Is VAT due on the increased fee for playing music without a license?

If you, as a business owner, play music recordings in your commercial business without a prior license, and have to pay an increased legal fee for this, this entire fee is subject to VAT. The General Court of the European Union ruled on February 11, 2026 (case T-643/24) that the use of music recordings (under neighboring rights) constitutes a taxable service. This applies regardless of whether you had sought prior permission and regardless of whether the fee is increased by law as a penalty. This ruling ends years of legal uncertainty about the VAT treatment of the (increased) equitable remuneration.

The facts and legal context

Anyone who plays music recordings in the workplace, in a catering establishment or during an event is making a ‘communication to the public. A fee is due for this. In practice, we talk about two types of rights:

• Copyright for composers and lyricists (represented in Belgium by Sabam).
• The neighboring rights for performers (singers, musicians) and producers (represented in Belgium by Playright and Simim, respectively).

To compensate for the use of neighboring rights, the legislation provides for an ‘equitable remuneration’. In Belgium, this is collected through the Unisono platform, a unique counter managed by Sabam, Playright and Simim.

The dispute that led to this Court's ruling occurred in Romania. The organization for collective management of neighboring rights (Credidam) claimed compensation from a company that had played music in its guest house without the required license. Under Romanian law, the fee due in such a case is multiplied by three. The question arose whether VAT should be calculated on the basic fee, on the tripled fee, or not at all, since an increase due to infringement is often considered a non-taxable compensation or penalty.

The decision of the General Court

In the ruling of Feb. 11, 2026, the General Court ruled very clearly in favor of VAT. The General Court answered the preliminary questions as follows:

• The holders of related rights perform a service for consideration when their protected works are communicated to the public by an unlicensed user.
• This applies despite the fact that the artists cannot legally oppose this communication.
• This is also true despite the fact that their compensation stems directly from national laws and regulations.
• VAT applies to the full amount of remuneration due to holders of related rights.
• This expressly includes the portion of the fee that exceeds the standard rate (the statutory increase or surcharge because the user did not have a license).

Legal analysis and interpretation

The February 11, 2026 ruling, already referred to by commentators as Credidam 2 ruling, provide definitive clarification in tax and intellectual property practice.

To understand the scope of this statement, a look at the history is necessary:

• The SAWP ruling (2017): For years, it was argued that a legal fee for unauthorized use fell outside of VAT. In the SAWP-ruling (case C-37/16), the Court indeed ruled that the fair compensation for the private copy exception served to compensate for the prejudice suffered by right holders when their works are reproduced without authorization. In the absence of a reciprocal legal relationship or direct consideration, such ‘compensation’ fell outside the scope of VAT. This argument was often extended in practice to the statutory surcharges for unlicensed playing of music.
• The UCMR-ADA ruling(2021): In the ruling UCMR-ADA (case C-501/19), the Court ruled that the granting of a non-exclusive license for the communication of musical works to the public does constitute a direct connection and therefore a VAT-taxable service. Because the user in that case receives permission (the license) in exchange for the payment of royalties, it is a service for consideration, whereby the collective management organization acts in its own name but on behalf of the copyright holder.
• The Credidam 1 ruling (2024): In Credidam 1 (case C-179/23), the Court ruled that the management fee deducted by a collective management organization from the amounts it pays to performers is a service subject to VAT. The Court stated that the legislation itself establishes the required direct link between the service rendered and the consideration, even if the underlying compensation collected from the user (such as the fair compensation for the private copy exception) falls outside the scope of VAT.

In Credidam 2 ruling (2026), the Court uses the recital from Credidam 1 explicitly as a springboard. The Court confirms that the principle of fiscal neutrality precludes a general distinction between authorized and unauthorized transactions. Even if no license was granted, this does not prevent the legal and regulatory framework for communication to the public from applying in full.

The real legal innovation in Credidam 2 ruling is in the assessment of the measure of charge for unlawful use, specifically the statutory tripling of the fee (the surcharge). It is noteworthy here that the Court reaches the same final conclusion as the Attorney General, but via significantly tighter reasoning.

The Advocate General still partly sought the justification for charging VAT on the increased fee in ‘economic reality. He reasoned that the surcharge might cover the collective management organization's higher enforcement and operating costs caused by non-compliance with the license obligation.

However, the Court abandons this factual analysis and adopts a purely formalistic approach. Referring to previous rulings, the Court states that the European law concept of “agreed price” (the consideration) simply includes surcharges or additional costs when they arise directly from the applicable legal framework. Even if the use is unlawful or irregular, the surcharge illustrates the direct connection with the service. Thus, the taxable amount in this case is simply the price legally set for the unlicensed communication: triple the base rate.

This completely blurs the line between a sanctionable increase (a ‘fine’ or ‘compensation’) and a mere price fixing in favor of the broad European law definition of the VAT measure. The SAWP defense is definitively no longer valid for these specific infringements.

What this specifically means

This ruling has direct and important implications for Belgian practice, and in particular for the invoices issued by Unisono (on behalf of Sabam, PlayRight and SIMIM) for infringements.

• For businesses (hospitality, retail, events): When you as a business owner play music without giving advance notice, Chapter 6 of the Royal Decree of December 17, 2017 (on equitable remuneration) entered into force. This decree provides that in case of non-declaration, the collective management organization may increase the fee by a statutory surcharge (e.g. 15% or up to €75 under Article 67). Does an auditor have to come on site to establish the breach? Then, in accordance with article 70 of the same RD, it will charge an additional flat-rate “compensation” of €100. Previously, an entrepreneur could (with the European SAWP-ruling in hand) could still legally argue that VAT should not be levied on a legally defined “compensation” or “penalty”. The Credidam 2 ruling ruling means that defence is definitively futile. The European Court states unequivocally that all increases and additional costs arising from the applicable legal framework - even in the event of unlawful use - are, from a tax point of view, an integral part of the price of the service. It is therefore useless from a tax and legal point of view to still challenge the VAT levied on the increases (art. 67) or the compensation of €100 (art. 70). If you are liable for VAT, you can of course deduct this VAT according to the normal rules.
• For collective management organizations (such as Unisono): Unisono's current practice of charging standard VAT on both conventional licenses and on statutory increases and damages in the absence of prior authorization has been fully legally covered and validated under European law by this ruling. They do not have to adjust their billing policies and are now stronger than ever in the event of disputes by entrepreneurs.

Frequently Asked Questions

What is equitable remuneration for music?
Equitable remuneration is a statutory fee you must pay for the use of neighboring rights (the performances of performers such as singers and musicians, and of music producers) when you play recorded music in a space open to the public.

Do I have to pay VAT on a raise or fine from Unisono because I did not have a license?
Yes. The European General Court has recently confirmed that such statutory increases charged because you had not requested a license in advance are an integral part of the consideration for the service provided. The full amount is therefore subject to VAT.

Is the VAT on the invoice for music royalties deductible?
Yes, if you are a company liable for VAT and the music is used in the context of your economic activity (for example, ambient music in your store or restaurant), this VAT follows the normal rules of the right to VAT deduction.

How can an increase that is a ‘damages’ under Belgian law still be subject to VAT?
There is a big gap between our national civil law and European VAT law. Under Belgian law (according to article 6.5 of the Civil Code in conjunction with art. XI.335 Code of Economic Law), such an increase for breach undoubtedly qualifies as damages. However, the European Court emphasizes the autonomy of Union law: it is completely irrelevant what label (“damages” or “fine”) national law attaches to a payment. Tax qualification looks purely at economic reality. Because there is a direct link between the payment and the “toleration” of the use of the works, the tax authorities consider it to be a taxable supply of services, regardless of the civil damages angle.

Conclusion

The Credidam 2 ruling provides the long-awaited clarity: anyone who plays music without a license and receives an increased invoice for it from a collective management organization must pay VAT on that full amount. The argument that this surcharge is a VAT-free penalty is definitely a thing of the past.