the future of work: rewarding your creative and innovative ... · pwc future of work free invention...
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Rewarding your creative and innovative workforce Christiaan Moeskops, Thomas Goemaere& Martijn De Meulemeester
Copyright regime
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PwC
Stimulate creativity
Reward innovation
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Examples copyright protected workThe “Classics”
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Examples copyright protected workVery broad case law
Het is niet moeilijk, het is gemakkelijk.- Kamiel Spiessens
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Examples copyright protected workMore limited interpretation ruling office
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Most companies mention in collaboration agreements that all copyrights are automatically transferred to the company. The compensation for the transfer of copyrights is included in the normal compensation.
Ever thought about making a distinction between the normal compensation and a reward to your employees for the transfer of copyrights?
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Free invention• Invention that has no connection with
the employment activity of the employee and performed with the employee’s proper resources.
Property rights belong to the exclusive ownership of the employee
Transfer of property rights is legally possible according to modalities agreed upon
Transfer of IP in an employment context
Mixed invention• Invention outside the context of the
employment activity of the employee, of which the realization is linked to the existence of the employment agreement either because the object of the invention is closely linked with the employment activity or the invention is made with resources of the employer
Grey zone in terms of property rights ownership
Recommended to make clear contractual arrangements
Service invention• Invention in the context of the
employment agreement and closely linked with the activity of the employee for the employer, made with the resources of the employer.
Property rights in principle automatically transferred to the employer without need for additional compensation
Additional compensation can be contractually agreed upon
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The simple distinction between normal salary and the transfer of copyrights:
✓ Results in a significantly higher net salary for the eligible employees;
✓ Rewards the employees for their creative involvement in the company;
✓ At no additional cost for the company;
✓ Can be used as a “career path accelerator”;
✓ Part of the “benchmark” in IT sector;
✓ Also applicable for consultants and directors.
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Tax rate professional income
Tax rate copyrights
Beneficial regime at limited cost
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53,5% 8,03%
Social Security impact for employees?
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Social security tax legislation refers to article 2 of the Wage Protection Act to define the notion of salary
Art.2 Wage Protection Act
• The salary in cash to which the employee is entitled by virtue of his employment relation at charge of the employer
• The tips to which the employee is entitled by virtue of his employment relation
• The benefits to which the employee is entitled by virtue of his employment relation at charge of the employer
The mere existence of an employment relation suffices to qualify a payment/benefit as salary for social security tax purposes
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1. Pensions
2. Unemployment
3. Occupational accident insurance
4. Occupational health insurance
5. Family allowances
6. Medical care & benefits
7. Holidays
No change in social security coverage for employees
• Social security benefits are calculated based on the gross salary. For social security purposes, the Supreme Court already confirmed that copyrights should be considered as gross salary subject to social security contributions.
• The employee and employer contributions amount to respectively 13,07% and around 27% of the uncapped gross salary (including the amount of copyrights).
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7 branches of Belgian social security
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• Self-employed activity + activity that generates copyright income
person already subject to RD38
income < €61.2k not considered as professional income ➔ will not be taken into consideration for calculation of contributions
income > €61.2k also exempt since person benefits from an equal social security status
Persons that benefit from copyrights are not subjected to the social security status for self-employed when they benefit from an equal social security status
• Exclusively activity that generates copyright income
Person will be subject to RD38 and will need to affiliated with a social insurance fund for self-employed
income < €61.2k not considered as professional income ➔ will not be taken into consideration for calculation of contributions
portion of income > €61.2k will serve as basis for calculation contributions
• Employee or civil servant + self-employed activity that generates copyright income
person is exempt from RD38
no requirement to affiliate with a social insurance fund for self employed
no requirement to pay social security contributions for self-employed
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Simulation employee
The simple distinction between normal salary and the compensation for copyrights results in a higher net salary
• Monthly gross salary from 2.000 up to 6.000
• 15% or 25% of the gross salary is qualified as compensation for the transfer of copyrights
• Results in significant higher monthly net salary
Put it into numbers
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Simulation 1
No compensation for copyrights
Simulation 2
20% copyrights
Simulation 3
Same net with 20% copyrights
Gross salary EUR 48.720,00 EUR 48.720,00 EUR 41.859,37
Net salary EUR 29.155,32 EUR 32.666,86 EUR 29.155,32
Employer cost EUR 61.232,50 EUR 61.232,50 EUR 52.609,90
Employer benefit + EUR 8.622,60
Net employee benefit + EUR 3.511,54
Annual employer benefit for 10 employees + EUR 86.226,00
Put it into numbers
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PwC
Benchmarks DVB
0%
Non-creative functions• Support functions (HR,
finance, procurement, accounting)
• One-on-one business consulting
Medium creative functions • Technical writer
(e.g. manuals)• Marketing manager• Head of Technology• Project manager• …
High creative functions• Software developer;• System engineer;• Content marketing;• Product manager;• Mechanical Design
Engineer • …
1 – 15% 15 – 25%
In previous rulings percentages go from 0% to 25% (based on concrete information and documentation)
Request a ruling to obtain legal certainty for 5 years
• It is common practice to request a benchmark of the at arm’s length % of the salary which can be considered as compensation for the transfer of copyrights from the Belgian ruling office
• The % is determined taking into account the function description, activities and time spent
• The maximum percentage is 25% (theoretically)
• A pro rata is used for time spent on non-creative tasks
Put it into practice
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A holistic approach
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Implementation Communication Holistic Approach
1. Contractual set-up: drafting an addendum for the collaboration agreement
2. Implementation workshop in order to determine the implementation strategy and potential impact
3. Communication with the payroll office
1. Organising a communication workshop in order to determine the communication strategy for the different stakeholder involved
2. Presenting and explaining the regime to the employees
1. Corporate tax: deductible expense vs activation
2. Group insurance
3. Benchmark analysis
4. Labour law
5. Etc.
Ruling
1. Feasibility study/analysis including workshops to understand the activities and level of creativity per function profile
2. Determining % for the compensation of copyrights per function profile
3. Drafting pre-filing document
4. Discussion and negotiations with the ruling office
Labour law context – No general definition of salary in the Act on Employment contracts
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• Caselaw: ‘Counterpart for the labour performed in execution of the employment agreement’
Salary = the counterpart of the provided labour by the employee NOT the counterpart for the result of the labour
the result of the labour as such is not compensated by the salary
• Compensation for transfer of copyrights are not to be considered as salary from a labour law point of view
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• Not taken into consideration for determination of minimum wage
• Not taken into consideration for calculation of year-end-premium
• Not taken into consideration for calculation of holiday pay
Parties can in mutual agreement state otherwise in the contract
Practical implications
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Practical implications
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Guaranteed salary• Suspension of the employment agreement in case of sickness
• Continuation of payment by the employer of a guaranteed salary during the first month of incapacity
• Salary = general labour law notion of salary
compensation for transfer of copyrights is not included
impact for employee in case of sickness
Overtime pay• Labour act foresees in rules regarding overtime and
compensation for overtime
• Additional overtime salary of 50% or 100% of ‘normal salary’
• No definition of ‘normal salary’ ➔ general labour law notion
compensation for transfer of copyrights is not included
Parties can convene otherwise (extra-legal overtime compensation) but impact on beneficial withholding tax regime.
• Continuation of payment of compensation for transfer of copyrights during period of compensatory rest?
Termination of employment
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In case of termination with immediate effect, terminating party should pay an indemnity in lieu of notice equal to the current remuneration and all benefits acquired by virtue of the employment agreement, over the notice period that would apply if notice would have been given.
Current remuneration ➔ general labour law notion of remuneration ➔ compensation for transfer of copyrights not taken into consideration
Benefits acquired by virtue of the employment agreement ➔ a benefit that, without being the counterpart for the labour performed, would not have been attributed in absence of the employment relation and thus finds its origin in the labour relation (cfr. Salary notion for social security tax purposes)
➔ compensation for transfer of copyrights to be included in the termination indemnity
Research and Development
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Legal Framework
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R&D Tax
incentiveThe employees have a qualifying degree
Companies who employ people performing R&D and who are notified towards Belspo
Substantial and recurrent cash advantage for the company🡪 Exemption up to 80% of the payroll tax withheld
Conditions
• Only individuals with employee status qualify. Self-employed workers do not qualify.
• Employees who are holding a qualifying degree and who are engaged in R&D activities.
• For employees who are not exclusively involved in R&D, the exemption could be applied on a part-time basis.
• The employing company should comply with formalities in order to claim exemption: a notification with the Public Federal Department of Scientific Policy is obliged (Belspo).
Put it into numbers
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Simulation 1No R&D exemption
Simulation 2
100% R&D exemption
Gross salary EUR 48.720,00 EUR 48.720,00
Payroll tax EUR 12.790,18 EUR 12.790,18
Net salary EUR 29.155,32 EUR 29.155,32
R&D exemption EUR 0 EUR 10.232,14
Employer cost EUR 61.232,50 EUR 51.000,36
• Based on the average gross wage in Belgium of EUR 3.500 per month
• Single / no children
• 7% municipal tax Total cost saving for 10 employees:
EUR 102.321,40
R&D Criteria
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Scientific and/or technical challenge
Creation of new knowledge
compared to existing knowledge
Based on creative concepts and hypotheses
(non-routine)
Expectations regarding the outcome are uncertain
Planning and management occur
on a systematic basis
Potentially results in new, transferable
knowledge
Who is eligible?
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Diploma Salary
Category 1Universities, university colleges, FFWO/FFRS, FWO, FNRS etc.
Higher education degree Full salary
Category 2Accredited scientific institutions Higher education degree Full salary
Category 3Companies that have concluded a collaboration agreement with an accredited scientific institution, university or university college.
Higher education degree Pro-rata rule
Category 4Young & Innovative Companies (YIC)
No degree requirement Pro-rata rule
Category 5Companies employing R&D employees with qualifying master of PhD degrees
Master's degree or PhD in exact sciences (see next slide)
Pro-rata rule
Category 6Companies employing R&D employees with qualifying bachelor degrees
Certain bachelor degrees (see next slide) Pro-rata rule As from 1 January 2018
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Qualifying degrees
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Category 5Companies employing R&D employees with qualifying Master or PhD degrees
Category 6Companies employing R&D employees with qualifying Bachelor degrees
1. A PhD in:
• Applied or exact sciences,• Medicine,• Veterinary medicine,• Pharmaceutical sciences,• Civil engineering.
2. A Master's degree or equivalent degree in the following disciplines or a combination of these disciplines:
a) for the Flemish Community:
• Sciences,• Applied sciences,• Applied biological sciences,• Medicine,• Veterinary medicine,• Pharmaceutical sciences,• Biomedical sciences,• Industrial sciences and technology,• Nautical sciences,• Bioengineering,• Architecture,• Product development.
3. An academic Bachelor degreeThe exemption can be applied for degrees within the same study areas as for the researchers holding a Master degree of a PhD.
4. A professional Bachelor degree In the following disciplines or a combination of these disciplines:
a) for the Flemish Community:
• Biotechnology,• Healthcare,• Industrial sciences and technology,• Nautical sciences,• Commercial sciences and business administration with final study area on informatics and innovation.
b) for the French Community:
• Paramedical,• Technology, but limited to training courses mainly focused on biotechnology, industrial sciences, technology,
nautical sciences, product development and informatics.
b) for the French Community:
• Sciences,• Engineering,• Agronomy and biological engineering,• Medicine,• Veterinary medicine, • Biomedical and pharmaceutical sciences,• Architecture and urban studies,• Industrial sciences,• Industrial agricultural sciences.
Category 6: bachelor degreesImportant restrictions
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40% 25%
40%: for the bachelor's degrees, the exemption can only be claimed for maximum 40% of the wage withholding taxes as from 1 January 2018, after which it would be raised to 80% as from 1 January 2020.
25%: For the companies that have employees holding both master degrees and bachelor degrees, the benefit of the exemption for the bachelors may not exceed 25% or 50%, depending on the size of the company, of the total exemption claimed for the master/PhD category.
Section titleSubtitleConclusion
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A calculated overview
Putting it all together
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• Based on the average gross wage in Belgium of EUR 3.500 per month
• Single / no children
• 7% municipal tax
Simulation 1No compensation for copyrights
Simulation 2 20% copyrights
Simulation 3Same net with 20% copyrights
Simulation 4Same net with 20% copyrights and 100% R&D exemption
Gross salary EUR 48.720,00 EUR 48.720,00 EUR 41.859,37 EUR 41.859,37
Net salary EUR 29.155,32 EUR 32.666,86 EUR 29.155,32 EUR 29.155,32
Employer cost EUR 61.232,50 EUR 61.232,50 EUR 52.609,90 EUR 47.482,28
Employer benefit + EUR 8.622,60 + EUR 13.750,22
Net employee benefit + EUR 3.511,54
Annual employer benefit for 10 employees
+ EUR 86.226,00 + EUR 137.502,20
Thomas GoemaereManager P&O Consulting
Martijn De MeulemeesterSenior Managing AssociatePwC Legal
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Contacts
Christiaan MoeskopsPartnerP&O Consulting
Future of Work
© 2019 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
Thank you
6 R&D criteria
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R&D Criteria
Who is eligible?
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Category 1Universities, university colleges, FFWO/FFRS, FWO, FNRS etc.
Category 2Accredited scientific institutions
Category 3Companies that have concluded a collaboration agreement with an accredited scientific institution, university or university college.
Category 5Companies employing R&D employees with qualifying master of PhD degrees
Category 4Young & Innovative Companies (YIC)
Higher education degree Full salary
Higher education degree Full salary
Higher education degree
Pro-rata rule
NoDegree requirement Pro-rata rule
Master's degree or PhD in exact
sciences (see next slide)
Pro-rata rule
Diploma Salary
Category 6Companies employing R&D employees with qualifying bachelor degrees
Certain bachelor degrees (see next
slide)Pro-rata rule As from 1 January 2018