Krita Foundation in Trouble
krita.org
krita.org
Krita is a great software, and even though I'm not an artist it's worth supporting.
Otherwise, for people in the EU, our bank account is ING, BIC: INGBNL2A, IBAN: NL72INGB0007216397 .
For what it's worth, I've donated. :)
A: Hey B, how do we have to set up our company/foundation so this doesn't blog up and we have to pay non-sensical taxes only because of the way we are set up?
B: Do it this way: ...
(later)
Z: A, you have to pay taxes because your setup is strange and makes no sense to our rules.
B: Damn, we're liable for the bad advice we gave...
(honest question)
Legally, the hired professional is an advisor. The board/management are collectively responsible for picking a good advisor and double-checking his/her recommendations.
Bottom line: no one takes responsibility for anything (unless they're on the board) and you are on the hook for everything.
This also applies to lawyers, property professionals, medical professionals, engineers, architects, and so on.
Of course this is outrageously unfair, but the reality is that winning compensation for incompetence and malpractice is incredibly hard and expensive - and most professional contracts include explicit disclaimers of responsibility in an attempt to make it even harder.
So you have no effective oversight over the quality - or otherwise - of their work.
Of course you can hire another professional to double check the advice of the first professional, but that soon gets expensive, you're pretty much guaranteed some angry muttering, and you're still not guaranteed a reasonable outcome.
It's a remarkable fact that consumers have more rights when buying a toaster than when hiring an accountant or lawyer - and the toaster is going to be more reliable, and much less expensive to run.
Point is, I'd want to pay money to remove my liability, not just reduce its likelihood.
Saying this is "supporting bad practices" when they are addressing the problems with their set up is IMHO disingenuous.
(This kind of problem also illustrates why Mozilla is set up the way it is, with a Foundation and a Corporation. Tax Law doesn't always deal well with doing both in the same org.)
Mozilla is set up that way because they got in trouble with the IRS, and had a tax debt for - if memory serves me well - some years after setting up the corporation.
Taxes and accounting is not easy.
Is there a list of open source software that is going through similar hardships that need donations?
As someone who has dealt with VAT in the EU a bit this sounds really odd to me. Even if the inspector determines that VAT needs to be charged on these services, shouldn't it be Dmitry who is paying them, not the foundation?
In other words, they should be coming after the person providing the services for the VAT that he neglected to charge, not after the foundation who just paid the invoices they were given.
From the look of it, Dmitry is outside the EU, making the foundation the importer and thus responsible for the VAT.
Note that the rules for intra-EU B2B transfers may be different (deferred VAT).
Example: a dutch company sells a product to dutch consumers. They have to pay VAT. However what if they setup a company in another country that first buys the products for 0.001 cents and then sells the products back for full price to the consumer.
Most, if not all, countries do not apply VAT on exports.
In the end it doesnt matter where it was produced. Its taxed based on where it was consumed.
When an economic union such as the EU refer to an internal market they mean stuff like this. But as a result all VAT in the EU are now almost identical (or else your own producers would be tempted to move the profit to another EU country)
It makes a lot of sense, unfortunately it's more of a hassle which hurts small businesses relatively more.
Just a clarification: the consumer pays the tax. The company collects the tax and transfers it to the state (deducting the taxes they paid in their activity, so what they actually give to the taxman is a "value added" tax).
https://en.wikipedia.org/wiki/Missing_trader_fraud
The EU changed its cross-border VAT rules a couple of years ago, and they're now insanely complicated and probably unenforceable.
But unfortunately if a company/charity is domiciled in the EU then EU laws apply, even if the person with a controlling interest is domiciled elsewhere.
Not doing so would allow unfair competition from suppliers outside the EU. Note that for goods, these are import tariffs.
- [1] Reverse-charging VAT (English)
- [2] Calculating VAT for services to and from non-EU-countries (Dutch)
[1] https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/...
[2] https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...
What is the relationship between Krita Foundation (Krita) and Dmitry?
Is Dmitry an employee to Krita living in Russia? How can there be any VAT involved?
Is Dmitry a freelancer who sends invoices to Krita? Do those invoices include VAT? If they do, why does Krita need to pay VAT to Dutch authorities? Does he have a VatID on the invoice?
Do they just send money to Dmitry?
But since the Krita Foundation is in the Netherlands, the tax authorities feel that the VAT is transfered to the Foundation. Like I said below... If 100% of our income had been from donations, no VAT would have been transfered. If 100% had been from sales, it would have been transfered, and then we would have claimed it back. Since it's a mixed bag, 100% is transfered, and we could only claim 15% or so back.
I still don't understand the logic behind that, though...
For the dutch: https://www.belastingdienst.nl/rekenhulpen/diensten_in_en_ui...
Not to blame you - i too would trust a professional. Also, in Holland, accountancy is a protected profession. You can report them, because at the end of the day he/she took a risk that you would likely personally not have taken if you were aware of it.
If this wouldn't apply to services, it would give non-EU suppliers an unfair advantage.
In Germany it is called "Einfuhrumsatzsteuer".
https://www.gov.uk/goods-sent-from-abroad/tax-and-duty
> You pay VAT on goods sent from non-European Union (EU) countries and EU special territories (eg the Canary Islands) if they’re:
> gifts worth more than £39
> other goods worth more than £15
> alcohol, tobacco products and fragrances (eg perfume, eau de toilette and cologne) of any value
Customs duty is different.
> You’ll be charged Customs Duty on gifts and other goods sent from outside the EU if they’re above a certain value.
> The value includes:
> the price paid for the goods
> postage, packaging and insurance
Type and value of good Customs Duty
Anything under £135 No charge
Gifts worth £135-£630 2.5%, but rates are lower for some goods - call the helpline
Gifts above £630 and other goods above £135 The rate depends on the type of goods and where they came from - call the helplineIll sell you a car for 1 cent if you also take the car care service where we email you a magazine for 60k. Tax avoided.
And companies within the country that would have to pay tax couldnt compete with that. So soon everybody in the country would be unemployed.
http://europa.eu/youreurope/business/vat-customs/cross-borde...
see the 'services' tab.
"If you receive services for the purposes of your business from a supplier based outside the EU, you must generally pay VAT at the rate that applies in your country, as if you had supplied the service yourself "
https://ec.europa.eu/taxation_customs/individuals/buying-goo...
(EDIT: Ahh, varjag beat me to a similar point while I was typing!)
You have to declare this. You don't physically pay of course, it's just taken into account for the VAT balance.
The problem for the Krita foundation was that their employee (who was outside of the EU) was doing consulting work through Krita. It didn't matter that he resided outside of the EU, because he was working as an employee. I presume if he were an arms-length contractor, he could have invoiced the work personally (and that's how they really should have set it up -- I assume he was trying to avoid Russian tax by invoicing through Krita, but I'm speculating).
So it was an EU service done in the EU (even though the employee was physically outside of the EU). VAT has to be paid for that. What I don't quite understand (and what seems to also mystify the Krita people) is why they have to also pay VAT on their donations. That's a pretty crazy law.
None of this is fishy.. it works like this between all Western nations and all other modern economies. And if you find a country that is an exception that that would be a huge bussiness opportunity for every one just moving profits that way.
There was actually a way to do this. Cheat your way out of VAT. But its a complicated trick only companies like Apple and IKEA use and that trick is under full attack by both the US and EU government.
Also, ignore critique, most of them never dealt with bureaucracy in EU and native countries. Such a mess.
If you do not have other VAT from sales, you will get the money back, which essentially means you do not have to pay that VAT - "would not have to pay VAT" from the article (but declare it).
If you have VAT from buying and selling items, the VAT you've paid for services is deducted from the difference of selling and buying.
Btw, a business model: let artists pay to enter their names in a directory of artists for hire. They can charge clients extra (eg fee) to pay for these ads. True, it would be ideal to include reviews etc but links to their portfolio are often good enough, and it further highlights the power of krita... If interested, contact me via my HN profile - I've done this before successfully, both for startups and at scale, and I don't need your money. :-)
But when you're totally unfamiliar with what the requirements are what can you do?
Do large law/accountancy firms give a guarantee for their advice in the case that it was incorrect?
Chances are the accountancy firm had never set up a charity before and has misunderstood the constraints, and chances are also high that they won't be liable for the problem caused without some long drawn out struggle.
Like other domains of law it's not always clear cut, it wasn't like, yeah Alice Inc. owes exactly X% taxes because of law A, it was like, we can argue that Alice Inc. owes X% based on laws A and B, C, but the tax authority could argue they owe Y% based on an argument that actually, laws B, D, and E apply to their case, which we would counter-argue with, etc., etc., etc.
So I'm not surprised the tax office wouldn't give straight answers; even they may not know how a court would rule depending on the specifics of the case.
There is absolutely no complexity about this. Didn't they see anything wrong with selling stuff without collecting the VAT from every transaction?
And the best part: they are now separating the sales from the foundation so they can avoid paying taxes. This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita! Then let's allow it!!!
What we didn't do was pay VAT in the Netherlands over the money we sent Dmitry for his work in Russia. If the Foundation had been a company, we would have had to pay that VAT in the Netherlands, but would have claimed it back -- net result, 0. If the foundation had never sold anything, so not been company-like, there wouldn't have been VAT due. Because it was a mix, the tax people wanted the full VAT paid, which could not have been reclaimed. In short: you're enough like a company that the VAT gets transfered, not enough like a company that you can claim it back. Even the accountants found that complex and disputable...
The one is using the law, the other is misusing loopholes.
So, there is no intention to deceive, just a simple misunderstanding which leads to very grave problems (as usual when taxes are involved and you are small).
They are and were collecting VAT on their sales. This part is unavoidable regardless.
For the stuff they buy, they're not avoiding VAT. There's no point in avoiding VAT because it doesn't cost a business anything. YOU GET IT BACK FROM THE STATE. The whole point of VAT is that it is a zero-sum game for businesses. But due to their old structure, they're in a situation where they have to pay but can't get back. That's not how VAT is supposed to work.
If you understand the nuance, why are you saying they're dodging taxes? The VAT on the freelancer is related to their business, so it is intended to be recoverable.
So it seems very unlikely that it's an attempt to deceive. If Dmitri isn't involved in the merchandising, it seems that this structure reflects the proper intention of the tax system.
This is a group of passionate people developing a great product and giving it away. I'm not sure any law maker would want to target these guys for tax revenue. I'm not sure the auditors actions represent the spirit of the law.
Splitting an organization in two so the non-profit part can enjoy the benefits the law intends to bestow upon a non-profit is exactly what the government wants you to do.
Separate rules for separate kinds of organizations are a lot easier to make than rules for combined organizations. The latter invites loopholes, but to prevent them the government tends to err on the side of 'anti-loopholes' such as the one the Krita Foundation fell into.
This is not even what the government intends, just an unfortunate side effect.
That is definitely not an attempt to deceive.
That's not true in the for example the UK, where there are a couple of corporate structures that allow you to trade as a non-profit.
And there are rules about registering for VAT: https://www.gov.uk/vat-charities/registration
https://www.gov.uk/vat-registration/calculate-turnover
VAT is complex, and it seems the advice they got wasn't robust.
[0]: https://www.law.cornell.edu/wex/non-profit_organizations
Depends on the legal system. From what I remember (once worked in a foundation myself) the general approach in EU is that donations are "tax-free" but if you "sell" anything, you should calc profit/loss and pay a corporate tax.
Paying for Dmitry is a statutory expense, so don't understand why that would raise an eyebrow.
Non-profits sell stuff all the time, and whether you are exempt from VAT or not for that depends on the jurisdiction and even within a single country can have several subtleties.
>There is absolutely no complexity about this.
Oh yes, there is. Here's how an expert puts it: "Sadly not. Charity VAT is one of the more complicated areas of VAT, which is a great shame given that many charities are operated by unpaid volunteers who have to administer the complex rules." [1]
>Didn't they see anything wrong with selling stuff without collecting the VAT from every transaction?
Why would they? It's not like they pocketed anything -- the VAT that was not collected was not imposed into the salary in the first place. Besides, they are volunteers running a non-profit, and had asked a consultancy, not seasoned merchants.
>And the best part: they are now separating the sales from the foundation so they can avoid paying taxes. This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita! Then let's allow it!!!
Because a small open source foundation giving its product for free and largely based on volunteer work (with the occasional donation funding only part of what needs to be done) that has stumped upon a tax issue due to inexperience is the same as a global behemoth looking to avoid taxes.
[1] https://www.theguardian.com/society/2009/dec/15/charities-ta...
And then add the complexity of an international situtation...
That said, I do strongly advise finding an accountant that specializes in non-profits. Ours works with a lot of cultural associations, so he knows that law inside out.
Lazy post. Also a Non-Profit Foundation and Amazon are two totally different beast. So your saying the Red Cross and Amazon should have the same practices?
Amazon want to skip taxes with the intent of making more money for themselves.
Krita want to skip taxes with the intent of making free software for strangers.
Seems like there's a moral difference there (as well as, of course, the actual legal difference).
Boudewijn Rempt is a good person.
Even then it's always a grey area where it's advice that may or may not be what you should do and it depends on your decision, blah blah blah.
Do you give a guarantee on your code, including damages?
As soon as I get my paycheck I'm totally donating a little. I've used Krita and enjoyed it as an alternative to when I do not have access to Photoshop. Now if only ZBrush had a top-tier alternative that would be something.
What exactly constitutes a purchase? How can we help you fool your company into thinking that you're buying something?
You give me an invoice, and I will pay you 500$ for a pixel on a page.
So, can I do that? Add a note under the donation page that says, "if you need an invoice for your donation, email us here"?
I would urge you NOT to do this. Setting an invoicable entity shouldn't be hard - I'm in India and it's not hard here, and we are fairly at the bottom of the Ease of Doing Business listings .
Sidekiq Pro uses Plasso - I'm sure there are tons of alternatives where I don't have to email you for an invoice
From your point of view, you have sent and invoice and received funds. You need to pay taxes on those funds. How you do that depends a lot on your tax laws. Where I am (Japan), you can be self employed, in which case it is treated just like extra income (Japan doesn't have multiple categories of income, which is super awesome for getting rid of tax evasion). You can also set up various kinds of companies. These companies can shield you from certain kinds of taxes, but accounting becomes much more difficult. Usually it does not pay to set up a company in order to receive $500.
Depending on where you live, you might also be liable for VAT (or the equivalent). Exported goods are usually exempt, but exported services often aren't! Be careful! The reason for this is that value added taxes are usually only taxed once. So if you have a physical good that you are exporting, you have already paid the VAT on the things that made that physical good. Since a service is not made up of physical things, then you are liable for tax on the whole thing.
As is relevant to the original article, where you pay the tax is dependent upon where the company is base, or where the work is done. It gets really complicated from there, but basically if you are providing a service remotely (and not needing a work visa to provide the service), then you are performing the work in your country (even if you are working over the internet) -- or at least that's what my accountant has decided.
TL;DR: giving him an invoice (especially for a service) will make it easy for him to pay you, but will make things complicated for your taxes. It only makes sense if you think you will make a lot of money.
+100 - absolutely bang on target.
> TL;DR: giving him an invoice (especially for a service) will make it easy for him to pay you, but will make things complicated for your taxes. It only makes sense if you think you will make a lot of money.
Question - is it easier to take and account for donations ? that's what I dont understand. In India, donations are taxable as income - in fact they are a bigger pain to account for (gift tax) than normal business income. So the question is not "nothing vs invoice" - it is "donation vs invoice"
The whole point of this thread from Krita was that they thought they were exempt ...but got screwed badly because they ran afoul of tax laws. Is this not a case of better safe than sorry : Dont take any money ... or do it the right way ?
Oh, and in the Netherlands, donations received do not count as income. Stuff just got too complicated for an outfit as small as ours.
It's actually the jist of this blog post. They thought they were square, but tax authorities don't understand how open source non profits work, and they made mistake in the structure. So depending on where you are you have to make sure you stay within the law.
Amen. I spent hours telling the inspector what it was we were doing, and why. And in the end, she still asked what our future profits were likely to be. It just didn't register...
Octave Pro would simply be a support license to email you 10 times a year. Or the right to create 10 bugs per year on a bug tracker.
So easy to get past accounting. A plushie would be hard.
I've also heard mixed reports about whether this would help with a revenue stream or not. I remember hearing organisations that set up this fake-purchase process but didn't really get that much more money than just plain donations.
We all want you to succeed. Trust me - it may feel we are condescending, but it comes from a desperation to not see great open source software die. So please excuse my language if it offended you.
Minor corrections:
a) Atlas is built by a team of smart people.
b) Although I appreciate the praise, I am just an entrepreneur. There are many on HN and elsewhere who do that better than me. I get mildly frustrated by how we sacralize the mechanics of business, because this is one of the reasons why smart people who know what compilers are come to believe that a sales tax filing is an impossibly high barrier.
I firmly believe that anyone capable of writing a meaningful software product can run a company. We're trying to make this radically less daunting than it is right now; if particular problems about running a company (OSS or otherwise) worry you, we'd love to hear what they are and brainstorm how we could possibly help.
How RStudio do it.
They provide 'priority support' by email in return for an annual license fee. They also do something about the AGPL license that they use with RStudio source code.
Not sure if this helps any and it might be worth finding out what kind of legal entity is involved &c
At my previous companies, the only thing I would need to purchase software was an invoice/receipt I could point to to show that I had purchased a software license. The contents of that license don't matter, and in fact, I even told a few projects "Please invoice me for a commercial license of your software. If you don't have a commercial license, I will accept your existing [e.g. MIT] license as a commercial license. If you do not have a price list already, I will accept a quote of $1,000 without any further negotiation required; just send me an invoice for it."
I think that software developers are really weirded out that the same bits can be free-as-in-beer and _also_ cost $1,000. [+] But _software buyers want to purchase outcomes, not bits_. The outcome I want to buy is "$PROJECT continues to exist in the world." I have sufficient internal authority to purchase this outcome, as does the other commentator on this thread -- we've announced that fact loudly, as does anyone else who either requests a quote or actually pays you. I have sufficient legal authority to purchase that outcome as an officer of the company I was employed at, which enjoys an incredible amount of discretion in how it chooses to spend its own money in the pursuit of its legitimate business objectives, and which has chosen to invest that discretion in me. Reasonable third parties might disagree with our expensing policies (or think they shouldn't have hired me), but reasonable third parties don't get a vote.
[ + ] I sold trial-based software, and a fair bit of it, for many years. The difference between a trial version and a registered version was... nothing at all, if you just compared the binary artifact. The sole thing that distinguished the two was that, if you proved to the software's satisfaction that you were a paying customer, it would act like it was registered (displaying that fact and removing the trial limitations). This was, literally, a single if statement.
Could I have sold software on that same model without the trial limitation at all? Clearly yes; registration would then only cause the software to display you were a registered user. Could I have sold software on that same model with the only display that you were a registered user being outside the software? Yes. How about if that were _only displayed on the purchase confirmation email itself_? Absolutely freaking fine.
None of this gets harder or legally murkier with OSS in the picture.
It's a stupid dance for a donation while we're telling the people paying that it's not really a donation. We have to fool them and pretend like it's a business transaction.
I wish we could just be honest and lose the stigma around donations.
(incoming joke about how Etsy is mostly AliExpress now...)
I don't think I'd be open to forking over 12 EUR for shipping. I'd gladly pay 8 EUR for an eBook edition though.
http://webcache.googleusercontent.com/search?q=cache:g-C8yv4...
Good for them trying to get donations directly. They might get more money through GoFundMe or having a KickStarter for v4.0 or something. Those sites would offer a little transparency in that you can see how much they've already received... but try direct donations first.
Also, where is the BitCoin donation address?
A simplified explication is Krita's situation is so complex nobody in the world can figure out how to get the paperwork correct, but they are not in trouble because they didn't. Tax law doesn't care if you can figure it out how to do it right, just that you do it right.
No, it's by definition not theft. Theft is the unlawful taking of property without consent of the owner; taxation is by definition done by legal authority, and, ipso facto, is not theft.
Now, if you dismiss any moral status of legal authority (not merely legal authority which lacks some proper accountability, but all legal authority irrespective of accountability and structure), then, sure taxation is the moral equivalent of theft without being theft. And if you take the more moderate view that some legal authority is morally relevant, but that that depends on structure and accountability to the governed, then taxation by an improper authority is morally equivalent to theft.
But, by definition, taxation is not theft.
The authorities will have nothing to chase, the problem can't re-occur, accounting will be transparent, and accountants will not be required in future.
Seriously, Dutch should start a petition against their tax authorities for victimizing an open source project.
I'm a huge advocate for Bitcoin, but this is a terrible idea. They're trying to support staff and the last thing you want to do in that circumstance is to limit the potential donor pool.
I also don't see how changing the currency of the problematic transactions changes the tax implications.
In future, you don't have to pay accountants, or waste time dealing with the state.
Immensely practical.
As far as donor pools go, if there is no way to obtain a monthly subscription from people via cryptocurrency then build it, as there is clearly demand.
Yeah. Then the judge will tell you "Pay your taxes - then fines, etc - or we'll liquidate your corporation/foundation". If you don't pay, or give them access to the Bitcoins when they liquidate, they may hold you for contempt (or equivalent in the Netherlands).
Don't think you can mess with a Nation State by simply not using the national currency. It's like wanting to evade corporate taxes by burying gold in a corn field...