Thanks to the heroes who silently battled bureaucracy to settle this effectively!
Having experienced similar contradictory VAT rules and advice in Germany, and not withstanding TDF's excellent local counsel, I would consider this as one good reason to incorporate any future legal TDF entities in countries with more straightfoward tax laws. Sam. On 02/12/2020 17:36, Florian Effenberger wrote: > Dear members, dear community, > > this e-mail is to inform you about the successful resolving of a VAT > audit’s outcome, and a successful recovering of the losses incurred. > > We can only now make the details of this settlement public, as the > negotitation phase was confidential for obvious reasons, and > stretched out longer than we had anticipated. > > On the details: > > In autumn 2017, while talking to the Free Software Foundation Europe > (FSFE), I’ve discovered an issue with the way we handled VAT > payments. TDF as a not for profit is tax-exempt on company income > tax, but has to pay VAT. > > Next to the nonprofit part, TDF also has a small business part. While > previously, tax authorities put the focus on the nonprofit part, > treating mixed entities as ours like end-users (“B2C”), the > regulations have changed in the meantime, in a way that these have to > be handled as businesses (“B2B”). > > The consequence of this is that cross-border transactions are subject > of “reverse charge”. Our service providers so far had issued invoices > with the respective local VAT, while actually a payment by us to the > German tax office would have been correct. > > In other words: While we did pay the VAT, we paid it in the wrong > country. > > Upon discovering the issue, we acted immediately and also notified > the tax office. It turned out that the situation is not as easy to > understand as it may appear in this summary, with various tax > advisors asked returning different opinions, and some presumed > contradicting tax rules issued in between. > > In 2018, the tax office then conducted a VAT audit for the previous > year, resulting in several VAT positions that had to be paid in > Germany by us, instead of being due in foreign countries by the > respective service providers. > > We have always met our requirements in due course, correcting all > previous years back to 2014, paying all the due VAT, interest and > late payment fees. > > While in theory, as also assumed by the tax office, a VAT correction > is possible, it turned out that the regulations within the European > Union are very much different and only partially harmonized, if at > all. > > In other words: The payment obligation with the German tax office was > in force, independent of VAT being paid already, and no matter if a > correction in the foreign countries was possible or not. While in > theory, a “double taxation” is not allowed, that rule here was > unfortunately not applicable. > > While some foreign tax offices refunded quickly to the respective > service providers, who paid back to us, others were refusing a refund > for one reason or the other, and others did not react at all. > > With TDF being active internationally, with connections to various > countries, the process was a very tedious and time-consuming one, > reviewing lots of invoices, approaching service providers and > interacting with foreign tax offices. Several of us, including > Thorsten, Lothar and myself, spent countless hours over the last > three years on this. > > Several rounds of objections and discussions followed, until it > became evident that a situation like this is not really foreseen in > the system, and we had to pay VAT (again) on several invoices. > > With these damages on the table, negotiations with the tax advise > liability insurance started, to remedy the damages caused. > > I’m very happy to report that in autumn 2020, we were compensated for > the damages and other associated costs, totaling to a payment of > 90.000 €, with which this case is settled. The alternative, going to > court, spending further months or years, with possible expensive > expert assessments on the various countries, would not have been a > good use of time and money. In the end the TDF incurs almost no > damage at all, so it would not have been worthwile. > > I’d like to especially thank our legal counsel, Michael (Mike) > Schinagl, for guiding and advising us on this very complicated topic > over the course of the last three years and on the excellent result > he achieved – without him, this in the end positive outcome would not > have been possible. Thanks truly also to Thorsten and Lothar for > their support in this very time-consuming and energy draining matter. > Thanks a lot to FSFE for helping with identifying this issue, to all > the service providers involved for trying to solve this issue, and > last but not least, thanks to our accountant for their support with > the corrections and the correspondence to the tax office. > > I’m more than happy to have this topic finally closed and, in the > sense of cooperating amongst FLOSS communities, while we surely > cannot provide tax advise (you should always consult your own > counsel!) and this might be a special case, I am more than happy to > share the knowledge gained on this with other nonprofit > organizations, to help them avoid making the same mistakes. > > Florian >
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