VAT delayed
Gramo, TONO and Norwaco have previously announced that we would start collecting VAT (MVA) from 1.1.2022 on remuneration for rights the organizations manage. This is being postponed pending new regulations.
Reason why we notified to start with VAT
The reason why the organizations announced that they would start collecting VAT is that the Tax Agency has decided that the remuneration the organizations charge for rights they manage is to be regarded as turnover under the VAT Act. Furthermore, a change was made to current practice where all remuneration is collected without VAT, with a requirement that VAT should be charged on remuneration based on the licensees' tax status. In the event of non-collection of value added tax on consideration, licensees risk recalculation of value added tax and any additional tax.
The organizations consider that the only option to collect VAT in accordance with current regulations is to collect VAT in their own name. The main reason is that when collecting collective remuneration, it is not normally possible to identify the licensees' remuneration and VAT when invoicing to the customers and to pass this on to the right licensee. The organizations also manage the rights of a total of millions of licensees. On the basis of this, the organizations applied for registration in the VAT register and initiated a dialogue with the Tax Administration about the solution.
There is now a response from the Tax Administration, where they have assessed that the current regulations do not allow for the collection of tax as the organizations outlined. At the same time, the Tax Administration has given feedback that they are working on an amendment to the law to adapt the regulations and that they will seek to propose practical and good rules in this area. The agency expects that new regulations will be available in June 2022 at the earliest.
This means that the organizations will wait to start collecting VAT on royalties pending new regulations. At the same time, the organizations have received verbal assurances that instructions have been given internally in the Tax Administration not to initiate inspections as a result of non-collection of VAT until new regulations are in place. The organizations will continue the dialogue with the Tax Administration to seek to influence that new regulations safeguard the interests of licensees, members and organizations.
History and general background on VAT in Gramo
In 2001, a general VAT obligation was introduced for all sales of services in Norway. In this connection, Gramo addressed a request to the tax authority to clarify whether Gramo's business would be considered taxable. The conclusion at the time was that this was not the case, and Gramo continued its activities outside the scope of the VAT Act.
In 2014, a producer member of Gramo was audited. This audit concluded that the remuneration the producer (record company) had received from Gramo was to be regarded as taxable turnover. This created an unsustainable situation as the VAT had not been collected from any end users. The effect was then that the producer had his remuneration reduced.
For Gramo's part, it became a priority task to clarify with relevant authorities how we should relate to the audit of the audit. For seven years, we have had correspondence and contact with the Directorate of Taxes, the Ministry of Finance and the Ministry of Culture in this case. Gramo has always claimed that we will comply with the regulations, but that this must be practically feasible for us who demand compensation collectively on behalf of others.
For most people, VAT is in itself a complicated issue, but it becomes even more complicated by collective management. The complexity is supported by the fact that it has taken seven years to clarify the issue. In this context, I would like to mention that Gramo received a clarification from the Directorate of Taxes in the form of a letter on 27 February 2020, where the conclusion was that the consideration was not to be regarded as taxable turnover. Of course, we accepted this and were pleased to have received a clarification, but this should prove to be short-lived. The Directorate of Taxes sent a new letter on 11 June 2021 in which they withdrew the clarification they had given in February 2020. Now the conclusion had been changed to that the consideration was to be regarded as turnover under the VAT Act. In the following period, we have had a dialogue with the Norwegian Directorate of Taxes.
The Directorate of Taxes' preliminary decision
As mentioned above, the Directorate of Taxes has determined that remuneration collected by Gramo is to be regarded as turnover under the Value Added Tax Act. However, Gramo does not own any rights that are the basis for invoicing to music users. Gramo is a management organization that invoices on behalf of the licensees. At the time of invoicing, Gramo does not know which licensees we invoice on behalf of. This will only become known at a later date after processing playing time reports from broadcasters and others. It is thus not possible for Gramo to comply with current regulations, and we have thus submitted a proposal for new regulations that will be practical.
Proposal for new regulations
As a result of the situation, Gramo has prepared and submitted proposals for new regulations, with a voluntary registration scheme in the VAT register that will apply to organizations that collect remuneration under the Copyright Act collectively on behalf of several licensees. With the clarifications made by the tax authorities, Gramo has assessed that the only way Gramo can carry out collective collection in accordance with the regulations is that Gramo collects all collective remuneration in its own name with VAT. Gramo is still in dialogue with the tax authorities about this, but as of today we have not received any feedback. Our latest inquiry describes in detail the background for the proposed solution, and will be posted on Gramo's website.
Collaboration with other collective organizations
Since 2019, the organizations Gramo, TONO, Norwaco and IFPI have collaborated on this issue. We have used the same lawyer connection; Are Fagerhaug in the law firm Selmer. The problem largely coincides for these organizations.
Letter to the Tax Administration regarding VAT: