CCIA Compliance Reports - Makkie

Legal and compliance analysis of the Makkie currency in the Netherlands Authors: Nienke van der Baan & Wilfred Schilt Organisation: Gemeente Amsterdam-Oost

Introduction This guidance document describes the impact of relevant laws and regulations in the Netherlands on the Makkie community currency. Legal and compliance issues with regard to the relevant in-country laws and regulations are analyzed so that future currency projects can benefit from this knowledge and avoid risks at implementation.

This document is part of a wider package of legal and compliance documents that can be found on the Community Currency Knowledge Gateway at http://communitycurrency.info/en/find/cc-toolkits/legal-and-compliance/

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Disclaimer

This document only offers an overview of the legal landscape that this complementary currency operates within and nothing contained in this document should be considered legal advice.

This report has been compiled and verified by Qoin 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 Union’s Cohesion Policy ‒ Investing in Opportunities.

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

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Introduction This guidance document describes the impact of relevant laws and regulations in the Netherlands on the Makkie community currency. Legal and compliance issues with regard to the relevant in-country laws and regulations are analyzed so that future currency projects can benefit from this knowledge and avoid risks at implementation.

Each chapter is divided in main and sub legal topics. An explanation is given for each main and sub topic. For each legal topic a description is given about how its relevant to the Makkie currency project.

Legal Topics 1. Taxation Tax authorities and regulators can consider community currencies to be a means by which individuals and companies can more easily escape the tax implications of the transactions that they engage in. It is therefore vital that any community currency seeks to mitigate these legitimate concerns by addressing the impact on VAT, Corporation tax and Income tax of individuals and companies using the scheme.

For example, in the Netherlands a ruling has been obtained from the tax authorities that currency earned through social currency schemes are not taxed up to the equivalent of a maximum annual remuneration of volunteers up to €1500. However the situation varies in the different NWE countries and for some similar policies are yet to be. A further challenge is designing a calculation model which allows for computing equivalent legal tenders for currencies that are circulated on a completely different basis such as ‘hours’.

To maintain the integrity of the community currency programs CCIA will do an in-depth risk analysis to understand how to mitigate the possibility of users avoiding paying all the tax due to the authorities. An initial assessment is, that social currencies (e.g. Timebanking, loyalty schemes etc.), due to their relatively limited scale in terms of individual balances and individual earnings, and spending opportunities, in general have a low risk of tax avoidance by users. For currencies in the professional/b2b mutual credit and legal backed tender, where the potential risks are higher, measures have already been implemented to verify the identity of participants when they enter the scheme.

1.1 Value Added Tax (VAT) Since the Makkie is almost entirely not related to the regular money system of the Euro. Still in general, services also have to pay VAT. The Dutch VAT system excludes certain categories of services. Among these are youthwork organizations, sport organizations, social and cultural organizations, childcare organizations, care more in general, domestic aid. The idea behind this exceptions applies also to the sort of services by which people earn Makkies.

1.2 Corporation tax The Makkie is not a corporation in the sense of the tax law. Thus corporation tax is not necessary for the Makkie. (Wet op de vennootschapsbelasting) 1.3 Income tax Time Banks and Time Credits have to comply to the regulation ‘Inkomsten uit overige werkzaamheden’ (incomes from other activities). In 1993 the tax service has added an article aimed at the fiscal treatment of the LETS. Article 5: ‘Fiscal treatment of earnings from a local moneysystem Lets, concern taxregulations about complementary currencies.

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Individuals can earn €3000,- as LETS-eenheden per year without problem. When someone earns more, the tax service checks if the earnings of the participant do not result from actions / work in the economic arena. Depending of the result of this check the participant may have to pay income tax over the earned. In general 1 lets equals €1. When the units are not directly linked to a monetary value an exchange rate is established on the basis of of the money value of the goods and services offered.

In article some 5 some terms / conditions are posed to a complementary currency system: -The administration must be made up in such a way that the balaces and turnover of the members / participants are transparent/visible.

- When a participant earns more than a value of €3000,- of LETS-units , the organisation is obliged to hand over the data of the participant to the tax service.

Unlike the LETS a unit of Time Credit has no direct link with the monetary system: 1 unit equals 1 hour. Since no arrangements/ regulations have been made yet concerning Time Credit units, a possible course of action with the exemption up to €3000,-. might the following. The compensation for voluntary work is as a maximum €4,50 per hour. The value of 1 Time Credit can be equaled to €4,50. A Time Creditparticipant can earn without problem deelnemer 667 units (€3000/€4,50) per year. This is 55 uur per month and 12 hours per week. Beware, this does not mean that a participant may not earn more than 667 unita a year. In case of more than 667 units the tax service will check if the work is the work is informal help or a professional service.

Proposal that Qoin made to the tax service: The model of the Makkie has a national basis (WeHelpen.nl) and a local implementation (like Makkie.cc).Iin other countries something simular occurs, especially in England where the government invests heavily via funder NESTA in time banks and time credit systems, and in Belgium, where the Flemish government supports pilots and issues a handbook for local communities.

The full scale implementation of the model is among other things hindered by fiscal obscurity.

Qoin suggested a two phased approach to the tax service: Phase 1 is the decision that Time Credits have to comply for the time being to the 'LETSnorm'. The question is what the exchange rate stated in the law will be: how will the € 3000 be translated to a time-norm. For this Qoin proposed earlier to use the compensation norm for voluntary work, €4.50 per hour. This is based on the fact that almost all services rendered are non professional services between neighbours and within the neughourhood. The amount of hours that can be earned is than 3000/4.50=667 hours a year. This method is used for some years, and then we decide if phase 2 may start: Phase 2 is the complete exemption of time banks and time credits, the same way this is done in the US, the UK, Germany and Japan.

2. Insurance Under this topic there are 2 sub-topics that will be investigated. Firstly the impact on volunteers engaging in work on behalf of the currency operator and related need for insurance. Secondly how the governance board will be indemnified against major risks.

In some cities/municipalities citizens engaging in volunteer work are covered by a municipal (accident/disability) insurance policy. There are, however, many municipalities where this not the case. The CCIA partnership assessed this for all programs we develop, and, where necessary, negotiate favorable terms with insurance companies to provide coverage in the event no city-wide volunteer insurance exists.

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Companies, charities, foundations and other entities (either profit or non-profit) who seek to introduce a currency scheme will need to consider the issue of potential liability of governance board members in the case of default, bankruptcy or other eventualities. In some countries (e.g. NL), insurance products for this type of liability are available (as long as the liability is not a result of e.g. illicit activities).

For insurance companies the risks involved in running a community currency scheme may not be straightforward to assess, which means a negotiation can be required to agree upon the appropriate insurance policy.

2.1 Volunteer insurance (accident/disability) This part is based on conversations with Achmea (Wim van Bessen), the Insurance of the city of Amsterdam (Edwin Toren), and the Association of Dutch Municipalities (VNG, John van der Voort).

The situation: • At the WeHelpen platform end-users perform non-professional activities for each other and for community organisations, with WeHelpen credits as spendable compensation.

• Because of the compensation, the activities performed may not be covered by 1)a part of the civil liability Insurance, and 2) by the most common insurance for voluntary work (of the VNG/Centraal Beheer Achmea).

• among others the city of Amsterdam has an Insurance specifically for Amsterdam (zie www.amsterdam.nl/vga/@494191/pagina/).This Amsterdam Insurance has a broader range, so that the activities of De Makkie / WeHelpen are covered. Also informal care (mantelzorg) is covered. Amsterdam has stated (in an e-mail) that de Makkie / tijdgeld / WeHelpen are covered with this Insurance.

Remaining questions: • Untill now there is no formal confirmation that De Makkie is covered by the regulation.

• Does the Insurance only covers known participants? The general conditions state that liability is excluded for not validated accounts.

2.2 Liability of board This has not been researched as far as this moment for the Makkie.

3. Labor law One of the main target groups for social currencies are vulnerable an excluded strata of society, such as people with disabilities, the unemployed and people in deprived communities generally. Many of the people that can be (re)engaged and could participate in a social currency scheme are recipients of government/municipal welfare or (unemployment) benefits. For them to safely participate it is important that a dialogue is started and rulings are obtained on the potential impact of participation in social currency schemes from the relevant national and local authorities in the countries in which we implement them.

With regard to the Makkie: the Makkie is an instrument for activation that can be used for unemployed together with education and regular voluntary work. We know that some Makkie participants are afraid that they are not allowed to earn Makkies. This is complicated by the fact that several institutions use different norms (service for work and income DWI, the implementation organisation for employers insurances UWV, etc.). The advice would be to make arrangements with all institutions.

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3.1 Social security In the Makkie scheme the end users do not fall under the social security regulations because the amount of time that end users spend on activities for the Makkie is too small. The threshold is not reached.

3.2 Unemployment and disability benefits In the Makkie scheme the end users do not fall under the unemployment regulations or the disability benefits because the amount of time that end users spend on activities for the Makkie is too small. The threshold is not reached.

3.3 Employment Terms At this moment the Makkie does not offer the possibility to pay wages.

4. Financial service regulations Any organization that prints physical ‘money’, or vouchers, makes electronic monetary units available, that are convertible into legal tender or is engaged in the provision of payment services will need to review how the relevant financial services regulations apply to their currencies and which enforcement bodies (Central Banks, National and international Finance institutions) need to be engaged with for compliance or exemptions.

All countries have very strict laws restricting who can print money and currency operators will need to ensure that they do not contravene these rules. The provision of the electronic money directive and payment services directive only apply to those currencies that are not able to show that they operate in limited network. But more general rules and laws might apply, for example for the issuance of paper notes.

5. Acceptance of CCs by (local) government Being accepted in lieu of legal tender particularly by public entities is the goal of many CCs. Municipalities accepting local currencies for both services (swimming pool, public transport etc) and taxes (business rates, local taxes) gives CCs greater use value and credibility.

However, especially in the Eurozone, those who tried to establish such spending possibilities in different countries encountered barriers of different kind, sometimes of personal nature (risk averseness) sometimes allegedly due to regional procedure regulations, state law or even EU law.

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