CCIA Legal & Compliance Overview, Netherlands

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CCIA Legal & Compliance Overview, Netherlands

Transcript of CCIA Legal & Compliance Overview, Netherlands

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    An overview of legal and regulatory issues for complementary currencies in the

    Netherlands Introduction In the Netherlands, a great variety of currencies have been issued. Like all community currency systems, these systems face a variety of legal and compliance issues that need to be addressed in order to operate a sustainable and successful operation. This document looks at six key areas of law: i. Taxation ii. Social Security and Employment iii. Financial Services, Money Laundering and Note Printing iii. Insurance iv. Data Protection and Health and Safety v. Public Sector acceptance of the complementary currencies

    The document will analyse how versions of the four generic currency models outlined below are affected by the relevant legislation.

    1. LETS 2. Timebank 3. Legal Backed Tender Currency 4. Closed-Loop Payment System

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    Disclaimer

    This document only offers an overview of the legal landscape that complementary currencies operate within and nothing contained herein should be considered legal advice. Only the most generic systems are covered. Deviation or hybrid models may alter liability, obligations and compliance issues.

    This report has been produced by the New Economics Foundation as part of the Community Currencies in Action (CCIA) collaboration project. CCIA is a transnational partnership project designing, developing and implementing community currencies across northwest Europe. The partnership provides a rigorously tested package of support structures to facilitate the development of currency initiatives across NWE, promoting them as credible policy vehicles. Running from May 2012 to June 2015, CCIA is part-funded through the INTERREG IVB North West Europe Programme, a financial instrument of the European Unions Cohesion Policy Investing in Opportunities.

    Find out more about CCIA on our website: www.communitycurrenciesinaction.eu

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    1. Taxation Tax authorities and regulators may see community currencies as a way in which individuals and companies try to escape the tax implications of their transactions. It is therefore vital that any community currency seeks to mitigate these legitimate concerns by addressing the impact on value added tax (VAT), corporation tax and income tax of all individuals and companies involved. For example, in the Netherlands a ruling has been obtained from the tax authorities that currency earned through social currency schemes will not be taxed as long as it does not exceed the equivalent of 1500, the maximum annual remuneration of volunteers. However, the situation varies among northwest European (NWE) countries, in some of which similar policies are yet to be developed. A further challenge is designing a model which is able to calculate equivalent values in legal tenders for currencies that are circulated on a completely different basis, such as hours. Nonetheless, an initial assessment is that social currencies (e.g. Timebanking, loyalty schemes etc.), due to their relatively limited scale in terms of individual balances, earnings and spending opportunities, generally carry low risk for users in terms of tax avoidance issues. For professional/business-to-business (B2B) mutual credit and legal backed tender currencies, where the potential risks are higher, measures have already been implemented to verify the identity of participants when they enter the scheme. Dutch tax law is neutral. Every type of income is taxed in the same way. The value of income-in-kind or in complementary currencies will be calculated according to the value in the national currency. The tax service does make a difference between transactions in the informal sector and formal economic transactions. In the informal sector, tax must be paid if the activity concerned meets the following criteria: 1. it is part of economic trade, that is, if the activity manifests itself outside of the home or a hobby. 2. it is engaged in to gain something (intention). 3. it can reasonably be expected to yield a profit (effect). Informal help and care, such as helping friends and neighbours, and voluntary work do not fall under the tax law. However, scale is also a relevant factor: for example, making multiple websites for acquaintances is seen as an economic activity, whereas washing your fathers car once a month is not. The precise legal boundaries are therefore not very clear, with several grey areas. Professional services and firms have to pay income tax and VAT. If a firm is known to the tax authorities, every unit of complementary currency earned will be liable to income tax or VAT. The only exception is when the activity clearly lies outside the normal range1.

    1 http://wetten.overheid.nl/BWBR0002672/HoofdstukI/Artikel5/geldigheidsdatum_19-02-2015, Article 5.3.1

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    1.1 Value added tax (VAT) VAT is taxed over added value in a product or service. The rate is fixed, but differs for different kinds of products and services. Even though VAT is levied on the producer, in most cases it is passed on to the consumer or end user. In the Netherlands, VAT is called Omzetbelasting or Belasting toegevoegde waarde (BTW). The Wet op de omzetbelasting can be found here. . The Dutch VAT system excludes certain categories of services. Among these are youth work, sport, social and cultural activities, childcare, homecare and domestic aid. These exemptions can be read about here and here. Different currency models are also considered differently.

    - B2B mutual credit system (TradeQoin,SoNantes):All transactions in TradeQoin and similar currencies are part of the formal economy and thus VAT applicable. Participants are advised to send normal invoices in which they state the applicable VAT rate.

    - Legal tender backed system (Lambeth/Brixton pound, SoNantes):

    Legal backed tender currencies are classed as a face-value credit voucher for tax purposes, since they are sold at face value and redeemed for real goods and services. There is no VAT due on the actual sale of the vouchers, since they are sold at face value, but VAT is due from the businesses that redeem these vouchers. When the vouchers are used/redeemed for goods and services, the value for VAT purposes is the full face value. Businesses that sell such vouchers cannot claim VAT on the sale of the vouchers, because they are sold at face value. The only time that VAT could be charged on the sale of the vouchers is if they were sold for a greater amount than their face value for instance, if a collectors pack was sold for a higher rate than the value of the vouchers. This would then be VAT rated. However, in some cases, for instance, if the VAT of the organisation is less than 1.345 per annum, the business does not have to be VAT registered. See here for detials.

    To encourage compliance with VAT law, all businesses who accept the vouchers should be notified that normal tax is due on all goods and services they sell for these vouchers. Additionally, any businesses exchanging euros for these vouchers as a service should be informed that they are not able to charge VAT for face-value vouchers. Since VAT must be paid in euros, businesses must earn enough euros (or trade back enough vouchers into euros) to pay for the VAT they owe the tax authorities. Since January 2015, a new ruling on vouchers has been in force: for single-purpose vouchers, VAT is due when the vouchers are issued but not when they are redeemed. For multipurpose vouchers, VAT is due at the moment of redemption. A survey of Dutch regulations concerning VAT with regard to vouchers and value cards can be downloaded here. Also see here for the way in which vouchers are treated under Dutch VAT law.

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    The applicability of VAT legislation to LETS schemes is covered here.

    - Time bank system (Makkie, Spice): The Makkie is virtually detached from the euro. Nonetheless, in general, services still have to pay VAT. However, the Dutch VAT system excludes certain categories of services. Among these are youth-work organisations, sports organisations, social and cultural organisations, childcare organisations, care services in general and domestic help, as detailed here. The area covered by these exceptions also applies to the sort of services by which people earn Makkies. When the activity does not fall under these categories, VAT should be paid.

    - Loyalty scheme (E-portemonnee/Limburg.net) Loyalty schemes are usually not related to the euro. Nonetheless, in general, services also have to pay VAT. The Dutch VAT system excludes certain categories of services. Among these are youth work organisations, sport organisations, social and cultural organisations, childcare organisations, care more in general and domestic aid, as detailed here. 1.2 Corporation tax Corporation tax (vennootschapsbelasting) is imposed on the income of Dutch bodies: that is, on legal persons, not natural persons. The tax rate is slightly progressive, with two rates of 20% and 25% Furthermore, a legal person/body is free from taxation when yearly income does not exceed 15.000 or when the income for the current year and the proceeding four years together does not exceed 75.000. Exceptions of the Corporation tax law (wet op Vennootschapsbelasting) are described here and here. In a business-to-consumer (B2C) program, such as the German Regiogeld, firms have to pay tax on the units of currency earned, because the activities concerned are regarded as economic trade. If businesses can exchange the currency units, tax is levied because such exchanges add to income. Examples of this include the Brixton Pound and the Bristol Pound in the UK and the German Chiemgauer. Regarding Dutch tax law, it is important to consider whether transactio