Here are answers to the questions we think customers, members and others may have about TONO becoming subject to VAT.
/ 19/11/2021 / Willy MartinsenNOTE! The Norwegian Tax Administration announced on December 22 that it is working on a legislative change in this area. The collection of VAT by rights organizations has therefore been postponed pending new regulations. Read more about this here.
Here are answers to the questions we believe customers, members and others may have about TONO becoming liable for VAT. We have received the information about specific VAT rules, advantages and disadvantages of the AS form, etc. from our auditor. If you have questions about VAT and the like that you cannot find answers to here, we encourage you to contact an expert in VAT, i.e. an accountant, auditor, lawyers specializing in this topic or the tax authorities.
1. What is the reason for the change?
The Norwegian Tax Directorate has stated that the fees collected by TONO and the other rights organizations (IFPI, Gramo and Norwaco) are to be considered turnover under the Value Added Tax Act. In this regard, TONO and the other organizations have been ordered by the tax authorities to change their current practice and collect VAT on the parts of the fees that are taxable. TONO collects fees for 2-3 million rights holders and bases the collection on collective agreements, and does not have the possibility to separate fees based on the rights holders' own tax status when collecting from customers. In order to comply with the regulations, TONO has consequently become tax registered and will start collecting VAT on all fees from 1 January 2022.
2. What does the news mean, in brief, for TONO's customers?
The Norwegian Tax Directorate has decided that royalties collected through TONO are sales under the Value Added Tax Act. In order to comply with the tax rules, this means that TONO will start invoicing all Norwegian customers (except in Svalbard and Jan Mayen) with VAT at a rate of 25%. TONO was registered in the VAT register on 16 November, and collection of VAT from customers will start from 1 January 2022.
3. Will TONO invoice all customers with VAT?
Only Norwegian customers. Not customers abroad, nor Jan Mayen and Svalbard, which are not part of the Norwegian VAT area.
4. Does this affect different customer groups in TONO differently?
All customers in Norway will receive an invoice from TONO with VAT. Customers who are municipalities or operate activities that fall under the voluntary sector (registered in the voluntary register) will be able to receive compensation for VAT through compensation schemes. See more about this under point 5 below.
Customers who are VAT registered will receive a full deduction if the company only has taxable turnover. If all activity is taxable then there is a full deduction. If the use of rights is used in both the taxable and non-taxable part, there is a proportional deduction (16).
Customers who do not have any taxable turnover will not be able to deduct VAT. These will typically be customers who only operate within the following areas:
Please note that several of those who carry out activities as mentioned above will be able to receive VAT compensation. If parts of the business are subject to tax, you will be able to receive a proportional deduction.
5. How will VAT affect those of TONO's members who organize concerts themselves?
Those of TONO's members who are concert organizers themselves are both members and customers of TONO. As a customer of TONO, when VAT is introduced on TONO fees, you will receive a surcharge for VAT on your invoices from TONO in the same way as other customers. TONO members who have a business that is VAT registered will receive a full deduction if the company only has taxable turnover. If the use of rights is used in both the taxable and non-taxable part, there will be a proportional deduction. Customers who do not have any taxable turnover will not receive a deduction for VAT.
6. Are there any compensation schemes in the area?
There are compensation schemes for voluntary organisations and municipalities. See more about the terms and conditions at Lottery and Foundation Authority website.
See also:
Municipalities: https://www.stortinget.no/no/Saker-og-publikasjoner/Publikasjoner/Innstillinger/Odelstinget/2003-2004/inno-200304-020/20/
Volunteering: https://lovdata.no/dokument/SF/forskrift/2018-10-23-1600 og https://www.regjeringen.no/no/tema/kultur-idrett-og-frivillighet/frivillighet/innsiktsartikler/momskompensasjon-til-frivillige-organisa/id674455/
7. Do TONO's customers have to take any active action in this regard?
No, customers do not need to do anything towards TONO.
8. Does TONO believe that a VAT rate of 25 percent is correct?
TONO believes that it would be advantageous to establish a cultural VAT that is as low as possible, for example 12 or 6 percent. TONO and the group associations NOPA, the Norwegian Composers' Association and the Music Publishers Association are already working to achieve a lower cultural VAT also on the remuneration TONO invoices its customers.
9. What does the news mean for TONO members?
Those of TONO's members who receive TONO settlements as private individuals or ENK are not directly affected by this. Those members who have organized their business so that TONO settlements are paid to an AS must, from 1 January 2022, register in TONO that they will have paid VAT with the settlements if the company is registered in the VAT register. If you are wondering whether you should register in the VAT register, you should contact an accountant, auditor or the tax authorities.
10. What does this mean for sole proprietorships?
Sole proprietorships will not receive VAT payments from TONO, regardless of whether the sole proprietorship is VAT registered or not, as long as this applies to rights for which the owner of the sole proprietorship has the original copyright. This is because settlements are covered by the exemption in the VAT Act, section 3-7(4). Payments to the author's ENK are equated with payments to the author himself.
If a sole proprietorship receives remuneration for related rights (cases where the right is not to be considered copyright to intellectual property*), rights that have been acquired or inherited rights (from someone other than a spouse), the sole proprietorship will be able to receive VAT from TONO if this occurs in a business, provided that the sole proprietorship is VAT registered. See question 26 for more information on the concept of business.
*Cases where the right is not to be considered as copyright to intellectual property, in that it typically does not have sufficient height of work, etc. The Tax Administration has stated in this connection that only intellectual property according to åv. § 2 (now § 3) shall be considered as "artistic works" according to mval. § 3-7 (4), and that, for example, copyright to sound recordings, which is a related right, falls outside. The Tax Administration has further used as an example (which may be comparable) that In a film/television production, a large number of professional categories may have co-copyright, for example scriptwriter, script editor, translator, director, choreographer and photographer. These services are characterised by an independent creative effort and will therefore be subject to copyright protection. However, other services will not be protected, such as mixing, text composition, editing, developing, copying, etc. It should be noted, however, that it cannot be determined on a general basis whether the work produced satisfies the requirement for the height of the work in the Copyright Act. The copyright status must therefore be assessed specifically in each individual case..
11. Which TONO members will receive VAT paid with the settlement?
Anyone who, from January 2022, actively requests TONO to pay the settlements to an AS (or other legal entity) that is liable for VAT and registered for VAT. Information will be provided in January on how to do this and what documentation must be issued in this regard. TONO will not accept such registrations before 2022.
12. When and how can you register that you want TONO settlements to include VAT?
It is not possible to register this information with TONO until 2022. TONO is working on developing solutions for this, and will inform members about how this is done as soon as it is ready.
13. Do those who are already registered with AS in TONO have to take any action?
If they wish to receive VAT payment from TONO with the settlements, and provided that the AS (or other form of business) is registered in the VAT register in Brønnøysund, they can register in TONO from January 2022 that they are liable for VAT.
14. Is the news positive for me, who runs my musical business through a VAT-registered company?
For you, this is probably positive, as the current collection without VAT may be in violation of the regulations. Some may have previously paid VAT to the Tax Authorities on their TONO income, and thus ended up with the tax bill themselves. Others have been unsure of what to do, but have now received clear guidelines.
From January, members with VAT-liable businesses who notify TONO about this will be paid VAT on top of their TONO settlement. This will then be used to pay VAT to the tax authorities.
The income from TONO will now be included in the taxable turnover and it will then be possible to deduct VAT for costs and acquisitions linked to this income. If a cost applies to both the taxable and the tax-free part of the business, the deduction will be proportional. An example could be the purchase of a guitar and the guitar is used both to create intellectual property and at the same time to play concerts (not taxable). If the remuneration from TONO constitutes 20% of the income and 80% comes from concerts (excluding VAT), 20% of the input VAT will be deductible. Other costs that will typically apply both within and outside the VAT Act are accounting fees and audit fees.
For costs that relate exclusively to concert activities, there will be no deduction for input VAT. For costs that relate exclusively to the production of intellectual property, all input VAT will be deductible. Proportional deduction is discussed in more detail in the Value Added Tax Act, Section 8-2.
15. Can foreign music publishers be paid VAT with the TONO settlement?
No, only music publishers that are registered in Brønnøysund, and that are also registered as VAT liable, with operations in Norway, will be able to receive VAT payments with the TONO settlements.
16. How does this affect music publishers who have entered into advance agreements with members?
If an author has entered into an advance payment agreement with a music publisher, the financial obligations are transferred to the publisher. Norwegian music publishers that are registered in the VAT register will then receive the VAT compensation from TONO.
17. My musical business is not subject to VAT. What will this mean for my settlements?
For those of you who are not required to charge VAT on your services, this does not matter. You will receive settlements as before.
18. What happens if I forget to inform TONO that my VAT-liable company wants VAT paid on the settlement?
No VAT will be paid to anyone if TONO has not been informed about it. There is no automatic guarantee that VAT will be paid with the TONO settlement just because the company is registered in the VAT register.
19. Should I, as a TONO member, now register an AS and receive my TONO settlements there?
Whether you should register an AS or not is up to you, TONO cannot have any opinion on this. We recommend that you contact the Tax Authorities or an accountant/auditor.
From our auditor we have received the following overview of the advantages and disadvantages of AS:
Advantages:
Disadvantages:
When it comes to taxes, the picture is somewhat more complex. The owners of AS must pay employer's contributions on their own salary, but at the same time the social security contribution is higher in ENK. For AS, you can save up profits and defer the tax until you take money out of AS as dividends. Employer's contributions are not paid on dividends, and thus the tax is lower than for salaries through ENK.
And again: If you have any further questions about corporate form, we encourage you to contact your auditor, accountant or tax authority.
20. When do TONO members become liable for VAT?
Income from TONO that is settled to an AS will always be included as taxable income in the AS and other forms of company. See question 11 for sole proprietorships. If the income from TONO, and other taxable income, is below kr 50,000, the company does not have to register for VAT as the company is below the registration threshold of kr 50,000. In such cases, VAT should not be reported, and VAT should not be settled with the company from TONO. Much of art and culture is tax-free according to the Value Added Tax Act §3-7. Income from art and culture related to copyright is tax-free only if it goes directly to the author or sole proprietorship. Not when the money goes to other forms of company.
21. Which TONO Members are liable to pay contributions and which are not?
TONO has received the statement below from our auditor. Remember to seek advice for your own situation from an accountant, auditor, tax attorney or the tax authorities.
VAT:
For all the answers below, it is a prerequisite for VAT liability that the settlement from TONO and other taxable turnover together exceeds kr 50,000. For sole proprietorships, remuneration relating to the author's own work or inherited copyright from a spouse will not be included in the taxable turnover.
Not VAT:
For anyone who is not or will be VAT registered, TONO's VAT registration will not result in any change (16).
It is mainly the Value Added Tax Act §3-7 that regulates VAT related to art and culture. §3-7 (4) deals with matters relating to turnover related to copyright. The Value Added Tax Handbook describes copyright in more detail. See the link below directly to §3-7. https://www.skatteetaten.no/rettskilder/type/handboker/merverdiavgiftshandboken/gjeldende/M-3/M-3-7/
22. Why should TONO collect VAT when an exemption is specifically granted for arts and culture in the Value Added Tax Act § 3-7?
If a copyright holder's rights have been transferred to an AS – even if the AS is wholly or partly owned by the author himself – then it is no longer the author himself (or his ENK) who sells the rights, but the AS, and then the sale falls outside the exception in Section 3-7 (4): The author's sale of his own works of art and copyright to his own literary and artistic works are exempt from the law. The same applies to such sale by an intermediary in the author's name.
TONO collects royalties under a collective management model on behalf of more than 37,000 TONO members and millions of rights holders worldwide. TONO is not able to license individually on behalf of all rights holders, we license collectively like other TONO companies. The only way TONO can comply with the Norwegian Tax Directorate's rules is to register TONO in the VAT register and invoice all customers with VAT.
Please also read this article which further explains the background to why TONO has become subject to VAT: https://www.tono.no/tono-og-moms-her-er-bakgrunnen/
23. What is included in the term business activity?
"In this Act, self-employed person means anyone who, at his own expense and risk, carries on a continuous business that is capable of generating net income."
Section 1-10, second paragraph, mentions the following factors (not exhaustive) for use in assessing whether a business activity exists:
It is a weighty consideration in the value-added tax system to counteract distortion of competition and thereby achieve the greatest possible neutrality. Businesses that are structured so that they break even, but which are objectively considered suitable for making a profit, may on this basis become liable to value-added tax. In a letter dated 27 November 2001 to a county tax office, the Directorate of Taxes stated that it is not an obstacle to the fact that it concerns the rental of labour subject to tax if the parties base themselves on pure cost allocation without profit for the business that has employer responsibility. See also Rt. 2002 p. 1469 (Exact Accounting AS)Similarly, sales from non-profit and public benefit institutions may be subject to the tax obligation.
24. Is the transition to VAT something TONO itself has decided to do?
The tax authorities have stated that current practice is contrary to the regulations, and TONO and the other rights organizations have as a result had to change their practice.
25. Is TONO the only management organization now covered by the change?
TONO, Norwaco and Gramo are covered by the same order from the Norwegian Tax Directorate.
26. When was TONO informed that VAT would be added to the TONO fee?
There has been a dialogue about this for some time, but the Norwegian Tax Directorate made it clear in a letter to IFPI, Gramo, Norwaco and TONO at the end of August 2021 that the organizations had to change their current practices. TONO has subsequently made clarifications and preparations, and was pre-registered in the VAT register on 16 November. TONO then sent out a notification of the change to the organization's members and customers as soon as possible after this in an email on 18 November.
27. Will the administration of VAT affect TONO's work with settlements? Will it become more complex and resource-intensive?
No, not directly.
28. Is there any advantage in this for TONO?
TONO has previously not had a deduction for VAT on incoming invoices, and now that we get it it will result in lower costs. In isolation, it is positive for the organization as it will mean more funds for distribution to rights holders.
This is a living document. Here is the change log.