On 1 January 2018, an amendment to the Act on Personal Income Tax of 26 July 1991 (hereinafter referred to as the “PIT Act”) modifying the regime of tax deductible expenses of authors came into force. While the new provisions increase the limit of tax deductible expenses of authors, they at the same time curtail the list of eligible authors who will be able to enjoy that legal preference.
Pursuant to the PIT Act, the tax deductible expenses incurred on the earning of some types of revenue are set at 50 percent of the revenue earned, providing that during the tax year the aggregate expenses incurred on the earning of the revenue are below the cap amount set forth under the PIT Act. The rate of 50 percent applies, among others, to authors and performers on the grounds of exercising their copyright and neighbouring rights, respectively. The previous wording of the PIT Act did not define the meaning of terms author, performer, or work. For these, one would refer to the Act on Copyright and Related Rights of 4 February 1994 (hereinafter referred to as the “Copyright Law”), and the tax authorities were not entitled to interpret the Copyright Law and by the same token to determine the existence of a work or indeed whether or not an individual in question is an author within the meaning of the Copyright Law. The amendment introduces provisions that specify which authors and performers are eligible for the 50 percent revenue-expenses rate. Under the amendment, the new provisions apply to revenues generated by engaging in the following types of activity:
- Creative activity in architecture, interior design, landscape architecture, urban planning, literature, fine arts, music, fine-art photography, audio-visual creative work, computer software, choreography, artistic violin-making, folk art, and journalism.
- Research-and-development and research-and-educational activity.
- Acting and performing arts, theatre and stage direction, dance, circus art, and the activity of conductors, vocalists, instrumentalists, costume designers, and stage designers.
- Audio-visual production of directors, screenwriters, cameramen, audio engineers, film editors, and stunt performers.
- Columnists and media reporting.
The amendment also increases the annual cap on revenue expenses that authors are entitled to apply. As from 1 January 2018, the revenue-expenses cap corresponds to the upper limit of the first tax bracket set forth under the PIT Act. Previously, the revenue-expenses cap was set at one half of the above amount.
While the new regulations increasing the cut-off amount for the application of the 50 percent revenue-expenses rate have no opponents, the restrictions imposed on the eligibility for such preferential tax treatment have generated some controversy. Further, while the application of the preferential rate has been laid out in quite some detail, in practice many doubts may arise as to the application of the new regulations. It is not clear whether the work of computer graphic designers can be treated in parallel to that of graphic artists. There is also a question mark about authors of advertisements or commercials, as it is hard to say whether or not their creative endeavours fall within the concept of audio-visual creative work. The provisions are also bound to cause a lot of uncertainty among those who professionally engage in the provision of training courses. Whereas it is quite obvious that, for example, academics are involved in research-and-educational activity, the matter is not so clear-cut in the case of business training courses. Neither does the amended law make any reference to translators and interpreters. The separate provisions regarding authors and performers will continue to apply. Nevertheless, neither the PIT Act, nor the Copyright Law, nor any other regulations include sufficiently specific definitions to dispel all the doubts. So it seems that the amendment might have the effect of increasing the number of requests for general tax rulings and court judgements.