property of the work.
According to Article 10 of the CTVA, § 1: “The transfer of the power to dispose of tangible property as an owner is considered to be the delivery of property.
This includes making property available to the purchaser or transferee in execution of a contract of conveyance or declaration.
§ 2. The following shall also be deemed to be delivery of goods
a) the transfer of ownership of property by virtue of a requisition made by or on behalf of a public authority and, more generally, by virtue of a statute, decree, order, by-law or administrative regulation, with payment of compensation;
b) the physical delivery of property under an agreement that provides for the lease of property for a certain period of time or the sale of property on instalment credit terms, with the proviso that ownership normally vests no later than the payment of the final instalment;
c) a conveyance of property made pursuant to a commission contract for purchase or sale.”
According to Article 10, § 2, c), of the VAT Code, the transfer of goods under a commission contract for purchase or sale is also considered a supply of goods.
For VAT purposes, the commission agent at the time of purchase is deemed to be the purchaser and, with respect to his principal, the seller of the goods purchased through his intermediary; the commission agent at the time of sale is deemed to be the seller and, with respect to his principal, the purchaser of the goods sold through his intermediary (Article 13, § 1, of the VAT Code).
This is a fiction for the application of VAT, since in civil law such a transaction does not involve any transfer between the principal and the commission agent, the ownership of the goods being transferred directly from the supplier to the buyer.
Do NFT exchange platforms therefore qualify as commission agents for the sale and must they therefore pay the VAT by passing it on to the buyer?
Notion of property
The VAT legislation does not give a definition but a list of what is considered as an art object – a tangible movable work.
This list reflects a very classical conception of the work of art, forgetting a whole part of the contemporary creation like the “ready-mades”.
This list includes the works of art that may benefit from a favorable rate of 6% (as opposed to the general rate which is currently 21%) (Matthieu FAIN, Patrimoine et œuvres d’art – Questions choisies – 1re édition 2016 – Larcier – page 21).
Royal Decree of July 20, 1970 No. 20, Table A of the Annex, point XXI:
1° “art object”:
a) paintings, collages and similar tableaus, paintings and drawings, executed entirely by hand by the artist, excluding: – architectural, engineering and other industrial, commercial, topographical or similar drawings; – hand-decorated manufactured articles; – painted canvases for theatrical scenery, studio backdrops and similar purposes;
b) original engravings, prints and lithographs;
c) original productions of statuary art or sculpture in all materials, entirely executed by the artist; castings of sculptures limited to eight copies and controlled by the artist or his assigns;
d) tapestries and wall textiles made by hand on the basis of cartoons
originals provided by the artists, provided that no more than eight copies of each exist;
e) unique ceramic pieces, entirely executed by the artist and signed by him/her, excluding articles of a utilitarian nature;
f) enamels on copper, entirely executed by hand, within the limit of eight numbered copies and bearing the signature of the artist or the art workshop, excluding articles of jewelry, goldsmith’s and silversmith’s trade and articles of a utilitarian nature;
g) photographs taken by the artist, printed by him or under his control, signed and numbered within the limit of thirty copies, all formats and media combined;
2° “collectibles”:
a) postage stamps, revenue stamps, postmarks, first day covers, postal stationery and the like, cancelled or uncancelled but not current and not intended to be current;
b) collections and specimens for collections of zoology, botany, mineralogy, anatomy, or of historical, archaeological, paleontological, ethnographic or numismatic interest;
3° “antique objects”: goods, other than art objects and collectibles
referred to under 1° and 2° above, being more than one hundred years old.
Does the NFT fit into one or more of these definitions, such as: “a) paintings, collages and similar tableaus, paintings and drawings, entirely executed by hand by the artist” or on the contrary in the exclusions by its technical or technological aspects “other industrial, commercial, topographic or similar drawings”?
We are of the opinion that NFTs fall under the VAT notion of “Object of Art” and see no reason not to tax NFTs (digital works) in the same way as any other “physical” work of art.
Intangible personal property (such as intellectual property rights, e.g. the artist’s right to his work of art, the NFT) is not “property” within the meaning of Article 9 of the VAT Code (see the introduction to this Section) and therefore cannot be the subject of a “supply”.
Applicable VAT rate
The tax rate is in principle 21% but a reduced rate of 6% applies to “original works of art” such as Photographs taken by the artist, printed by him or under his control, signed and numbered within the limit of thirty copies, all formats and media combined (reference note 15060), drawings and paintings,…
Read: Work of art, art market and VAT.
- Sale of an original work of art by its creator: paintings, collages, drawings, engravings, prints, lithographs, serigraphs, sculptures, tapestries and wall textiles (including cartoons, enamels, ceramics and photographs),…
- Sale of an individual or collective artistic performance as an interpreter/executor/director/choreographer (theater, dance, concert, performance, etc.), possibly for an audiovisual recording (TV, radio, cinema, video) and which is not intended for advertising.
If the work is not sold by the artist but by an art gallery or a platform as will be the rule, the normal VAT rate of 21% but with the possibility of applying the profit margin system. In this case, the 21% rate only applies to the margin that the gallery or platform makes when concluding the sale of the work, and not to the overall sale price.
Copyright on the NFT
Notion
According to article 37 of the CIR92, the income from the (con)transfer of copyrights is income from movable property as long as it does not exceed the amount of 62,550 EUR (index 2021). As income from movable property and not from professional activities, this income does not fall within the sphere of income that is subject to VAT. They can therefore be exempted in certain cases.
In principle, the transfer or licensing of a patent, trademark, copyright, industrial design or other similar rights is a supply of services subject to VAT.
Article 18, § 1, 7°, CTVA is indeed quite clear:
Ҥ 1. Any operation that does not constitute a delivery of goods within the meaning of this Code shall be considered as a provision of services.
In particular, is considered as a provision of services the performance of a contract whose purpose is to :
7° the assignment or licensing of a patent, trademark, copyright, industrial design, or other similar rights ».
Administrative commentary on the VAT Code
Intellectual property rights, such as patent rights, trademark rights or copyrights, are not attached to a person; they can be transferred or granted.
If the transaction concerns the ownership of the right itself, it is a transfer. If the transaction is limited to the enjoyment of the right, it is a grant. Both assignments and concessions are covered by Article 18, § 1, paragraph 2, 7°.
The nature of the agreement by virtue of which the assignment or concession takes place is irrelevant. L’apport en société de la propriété ou de la jouissance d’un brevet tombe dans le champ d’application de l’article 18, § 1 er, alinéa 2, 7 °. Il y a lieu, en outre, de ne pas perdre de vue l’application éventuelle de l’article 18, § 3, si l’opération est englobée dans une cession qui tombe sous l’article 11.
It should be noted, however, that when a person who puts on a show orders the set from an independent decorator, who is also responsible for its material realization, the main purpose of the transaction is not, in the intention of the parties, the transfer of copyright, but the delivery of tangible personal property as referred to in article 10 of the Code (see Revue de la T.V.A. n° 12, p. 272, n° 383).
The intellectual property rights referred to in Article 18, § 1, paragraph 2, 7°, of the Code are in particular:
- the rights derived from a patent and protected by the patent law;
- the intangible right that an inventor may have in a non-patented manufacturing process;
- the rights recognized by the legislation in force on trademarks;
- the rights that copyright law recognizes for any author of a literary or artistic work;
- the right to publicly display a person’s portrait;
- the right to use a trade name;
- the right to use a sign.
The following constitute the provision of services within the meaning of Article 18, § 1, paragraph 2, 7° of the Code:
- the transfer or concession of the right to perform in public a theatrical or other work (see no. 329, c). This is the case even if the assignor or licensor makes available to the assignee or licensee the equipment necessary for the performance (Revue de la T.V.A. n ° 25, p. 145, n° 562);
- the execution of so-called “lay-out” services. Since the so-called “lay-out” services consist of the original creation of drawings, layouts and decorative motifs for books and printed matter, their execution must be considered as a transfer of copyright or as the granting of licenses(Revue de la T.V.A. n° 25, p. 146, n° 563);
- the assignment or concession of a copyright within the framework of a publishing contract.
However, Article 44, § 3, 3°, of the Code exempts contracts for the publication of literary and artistic works concluded by authors or composers (see n° 329/2 and below).
We are of the opinion that the “lay out” services do not cover NFTs whose sale is in rule of the material property only (delivery of goods) and whose copyrights are not (con)transferred by the creator to the (re)sellers (no joint service therefore).
It remains creator of values according to us, for the artist/(re)salesman that for the purchaser (future retailer in rule) of DISCOVER:
- The delivery of the physical (digital) asset that the NFT represents; and
- The rights of its author (in particular of reproduction and diffusion to the public).
Special agreements (“sui generis”) can thus be drawn up between the parties to first isolate, and then share, these different copyrights between the parties, both at the time of the sale and at the time of subsequent resales.
Rates
As for the VAT rate applicable to such a transaction, item XXIX of Table A annexed to Royal Decree No. 20 of July 20, 1970, fixing the rates of value added tax and determining the distribution of goods and services according to these rates, is worded as follows:
“XXIX. Copyrights; performance of concerts and shows.
Assignments and concessions of copyrights, with the exception of those relating to computer programs.
The provision of services for the performance of theatrical, choreographic, musical, circus, music hall or artistic cabaret works and similar activities, which are part of the normal activity of actors, conductors, musicians and other artists, even if these services are provided by a legal person, a de facto association or a group.
Excluded from this heading are services relating to advertising.
For these operations, the VAT will be calculated at the rate of6%.
It should be noted that Royal Decree 20 stipulates that this 6% rate applies to the transfer and granting of copyrights, with the exception of those relating to computer programs. For the latter operations, the rate of 21% will be applicable.
