An Overview of the Legal and Regulatory Framework for Complementary Currencies in France Introduction
France has a strong tradition as a hotbed of currency innovation. The Monnaies Locales Complementaires (MLC) movement, defined as legal backed tender currencies, has been particularly strong, diverse and vocal. There are at present over twenty-‐five different MLC currencies in circulation with another twenty-‐four in the process of being implemented. This community of currencies achieved a major milestone in July, 2014, when a new section was introduced in the French monetary and financial code explicitly recognising MLC currencies. All complementary currency systems face a variety of legal and compliance issues that need to be addressed for sustainability and long-‐term success. This document addresses six key areas of law, namely: i. ii. iii. iii. iv. v.
Taxation Social Security and Employment Financial Services, Money Laundering and Note Printing Insurance Data Protection and Health and Safety Public Sector acceptance of Complementary Currencies
The document will analyse how versions of the four generic currency models outlined below are affected by the relevant legislation. 1. 2. 3. 4.
LETS Timebank Legal Backed Tender Currency Closed Loop Payment System
Disclaimer
This document only offers an overview of the legal landscape that complementary currencies operate within and nothing contained herein should be considered legal advice. Only the most generic systems are covered. Deviation or hybrid models may alter liability, obligations and compliance issues.
This report has been produced by the New Economics Foundation 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
SEL/Banque de Temps (LETS/Timebank) i. Taxation When discussing the taxation implications of participating in a SEL/Banque de Temps it is useful to distinguish between those who engage in the schemes to offer services in line with a person’s normal line of commercial work and those engaging with the schemes outside of work, more as social activity. Most SEL/Banque De Temps schemes are predominantly comprised the latter, that is, of individuals engaged in social exchanges. The 1998 "SEL de L’Ariège" case established that, provided that the engagements participants in the SEL remain occasional and of low importance, participants are not liable for social contributions or required to make declarations of activity. In contrast, those participating in their professional capacity should consider SEL exchanges part of any income tax or self-‐employment declaration, as well as part of corporation tax, depending on how the person or business is registered with the tax authorities. Importantly, however, if income and expenditure balance out (which is, after all, the aim of the SEL model), there should be no net profit to report. If the SEL group itself is a not-‐for-‐profit association, then it is not required to register with any body nor complete a corporation tax return to the tax authorities. For-‐profit company structures, conversely, are likely to trigger registration and reporting requirements. i.
Social Security and Benefits
Occasional participation in an SEL will not necessarily impact benefit entitlements, but exact rules are not explicitly stated. There has, however, been recognition from the employment services that participation in SELs can be of assistance to those wishing to re-‐ enter the job market. ii.
Financial Services, Money Laundering and Note Printing
Financial Services regulations and money laundering requirements do not apply to SEL systems. Should the system wish to print physical notes or vouchers, then it is important that, at a minimum, basic security features are implemented and that it is very clear that the vouchers are not interchangeable with legal tender notes. iii.
Insurance
All currency projects that deal directly or indirectly with the public will require public liability insurance, which covers the currency operator for any damages awarded to
members of the public, volunteers or customers for injury, illness, disease or damage to their property which is sustained as a result of negligence during business activity. Where the entity running the SEL is publicly registered, it should secure insurance for the network. However, where it is not publicly registered, the entity will not be considered a legal person and therefore unable to enter into contracts. In such circumstances, it will be the responsibility of individuals to insure themselves for such incidents. SEL scheme administrators should also consider their other liabilities and either be aware of the risks or indemnify themselves against such risks through an insurance policy, where this is possible. iv.
Data Protection
Data protection law makes provision for the regulation of the processing of information relating to individuals, including the obtaining, holding, use or disclosure of such information. Where the currency operator stores any personal information it is vital that appropriate technical measures be taken to ensure the protection of this data on and offline. It is also considered best practice to have an internal data protection policy. Not for Profit organisations who only collect and share information with people and organisations as far as is necessary to carry out the purpose of the organisation do not need to register under the data protection law.
v.
Public Sector acceptance of Complementary Currencies
SEL currencies cannot be exchanged for goods and services within the public sector.
Legal Tender Backed Currency i.
Taxation
Legal backed tender currencies are classed as vouchers for tax purposes, since they are sold at face value and redeemed for real goods and services. Credit vouchers are defined as vouchers that are issued by a person who cannot themselves redeem them for goods or services. Instead the issuer undertakes to give complete or partial, reimbursement to whoever does redeem the voucher. With regard to Value Added Tax (VAT), this is not due on the actual sale of the vouchers, since they are sold at face value. However, VAT is due from the businesses that redeem these vouchers. When the vouchers are used/redeemed for goods and services, the value
for VAT purposes is the full face value amount. To encourage compliance with VAT law, all legal backed tender currency operators should notify businesses who accept the currency that VAT is due as normal on all goods and services they sell, including those sold for complementary currencies. With regard to corporation tax, the operating entity will be responsible for paying all required corporation taxes, just like any other company. It is considered good practice to notify all limited companies and other organisations including clubs, societies, associations and other unincorporated bodies who accept the currency that they must pay corporation tax on their income, whether it is in complementary currency or in Euro. This also applies to self-‐employed people and business partnerships. With regard to income tax, for businesses that accept legal backed tender currencies, there are two types of income tax considerations: tax paid by businesses on workers’ salaries, and self-‐employment tax paid by sole traders and business partnerships. Although the exact classification under the law may be under debate, the fact that tax is due on any salary earned in legal backed tender currency is not. For those who are self-‐employed, all income must be reported to the tax authorities, regardless of whether this income was earned in euros or in any other currency. It is very important to note that all of these tax payments need to be made in the national currency and cannot be completed in the complementary currency iii.
Welfare and Employment
Individuals receiving legal backed tender currencies in exchange for performing work will count as earnings and will therefore have an impact on any benefits they receive. Therefore, it is vital the recipients are made aware that all such currencies are a source of income and must be declared. Therefore, anyone receiving legal backed tender currencies on a regular basis whilst in a voluntary capacity needs to be aware this payment could be treated as earnings and impact any benefits they receive. One-‐off gifts in local currency may not affect any benefits, nor be described as payment for work. iv. Financial Services Law Legal tender backed currencies have been recognised by law in France since 31 July, 2014, and are regulated by articles L.311-‐5 and L.311-‐6 of the French Monetary and Financial Code. Legal tender backed currencies may only be issued by certain types of entities, which belong to the so-‐called Economie Sociale et Solidaire (social economy), i.e mainly associations, foundations and cooperatives which exist solely to operate within this economy.
In basic terms, legal tender backed currencies can be divided into two categories in France: those regulated, which fall under the supervision of the ACPR (i.e. Autorité de Contrôle Prudentiel et de Résolution), the supervisory authority of the banking sector in France; and those which are unregulated and may operate freely. The operators of regulated, paper-‐ based legal backed tender currencies are considered to be providing banking services and therefore need to register with the ACPR. These schemes may apply for an exemption of banking license requirements, provided that the money circulates within a limited network. Unregulated currencies do not need to file with the ACPR. In France, the category of unregulated currencies has been extended beyond the limited scope of non-‐convertible closed-‐loop currencies to include paper-‐based currencies where (1) only the businesses participating in the system can exchange the currency back for legal tender and (2) where it is not possible for users of the currency to receive change for the their purchases in any form. In addition, the French government has recently expanded these exemptions by stating digital currencies are to be unregulated, provided that they are not convertible into euros in any respect. These wide-‐ranging exemptions from the legislation mean that there few of the thirty complementary currencies currently in existence are registered as payment systems. Local currency schemes where either condition is not met fall into the category of regulated currencies. For regulated issuers, ACPR has struck a good and proportionate balance in the only known application and acceptance of an exemption based on the limited network criteria under the European Payment Systems Directive (PSD). The ruling relates to the Galleco currency in France that will eventually operate across a whole region of France, but in its initial phase will be piloted in the region’s major city and some of the surrounding areas. In the case of the Galleco currency, the ACPR accepted that, during the pilot phase of the project, the currency operator could use the limited network exemption, but that once it was fully rolled out it would have to reapply and be re-‐assessed. The euros backing the money in circulation must be deposited in a segregated bank account. In deciding whether to grant an exemption to the requirement of obtaining a banking license, the ACPR will closely review the operational risks inherent in the system, such as the robustness of safeguards against the forgery of notes. As regards electronic money schemes, currently in France the interpretation of what kinds of currencies may fall within the scope of e-‐money legislation is very narrow. There is a general understanding that e-‐money legislation is reserved for currency models that accept payment in legal tender in exchange for a card (or e-‐wallet) onto which money has been preloaded. The e-‐money then sits on the card (or e-‐wallet) to be used. The important distinction with a normal bank card is that a bank card has all the features necessary to transfer money within the banking system’s payment infrastructure and loss of the card would not equate to loss of the money in the bank account (cases of fraud notwithstanding). In contrast, a person using a card that operated as a form of complementary e-‐money would lose all the money stored on the card.
An electronic legal tender backed currency is not regulated, provided that it is not convertible (with the exception of closed-‐loop systems). Other electronic schemes must apply to the ACPR for an exemption as an electronic money provider, provided that the e-‐ money circulates within a limited network and that the amounts loaded on the card or mobile phone (depending on what device is used to transfer the money) is limited to 250 euros. Electronic money is quite heavily regulated and issuers should carefully assess the compatibility of their money model with electronic money regulations: for instance, e-‐ money must be redeemed at par value, making demurrage and redemption penalties difficult to implement. In addition, currency operators will need to consider whether they fall within the European Payment Services Regulation or the E-‐Money Directive. The decision tree shown below can help guide any assessment of the need to comply.
The current legislation in the France states that only the Banque de France is able to print banknotes; therefore, those wishing to print legal tender backed currencies should avoid any possible confusion with the national currency. In order to combat money laundering, it is vital that there is a strong ‘know your customer’ system is in operation and that all suspicious activity is reported in a timely manner to the relevant authorities. For activity conducted in cash there is a legal requirement that
authorities be informed of all suspicious activity. However, most currencies in operation are relatively small scale and so use a lower amount to trigger reporting requirements. For electronic accounts, it is vital that customers are properly identified using appropriate documentation when opening an account. It is then also important to ensure that the correct triggers are put in place to inform authorities of suspicious online transactions. In fact, unregulated schemes and regulated schemes benefiting from an exemption from the requirement to obtain a banking license or electronic money issuer license are not within the scope of anti-‐money laundering checks, although good practice would still see the principles applied. ii.
Insurance
All currency projects will require public liability insurance, which covers the currency operator for any damages awarded to members of the public, volunteers or customers for injury, illness, disease or damage to their property which is sustained as a result of negligence during operator’s business activity. Where the entity running the currency is publically registered, it should secure insurance for the network. However where the entity is not considered a legal person and is therefore unable to enter into contracts, it will be the responsibility of individuals to insure themselves for such incidents Currency operators should also consider the other liabilities of the board and either be aware of the risks or indemnify the board against such risks through an insurance policy.
iii.
Data Protection
Data protection law makes provision for the regulation of the processing of information relating to individuals, including the obtaining, holding, use or disclosure of such information. Where the currency operator stores any personal information, it is vital that appropriate technical measures be taken to ensure the protection of this data on-‐ and offline. It is also considered best practice to have an internal data protection policy.
iv.
Public Sector Acceptance of Complementary Currencies
In the France, despite numerous attempts, no public authority currently accepts legal backed tender currencies for municipal services and taxes.
B2B Closed-‐loop currency systems i.
Taxation
Under the standard model, these currency systems specify a peg for the newly created currency, usually to national legal tender.
All transactions within the system are considered part of the normal economy and, therefore, VAT should be charged on all transactions at the standard level. Similarly, all trade conducted through these systems should be counted as income for the purpose of reporting corporation tax. If a self-‐employed person engages in trade within a closed-‐loop system then, this should be included in their tax declaration. i.
Social Security and Employment
These systems are focused on facilitating trade between businesses and so concerns about social security implications should not generally be arise. If a person where to receive such a currency as part of their wage, then it should be accounted for in the same way as legal tender, along with all the implications that this has for benefits and taxation. ii.
Financial Services
These systems do not normally come under most financial services regulation, since they generally do not produce any paper notes, the currencies are non-‐convertible into national currencies and one cannot buy into the system, but instead must trade to participate.. The one are of concern for operators is to ensure that the system is not used for money laundering. It is therefore vital that appropriate safeguards and policies are put in place. iii.
Insurance
All currency projects will require public liability insurance, which covers the currency operator for any damages awarded to members of the public, volunteers or customers for injury, illness, disease or damage to their property which is sustained as a result of negligence during operator’s business activity. Where the entity running the currency is publicly registered, it should secure insurance for the network. However, where it is not publicly registered, the entity will not be considered a legal person and will therefore be unable to enter into contracts. In such circumstances, it will be the responsability of individuals to insure themselves for such incidents Currency operators should also consider the other liabilities of the board and either be aware of the risks or indemnify the board against such risks through an insurance policy. Since insurance companies are likely to be unfamiliar with complementary currencies, it is likely that they will require additional detail in order to be able to accurately calculate the risk and provide an accurate quote iv.
Data Protection
Data protection law makes provision for the regulation of the processing of information relating to individuals, including the obtaining, holding, use or disclosure of such information. Where the currency operator stores any personal information, it is vital that appropriate technical measures be taken to ensure the protection of this data on-‐ and offline. It is also considered best practice to have an internal data-‐protection policy.
Not-‐for-‐profit organisations which only collect and share information with people and organisations as far as is necessary to carry out the purpose of the organisation do not need to register under the Data Protection Act.
v.
Public Sector Acceptance of Complementary Currencies
Public sector goods and services do not normally form part of these kinds of systems.