RIPE NCC Tax liability

[Paul Ridley <]

Dear Contributors,

Considering the concerns expressed at the end of 1996 regarding the tax
position of the NCC, I would like to inform you as to the outcome of
meetings with the Dutch tax authorities. I will keep the explanantion
brief and in simple non-legalise english. If any of you feel that you
wish more detailed information please contact me and I will be happy to
assist.

Although the meeting with the tax authority concerned all TERENA
activities I will limit this report only to those issues that affect the
RIPE NCC.

There are two aspects of law tax which affect us, namely VAT (BTW) amd
company tax (venootschapsbelasting). each of these will be dealt with in
turn.

VAT
The tax authority have formally agreed that the practice we
(RIPE NCC) use for dealing with VAT is correct. Therefore we have no
past or existing VAT liability.

COMPANY TAX
There are three ways in which an organisation may be liable for company
tax.
1. STRUCTURAL PROFIT. If an organisation constantly makes a profit,
regardless of its aims or the use of the profit, it is liable to company
tax.
2. AIMING FOR PROFIT. If it can be shown that an organisation directly
or indirecly aims to make a profit then it is liable for company tax.
Directly aiming for profit means that you earn profit so that the
contributors will directly financially benefit from it (e.g.share
dividends). Indirectly aiming for profit means that even if the
organisation itself makes only sporadic profit, the aim of the
organisation is to lower the costs for the
contributors which indirectly increases their individual profits.
3. COMPETITION. If an organisation is in competition with or can
potentially be in competition with a Dutch tax registered company then
the organisation is liable to pay company tax.

If an organisation fulfills any one of the above criteria then they are
consisdered liable to company tax. The NCC definitely fufills the first
criteria in that we constantly make a profit, and may, due to
substitution competition, fulfill criteria three. It is not seen that we
fulfill criteria two. Therefore the conclusion has to be drawn that we
are liable for company tax.

Although this conclusion may be clear cut in the case of the NCC it is
not so simple for the rest of TERENA. Therefore the tax authority are
invoking a rule which delays the decision for 3 years. This means that
in 1999 the tax authority will again look at the case for TERENA and
judge whether it is or is not liable. If after the three year period we
are found to have been liable for company tax then we will have to pay
back all monies owed since and including 1995 plus interest. We will not
be liable for any fine for unpaid taxes from any previous years.


In summary how does this affect RIPE NCC.
1. We carry on paying VAT as we have been and have no liability is this
sense.
2. We will put aside the company tax monies which we estimate we will be
liable for (35% on all profit). This includes all financial years from
and including 1995.
3. We are not liable for any fines.
6. Our forecast budgets for 1997 which take this into account have
prudently accounted for these amounts and thus we will not fall short of
our budgets.

I hope this makes things a little clearer.

Regards

Paul