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Comment by mrkrabo | Hacker News Reader

Say what you will but this is simply fraud. If they were selling stuff, they should've collected and paid the VAT for Dmitry. You are NOT a non-profit if you sell stuff.

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!!!

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Well, actually there is complexity. We did pay the VAT over everything we sold, of course. That was simple.

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...

Also, I would try going to the local tax office. Maybe yours is a friendly one (I've been to both types) and you can get to speak with a your tax area local management. They might have enough knowledge and administrative power and help you out. Human to human protocol. Been there, done that, got a t-shirt.

Maybe you should read the original article first. Just saying. They spent months, got a lawyer involved, and got the fine reduced, a bit.

> Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."

https://news.ycombinator.com/newsguidelines.html

>Say what you will but this is simply fraud. If they were selling stuff, they should've collected and paid the VAT for Dmitry. You are NOT a non-profit if you sell stuff.

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...

> 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]

And then add the complexity of an international situtation...

Involving a party outside the EU. I bet the latter is what really threw your first accountant off: nonprofit + suppliers outside EU. Most accountants never have to deal with something like this in their entire career.

It's not that uncommon; I'm a member of a tiny cultural non-profit association, and we buy stuff (mostly props and other materials) from China regularly.

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.

What defines a non-profit is that none of the income it generates should go to members, directors, or officers; and not that it can't sell stuff. [0] Most if not all non-profits I know sell stuff to pay the bills.

[0]: https://www.law.cornell.edu/wex/non-profit_organizations

That's for US law, unrelated to this case.

Pedantic, but income can and does go to employees through salary. Profit is not split among share holders and must be reinvested or saved.

This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita!

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).

Krita wants to skip taxes that for either a company or a non-profit would be skipped, but since they are both they fall into a weird zone where they cannot.

I thought fraud involves intent to deceive. Seems like they made a mistake, and they aren't trying to avoid the bill.

Splitting a company in two so you can avoid paying taxes is not an attempt to deceive? Is it horrible when Apple uses Ireland to avoid taxes, but OK if KDE does it?

Well, that's what the tax inspector suggested we do...

I think there's a clear distinction between what Krita is doing, where the products sold are largely independent of work on developing software, and Apple, where the second company solely dealt with money and didn't perform work independently.

mrkrabo is not being fair or reasonable. Please don't let their comments add to your stress. You've helped build something fantastic. This situation will be over soon enough. Good luck and thank you for your efforts.

This is using the tax system as it's meant to be used. This isn't doing anything weird to aggressively avoid tax.

That's not the same thing at all. The one is a non-profit that had some additional commercial activity to finance it. The other is a multi-billion dollar company that avoids paying any taxes at all, as much as possible, to avoid doing their part for the economies and societies they profit from.

The one is using the law, the other is misusing loopholes.

Well combining the for profit sales and accepting donations was a mistake. but to correct that mistake they are now setting up two entities, one for doing business and one for non-profit things. they are not deceiving anyone, if they do business they will do it with the entity which is intended to do business. They are not routing the profit to the non-profit organisation nor they are backing off in paying the taxes.

It seems you didn't actually read (or understand) the post: The problem is that - until now - they DIDN'T split it in two, so currently the tax authorities say "you are some kind of mix between company and non-profit, we do whatever we want with you" (obviously simplified, read the post!). But at least they gave them a suggestion for the FUTURE: Split up, you will have no more problems.

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).

That's exactly what I'm saying. They have busted them cold so they're going to be more careful about their fraud in the future by splitting the company in half.

Do you even understand what VAT is and how it works?

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.

Of course I know what VAT is. I am a freelancer based in Europe. And I know if I'm paying SOMEONE for his services I also have to pay VAT, regardless of whether I'll get it back later or not. Why? Because I have to prove that VAT was spent in something related to my business (I can't have the VAT from my food returned, for example). It does not only apply to goods, it also applies to services.

What you say is (or used to be) false for deferred VAT transactions, but anyway.

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.

Do you think it is acceptable to not pay VAT just because you know you'll get the money back? It is not legal, at least. Who are you to judge that? The government must know, because they are the ones to judge.

That's what VAT deferred transactions are...I'm giving up on your dear sir.

You are a freelancer, not a nonprofit, right?

That 'fraud' has been advised by the tax authorities themselves. That would probably be a world-first that the tax authorities that just 'busted' you recommend how to not be busted in the future.

The tax authorities in the UK (at least) would prefer that charities set up trading subsidiaries for commercial activities. Although there are rules for handling trading through charitable books, everything is much cleaner if the two entities are taxed separately and the profits of the commercial activities paid on from the subsidiary to the charitable parent.

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.

It's not an attempt to deceive. It's an attempt to navigate a complex tax system. I personally have no problem with any company avoiding tax where they can. I do have a problem with governments opening up huge tax loop holes for companies to use. Of course companies will do all they can to avoid tax. It's up to governments to build fair and robust tax frameworks.

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 a company in two [..]

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.

Splitting a company in two so that they can precisely pay VAT taxes on things that VAT is supposed to apply to, no more tax, no less tax.

That is definitely not an attempt to deceive.

In some case (see "abus de bien sociaux" in belgian law), tt's the other way around : if you make a mistake in your management of taxes, then the state considers that it was with the intention to deceive (because you are meant to 1/ know the law 2/ apply it). It's not the state who needs to prove your intention to deceive, but it's you who has to prove that there were no intention.

You call yourself a 'good person' in your bio, but you show little evidence of that. A good person would be charitable and assume good faith.

Boudewijn Rempt is a good person.

Not true, see e.g. Museumkaart, which is a non-profit foundation created by the Dutch museums that sells cards for accessing them for a flat fee.

https://en.wikipedia.org/wiki/Museumkaart

For a perhaps more well-known example, see the Raspberry Pi Foundation. They sell, obviously, Raspberry Pis - a lot of them. They are a charitable organization, which is a type of NPO.

https://en.wikipedia.org/wiki/Raspberry_Pi_Foundation

Yes, but that's in the UK, I was giving an example of a Dutch non-profit.

> You are NOT a non-profit if you sell stuff.

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.

"Note: in the interests of full transparency, you can find our end-of-year reports for 2013, 2014, 2015 and 2016 here." https://docs.google.com/spreadsheets/d/1SXm7DQAGfw4Qr1VrXln6...

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?

> You are NOT a non-profit if you sell stuff.

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.

Because of how VAT works (which in turn is different for companies and nonprofits).

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