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Commission in translator networks?
Thread poster: Astrid Schwarz

Astrid Schwarz  Identity Verified
Germany
Local time: 05:36
French to German
+ ...
Apr 23, 2007

Does anybody has experience with commission paid for translation projects passed on within a translator network?

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sokolniki  Identity Verified
United States
Local time: 22:36
English to Russian
+ ...
10%? But mostly mutual favor Apr 23, 2007

I was once paid a 10% commission for the project I gave away to the agency I cooperate with when I could not take the project from the client which approached me directly.

As for individual translators/freelancers, this is rather a mutual favor between friends than commission-based - the way I see it. Today I gave a reference for you, tomorrow you will do this for me.. Not necessarily pays back all the time but still.


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RobinB  Identity Verified
Germany
Local time: 05:36
German to English
Country-specific rules Apr 23, 2007

Astrid Schwarz wrote: Does anybody has experience with commission paid for translation projects passed on within a translator network?


Please note that in Germany, freelances (Freiberufler) are prohibited (under tax law) from charging any sort of commission for their services. The German rule is:

Commissions = agency business = gewerbliche Tätigkeit (commercial activity)

which results in the loss of Freiberufler status, with all that entails, e.g. liability for Gewerbesteuer (municipal trade tax), compulsory IHK (chamber of industry and commerce) membership, and so on. What's really unpleasant is that the loss of Freiberufler status then applies retrospectively to the entire period of self-employment (no time limit).

I think that most other countries have far less restrictive rules.


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Ritu Bhanot  Identity Verified
France
Local time: 05:36
Member (2006)
French to Hindi
+ ...
No Commission Apr 23, 2007

I guess it depends on an individual. I see myself as a Freelancer and somehow I can't really accept that taking a commission can be "morally" right for a translator. I'm not an agency. So I don't charge any commission.

I've often passed on work to other colleagues, at times when my client asked for another language pair, or when I was too busy.

In fact, I've done this today... passed on a client to someone. I was thinking about this question but...

Let agencies do this sort of work... there are enough people earning commission when someone else does the job. I don't think it is fair and I don't do this.

Still, it's just my point of view and different people may have (and do have) different views.


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Cedomir Pusica  Identity Verified
Serbia
Local time: 05:36
Member (2009)
English to Serbian
+ ...
Freelance status Apr 23, 2007

RobinB wrote:

The German rule is:

Commissions = agency business = gewerbliche Tätigkeit (commercial activity)

which results in the loss of Freiberufler status.

I think that most other countries have far less restrictive rules.



I don't want to lead the whole discussion the other way, but the point you made here about the status of freelancer is completely new to me.

I didn't know you have to register as "freelancer" and thus become a sort of a legal entity with certain rights and obligations. So far, I looked at it as another way of saying "Hey, pick me! I'm free"

Isn't commission also what you charge for your translation? Or it has different legal definition? Where is the bottomline?

Where is the line that separates "men from boys"?

I would really appreciate if anyone would explain this to me or refer me to a link/site...


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xxxNMR
France
Local time: 05:36
French to Dutch
+ ...
This depends of your country Apr 24, 2007

In France, for instance, you cannot do one single free-lance job without being registered as an independent translator and paying related social security contributions. In other countries there is a tolerance. In Germany for instance, it was so that students could do a certain amount of free-lance work without being registered and that was the reason why lots of translators stayed in university for years and years. Don't know if this is possible now! You should ask your local Chamber of Commerce and tax authorities.

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RobinB  Identity Verified
Germany
Local time: 05:36
German to English
German rules Apr 24, 2007

cheddo wrote: I don't want to lead the whole discussion the other way, but the point you made here about the status of freelancer is completely new to me.


I was referring to German rules, and made that pretty clear. You'll have to check your own local legislation.

Isn't commission also what you charge for your translation? Or it has different legal definition? Where is the bottomline?


Commission is a fee (generally a flat rate or percentage) charged on goods delivered or services rendered by another party. In Germany, the tax authorities will also classify as "commission" or "agency" transactions a business model in which an entity accepts orders from customers and contracts third parties to do the work without actually adding any value itself (the typical translation agency model).

If this situation doesn't apply to your country of residence, you can happily ignore it!


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Astrid Schwarz  Identity Verified
Germany
Local time: 05:36
French to German
+ ...
TOPIC STARTER
Mixed activity Apr 24, 2007

It is true that the discussion is going in a direction I was not necessarily aiming at. But Robin is right that in Germany one has to take care not to lose the freelancer status. I checked in Steuertipps für Selbstständige (Akademische Arbeitsgemeinschaft) and found out that it would be a mixed activity with separate income from the freelance (translation) and the commercial (commission) activity.

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Nicholas Ferreira  Identity Verified
Canada
Local time: 23:36
Spanish to English
+ ...
You are paid for your work > Work = commission Apr 24, 2007

In my experience, when I assign work I also take a commission, and the reason is simple. I charge for my work, and there is work involved in delegating a translation job.

If I had to work to market my services, get the contract, negotiate, that is all time spent. Furthermore, if the job is being sent back to the client on my behalf, I have the proofread and edit it to make sure it is up to my standards. Then there is the time involved in invoicing the original client and arranging the payment to my subcontractor.

So it all adds up timewise, and so it should also add up $$-wise. But I agree with sokolniki also: if this is a two-way street with (an)other translator(s), then perhaps there is no need to charge any commission, since it more or less balances out at the end of the day. But when it is a one-way street (send out work, but never receive), then it seems fair to charge some commission based on the amount of work involved for you.

In my country the tax and corporate implications for this are much less than in others, I see.


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RobinB  Identity Verified
Germany
Local time: 05:36
German to English
Irrespective of the tax position.... Apr 25, 2007

... I think it's vital that any commission arrangements must be made in writing, ie in a formal agreement setting out in particular the scope of the work for which commissions may be charged, the amount of commission that can be charged (may also be staggered, eg volume-dependent) and the timing of commission payments. The agreement should also govern other relevant issues, for example the invoices to be submitted for commission payments, the payment terms and the documentation required to substantiate the commission payments.

We have a commission agreement with a small media agency that offers us selected high-quality potential clients. If we decide to work together with a particular company, the commission agreement kicks in (we settle up on an annual basis as it happens).

Astrid Schwarz wrote: it would be a mixed activity with separate income from the freelance (translation) and the commercial (commission) activity.


You'd have to be very careful there to avoid "Abfärbung" (tainting): if the commercial (commission) activity is related to your primary freelance (translation) activity, the German tax office is likely to treat the whole thing as commercial, even if for example you have set up a separate GbR for the commercial activity.

Robin


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Steffen Walter  Identity Verified
Germany
Local time: 05:36
Member (2002)
English to German
+ ...
Thresholds? "De minimis" regulations? Apr 25, 2007

RobinB wrote:
You'd have to be very careful there to avoid "Abfärbung" (tainting): if the commercial (commission) activity is related to your primary freelance (translation) activity, the German tax office is likely to treat the whole thing as commercial, even if for example you have set up a separate GbR for the commercial activity.
Robin


Hi Robin,

But aren't there certain thresholds/de minimis limits you have to exceed in order to be classed as a "Gewerbe" in Germany? What I am referring to is a situation where, for example, you generate 98% of your income by translating yourself while only 2% come from commissions (such as those paid to you by other translators to whom you pass on work).

Steffen


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RobinB  Identity Verified
Germany
Local time: 05:36
German to English
"It depends" Apr 25, 2007

Steffen Walter wrote: But aren't there certain thresholds/de minimis limits you have to exceed in order to be classed as a "Gewerbe" in Germany? What I am referring to is a situation where, for example, you generate 98% of your income by translating yourself while only 2% come from commissions (such as those paid to you by other translators to whom you pass on work).


This is a grey area where you really need the advice of a StB with substantial experience in dealing with Freiberufler and GewSt.

But in a nutshell, my understanding of the legal position is as follows, although of course the following does not in any way constitute legal advice:

The Bundesfinanzhof ruled in 1999 that an extremely low proportion of commercial (gewerblich) activity in the order of 1.25% of total sales revenue was not sufficient to trigger the classification of all activities as commercial.(BHF XI R 12/98 vom 11.08.1999).

In 1994 (BHF I R 133/93), the BHF ruled that sales revenue from commercial activity accounting for 6.27% of total sales revenue was sufficient to trigger the reclassification of all sales revenue as commercial, thereby removing the Freiberufler status and the associated privileges (including retrospectively), ie. the "Abfärberegel" kicks in.

However, as with all such tax matters, there is always a "ceteris paribus" qualification that needs to be taken into consideration, and it's dangerous to rely blindly on such court rulings (even from the highest court). For example, it may well be the case that a tax court would override the 1999 BHF ruling if were clear that the Freiberufler intended to engage in such a commercial activity, even at a very low level, right from the start. And the same tax court could uphold the 1999 ruling in cases where the commercial activity was unplanned and/or irregular.

Dangerous stuff, tax law. "Caveat Steuerzahler", as they say....

Robin


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Astrid Schwarz  Identity Verified
Germany
Local time: 05:36
French to German
+ ...
TOPIC STARTER
Personengesellschaft (partnership) Apr 25, 2007

"Abfärbetheorie" and limits are mentioned in Steuertipps in connection with partnerships (Personengesellschaften) where the freelancer status seems particularily in danger. They recommend to keep the commercial income under 1%!
Individuals should declare their commercial income and there should be no problem as long as it is beneath the trade tax-free amount (Gewerbesteuerfreibetrag) but I could not find how much it is.


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RobinB  Identity Verified
Germany
Local time: 05:36
German to English
Specialist advice required Apr 25, 2007

Astrid,

I think this has now got to the point where specialist advice is needed.

Individuals should declare their commercial income and there should be no problem as long as it is beneath the trade tax-free amount (Gewerbesteuerfreibetrag) but I could not find how much it is.


I think you'll find this is a very dangerous policy to pursue, quite apart from the fact that if you declare income separately as "commercial" (gewerblich), you will automatically have to pay compulsory IHK contributions, and prepare and file separate accounts for those amounts, which I presume is something you want to avoid.

If you're seriously considering engaging in "commercial" activity in addition to your freelance work, and that commercial activity is in any way related to your freelance work, please consult an experienced tax adviser before going beyond the "considering" phase.

Robin


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Sergei Tumanov  Identity Verified
Local time: 06:36
English to Russian
+ ...
I see that some of us Apr 25, 2007

say commission but mean subcontracting/outsourcing.

commission is a remuneration for information providing. In other words you work like a broker and get your commission from the translator whom you helped to earn some money.
It is normal he/she pays a share of his/her income to you as a broker to remunerate you.

When some translator takes job from a client and actually gives it away to a friend or a colleague for translation, it is not a commission. You act as a contractor against the agency, and your friend as your subcontractor. You become a client from legal point of view under this separate second contract. Two separate legally binding contracts appear.

In the first case - there is the contract between the agency/client and you act as an intermediary or broker only.


[Edited at 2007-04-25 13:46]

[Edited at 2007-04-25 13:47]


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