What do VAT changes mean for collecting societies?
On 12 October 2018 the minister of finance issued General Tax Interpretation No PT3 (8101 2 2018), which clarifies the Value Added Tax (VAT) Act (11 March 2004) with regard to reprographic fees paid under the Copyright Act (4 February 1994) to copyright collecting societies. This is the result of the European Court of Justice’s (ECJ) position in Case C-37/16.
According to Article 20 of the Copyright Act, producers and importers of the following are obliged to pay collecting societies – which act for the benefit of artists, artistic performers, producers of phonograms and videograms, and publishers – fees not exceeding 3% of the amount due from the sale of:
- tape recorders and video recorders (and other similar devices);
- photocopiers and scanners (and other similar reprographic devices, which allow copies of all or part of a published work to be made); and
- blank carriers used to fix works or objects of neighbouring rights, with the help of the devices listed above (within the scope of personal use).
In addition, anyone in possession of any reprographic device who conducts economic activities within the scope of reproducing works for the personal use of third parties is also obliged to pay (through collecting societies) fees up to 3% of the proceeds generated. This is unless the reproduction is carried out on the basis of a contract signed with a rights holder (Article 20 of the Copyright Act). Such fees are then distributed to authors and publishers in equal parts.
Until now, it was disputed whether fees paid to collecting societies by producers and importers constituted remuneration for services rendered and were thus subject to VAT. For this reason, the Supreme Administrative Court decided on 12 October 2015 to refer the question for a preliminary ruling to the ECJ. On 18 January 2017 the CJEU issued its judgment in Case C-37/16 SAWP, in which it ruled that:
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as meaning that holders of reproduction rights do not make a supply of services, within the meaning of that directive, to producers and importers of blank media and of recording and reproduction devices on whom organisations collectively managing copyright and related rights levy on behalf of those rightholders, but in their own name, fees in respect of the sale of those devices and media.
In her general tax interpretation dated 12 October 2018, the Polish minister of finance confirmed that in light of this decision, VAT does not apply to reprographic fees paid to collecting societies by producers and importers of blank media and recording and reproduction devices. She also determined the effects of the judgment on the prior settlement of VAT accrued by collecting societies from such producers and importers.
VAT accrued by collecting societies
If collecting societies accrued VAT on fees levied on producers and importers of blank media and recording and reproduction devices and settled the tax due on this account, they may issue a correcting invoice and settle this adjustment on an ongoing basis. Going forward, collecting societies should adjust their tax base and make an appropriate adjustment to their income tax.
The minister of finance also confirmed that in a situation where collecting societies have not issued an invoice for the collection of the fees from producers and importers of blank media, and recording and reproduction devices and have assumed the financial burden of paying tax on the collected fees, they may adjust their tax base and correct the tax return in which the initial settlement was included.
Consequences of tax return corrections on producers and importers
The general interpretation also includes guidelines for producers and importers of blank media and recording and reproduction devices with regard to VAT settlement.
According to the general tax interpretation, if a producer or importer receives a correcting invoice from a collecting society, it should adjust the settlement of income tax in its current tax return. Taxpayers are also subject to other requirements with regard to tax deductions, as set out in Article 86(19a) of the VAT Act (ie, if the acquirer of goods or services receives a corrective invoice, it is obliged to reduce the amount of income tax in the settlement for the period in which it received such invoice; if the taxpayer has not reduced the amount of the output tax by the amount of the income tax and has the right to make a reduction, the amount of income tax will be reduced in the settlement for the period in which the taxpayer makes such reduction).
In the event that the collecting societies do not correct the invoices that they send out, then producers and importers will not be able to reduce the amount of output tax and claim a refund of the tax difference or a refund of the income tax (Article 88(3a(2)) of the VAT Act).
This is an insight article whose content has not been commissioned or written by the IAM editorial team, but which has been proofed and edited to run in accordance with the IAM style guide.
Copyright © Law Business ResearchCompany Number: 03281866 VAT: GB 160 7529 10