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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.


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

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

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.



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