The Norwegian Tax Directorate has decided that the fees charged by TONO, Gramo, IFPI and Norwaco are to be considered turnover under the Value Added Tax Act. Here you can read about the background to TONO being registered in the Value Added Tax register.
/ 25/11/2021 / Willy MartinsenValue added tax in the face of collective management and fee collection has been the subject of discussion, evaluation and dialogue with the tax authorities both in TONO and in other management organizations on a number of occasions, all the way back to the VAT reform in 2001.
There has been a dialogue between the tax authorities and Gramo, Norwaco, IFPI and TONO for some time with a view to obtaining important clarification of the tax treatment of remuneration that our organisations collect on behalf of various rights holders. The dialogue has come about at the initiative of the organisations themselves because the interpretation of the regulations has been unclear. The VAT regulations are not adapted to the collective collection of this type of remuneration. The uncertainty has been unsustainable both for the organisations and with regard to the risk of members being assessed by the tax authorities in the event of VAT not being collected.
TONO has also previously taken initiatives to meet these challenges. In 2019, we got as far as registering in the VAT register, but chose to withdraw the registration, among other reasons, due to uncertainty about whether a central response from the Norwegian Tax Administration was anchored at a high enough level. Our work has since been carried out in collaboration with Gramo and Norwaco and partly IFPI through our joint lawyer Are Fagerhaug in Selmer.
The Value Added Tax Act states in §3-7 (4) that the author's turnover of his own copyright is exempt from VAT. TONO manages the rights of more than 37,000 members and several million authors belonging to TONO's sister societies in other countries, and our membership includes both private individuals, sole proprietorships and limited liability companies. Some are liable for VAT, others are not. TONO has consistently maintained that settlements to private individuals and sole proprietorships are clarified as TONO has practiced it. Art and culture related to copyright, on the other hand, are tax-free only if they go directly to the author or the author's sole proprietorship.
There has been a considerable degree of uncertainty related to the settlements of ASs. A few years ago, there were signs that our interpretation of the regulations might not be up to the mark when it came to payments to people other than private individuals and sole proprietorships. Members of Gramo received an audit that brought the issue to light. TONO acknowledged that TONO members with limited liability companies could end up in financial difficulty if an audit were to be conducted if an interpretation of the VAT rules went against TONO's interpretation. TONO as a company could also risk having to pay VAT back in time if TONO's interpretation turned out to be incorrect. In such a scenario, the amounts could be in the tens of millions. TONO cannot take such a risk.
The review with the tax authorities has clarified that related rights, which are managed by Gramo, should be considered taxable turnover, and that collection for parts of TONO's membership is subject to VAT.
Collective management organizations base the collection of royalties on collective blanket agreements. All the music the organization manages is offered collectively through a blanket license – to broadcasters, streaming services, concert organizers, hairdressers who have the radio on in the background in their salons, and so on. It is not an individual licensing, it is collective.
As Norwaco, Gramo, IFPI and TONO understand it, it is not possible to collect VAT in accordance with the conclusions given by the Norwegian Tax Directorate, when the collection is to be made on behalf of the rights holders and based on the rights holder's tax status. This is due to the fact that it is not possible to identify the individual rights holder's remuneration when invoicing to the individual customer. In addition, it will not be practical to specify and identify the rights holders and the rights holder's VAT towards each individual customer and pass this on to the correct rights holder.
As a result, the organizations have prepared and submitted proposals for new regulations, with a voluntary registration scheme in the Value Added Tax Register that will apply to organizations that collect remuneration under the Copyright Act collectively on behalf of several rights holders.
With the clarifications made by the tax authorities, TONO has assessed that the only way TONO can implement collective collection in accordance with the regulations is for TONO to collect all collective consideration in its own name with VAT. This is the reason why TONO has now been registered in the VAT register and will start collecting VAT from 1 January 2022. TONO is still in dialogue with the tax authorities about this, but found it natural to notify customers and members when the registration in the VAT register had been completed and accepted.
Most of TONO's members are not affected by the change, because the majority of the membership consists of members who receive their income as private individuals or sole proprietorships. These will be settled as before. For others, the change means that they will receive payment of VAT with the TONO settlement, and at least as important: clearer guidelines and business predictability.
For TONO as a company, the change entails both opportunities and concerns. It is of course positive that we can get VAT deductions, but there has been no motive. We are of course happy that this can mean clearer framework conditions for the members.
But we also have some concerns related to the customer side.
Because even if the changes do not have major practical or financial consequences for many of TONO's customers, they will still be felt by concert organizers, local radio stations and others who are not liable for VAT or who only have a partial right to deduct VAT. For these, 25 percent VAT means that the TONO fee will be noticeably more expensive. This worries us in several ways, not least after dialogue with, among others, the Norwegian Music Council, which represents many in this field.
We believe that the change may lead to many businesses in music Norway that are currently not registered in the VAT register now considering becoming so. We believe the time is ripe to introduce cultural VAT. It should be as low as possible. In Sweden, for comparison, it is 6 percent.
TONO is already engaged in a dialogue with the authorities on this. We will have discussions with relevant ministries such as the Ministry of Culture, the Ministry of Trade and Industry and the Ministry of Finance where we, in collaboration with other organizations, will continue to fight for a low cultural VAT rate.
Our call to the authorities is that work on cultural VAT be initiated as quickly as possible. This will benefit all parties in this industry chain.
Regards Cato Strøm
CEO of TONO