Legal and compliance analysis of the TradeQoin currency in the Netherlands Authors: Rob van Hilten, Gert Meeder & Hugo Vlam Organisation: Stichting Points
Introduction This guidance document describes the impact of relevant laws and regulations in the Netherlands on the TradeQoin 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 TradeQoin 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 TradeQoin 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) All transactions in TradeQoin are part of the formal economy and thus VAT applicable. Participants are instructed that they should send normal invoices in which they state the applicable VAT rate. Link to Dutch VAT regulations for businesses: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/btw/bt w 1.2 Corporation tax All transactions in TradeQoin are part of the formal economy and need to be included in the companies administration. As corporation tax is calculated over the full profit a company makes, this tax also is paid over TradeQoin transactions (in Euro's). Link to Dutch corporation tax regulations: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/winst/
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 1.3 Income tax If a member of staff, or when the owner of a company uses TradeQoin for private expenditure income tax is supposed to be paid. Like all other taxes this income tax has to be paid in Euro. Link to Dutch regulations on incometax: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/inkomste nbelasting/inkomstenbelasting
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. 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) TradeQoin is not open for rewarding volunteers. If any organization rewards volunteers in TradeQoin, the same rules apply as in time currencies or LETS systems. We refer the compliancy knowledge available for those currencies. Link to tax regulation on income from LETS systems: http://www.rijksoverheid.nl/documenten-enpublicaties/besluiten/2008/12/17/inkomstenbelasting-resultaat-uit-overigewerkzaamheden.html 2.2 Liability of board TradeQoin is organized in decentralized communities. Depending on the legal body in which a TradeQoin community organizes itself, specific measures can be taken to decrease potential liability of the board. These measures generally include insurances. Qoin advices the TradeQoin communities to insure the board against liability. Link to Dutch law on liability of board: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/aangift e_betalen_en_toezicht/aansprakelijkheid/bestuurdersaansprakelijkheid/
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 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. 3.1 Social security TradeQoin is fully focused on the business-to-business domain. We do not expect to have an issue with social security. In case we do; if we follow Dutch jurisdiction on income when on social security (more information on social security provided at 3.3). Link to social security regulation from LETS systems (article 5.3.2): http://www.rijksoverheid.nl/documenten-enpublicaties/besluiten/2008/12/17/inkomstenbelasting-resultaat-uit-overigewerkzaamheden.html 3.2 Unemployment and disability benefits TradeQoin is fully focused on the business-to-business domain. We do not expect to have an issue with unemployment benefits. In case we do; all income a TradeQoin member earns, is deductible from unemployment benefit or disability benefits. We have different social security benefit programs in the Netherlands. Each of them is different. All we can say here is that account holders need to comply to them. Most will have to pay benefits back when receiving TradeQoin. All TradeQoin income will be handled similar to Euro income. Link to research on legal framework of complementary currency systems in the Netherlands: http://www.klamer.nl/index.php/nieuws/402-research-on-complementary-currencies 3.3 Employment Terms TradeQoin is currently not accessible for employees. However, this could be an option that will be built in at a later phase so its useful to already look at relevant regulation. If a member of staff earns TradeQoin for delivered professional services, the issuer (employer) is obliged to pay social security charges (income tax, insurance, pension etc.) over the TradeQoin part to the tax autorities (in Euro's). It is, however, not allowed to force somebody to accept TQ as salary, or as a replacement for an existing salary arrangement. Only on volentary basis or as a complementary form of compensation can TradeQoin be used as a means of paying employees. Link to tax regulation on income from LETS systems (article 5): http://www.rijksoverheid.nl/documenten-enpublicaties/besluiten/2008/12/17/inkomstenbelasting-resultaat-uit-overigewerkzaamheden.html
4. Privacy and safety Data protection is an important topic for most network services. Within CCIA project partners are responsible for formulating and implementing privacy policies to protect sensitive user
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data. The safety protection of individuals is embedded in several legal texts. We show how these apply to the selected currency types. For example do we deal with registered offenders who want participate in currency programs? In addition there are specific regulations for working with the elderly and children. 4.1 Safety/Protection of (vulnerable) CC users TradeQoin has developed internal processes to secure the privacy of users and applied ethical standards to avoid misuse of data and harmful consequences of the offered products and services. Since the TradeQoin concept is oriented towards businesses and professionals we are of the opinion that TradeQoin is never responsible for having vulnerable users do work and thus no additional measures in this regard are warranted. 4.2 Data storage and protection All data we keep on the members is stored in a highly secure database. All data is owned by the member and cannot be disclosed by us unless the member gives explicit approval for that. When a member closes its TradeQoin account, all information will be deleted from the database. For integrity reasons the only the email address and transaction history will be kept on file.
5. 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. 5.1 Issuing physical currency TradeQoin does not issue physical banc notes and fully centers around a digital currency. Link to Dutch regulations on financial oversight: Wet op financieel toezicht (wft): http://www.rijksoverheid.nl/onderwerpen/financielesector/toezicht-op-de-financiele-sector/wet-op-het-financieel-toezicht-wft 5.2 Digital currency non-convertible to national currency TradeQoin is fully compliant to Payment Service Directive. According to article 1 of this directive, TradeQoin is not money as the currency is closed loop, and not convertible with Euro. We have a written letter from the DNB (Dutch Central Bank) confirming that the TradeQoin concept is exempt. 5.3 Digital currency convertible to national currency Not applicable. TradeQoin is not convertible to national currency. Link to Dutch regulations on financial oversight:
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Wet op financieel toezicht (wft): http://www.rijksoverheid.nl/onderwerpen/financielesector/toezicht-op-de-financiele-sector/wet-op-het-financieel-toezicht-wft 5.4 Money laundering When enrolling in TradeQoin: A member can register for free and do 3 initial transactions. After the 3rd transaction a member must formally register himself. Up to that moment the member has limited rights (no credit line, not possible to pay at retail / leisure / entertainment). After 3rd transaction we do the following: - request & file ID + company register information (Chambre of commerce) - During Face to face meeting: check if ID matches person - Research Chamber of Commerce + additional documents if required, if matching person indeed is authorized to represent company. - Establish understanding of UBO (Ultimate Beneficial Owner) - Establish proper understanding of actual line of industry - Research (via google) if UBO, company, representative of company are high risk o Risky industry (jewelery, computers, phone houses, garages (body shop), 2nd hand cars etc. o Back ground check: crime, terror, money laundry, PEP (politically Exposed Persons) If any of the above point is positive, we classisfy the company as ‘risky’ and initiate a thorough KYC (Know-Your-Customer) process. Ongoing monitoring process: We monitor transactions weekly. Transactions that exceed 5000 are investigated to understand the nature of the transaction and the buyer and seller. How does this sub topic impact the 4 CCIA currency types in your country in the broader sense (Output 2. Country coordinators: Please contact the CCIA partners, observers (coordinated by nef) and other specialized organisations to coordinate the proper completion of this section): This is EU legislation: Money Laundering and the Financing of Terrorism Act (in Dutch: WWFT) Link to Dutch legislation on prevention on money laundering: http://www.afm.nl/nl/professionals/regelgeving/nationaal/wwft.aspx 5.5 Other central bank oversight regulations As far as TradeQoin knows no other relevant central bank oversight is expected. Link to Dutch regulations on financial oversight: Wet op financieel toezicht (wft): http://www.rijksoverheid.nl/onderwerpen/financielesector/toezicht-op-de-financiele-sector/wet-op-het-financieel-toezicht-wft
6. 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
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 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. 6.1 Acceptance of CCs for municipal services and taxes Has your currency faced any legal challenges to having your CC accepted for municipal services or taxes? If yes, what were they, and did you verify the validity of the claim? Not yet relevant for TradeQoin as we have not yet have been working with municipalities.
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