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Should I denounce this US company to the tax authorities?
Thread poster: John Rawlins

John Rawlins  Identity Verified
Spain
Local time: 13:06
Spanish to English
+ ...
Sep 11, 2008

During a quiet spell about a year ago, I did something that I still regret. Now I would like some advice from Proz members.

The cause of my guilt was a couple of 'rush jobs' that I handled for an American translation agency. The PM was very charming and worked here in Madrid. Their website gave an address for one of their European offices in Madrid.

However, the job was paid for in 'e-cash'. I charged no VAT and no income tax retention was made.

In fact, I was unable to issue an invoice in the normal way. I was asked to input the details of the job on their online database. I did and they paid me by Paypal.

They have since repeatedly phoned and asked me to do more jobs. Their last call was today.

I have always declined - saying that I am busy - but the truth is I feel that this business is probably illegal.

How can a company with offices in Spain not pay Spanish VAT or income tax when contracting Spanish residents? Do they do the same in their German office?

Perhaps I am simply naive and this is somehow legal. Does anyone know? But if it is legal, then why isn't every translation agency in Europe doing the same?

If this business model is corrupt, then should I just forget about it, or should I exercise some civic responsibility and denounce this company to the taxman?

Any thoughts?




[Edited at 2008-09-12 06:33]

[Edited at 2008-09-12 07:55]


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KSL Berlin  Identity Verified
Portugal
Local time: 12:06
Member (2003)
German to English
+ ...
If you have a tax advisor... Sep 11, 2008

I would take this one to him/her. I would be very, very careful about any direct dealings with tax authorities. If there is any potential liability on your part, a tax advisor would know how you can protect yourself here.

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RNAtranslator  Identity Verified
Local time: 13:06
English to Spanish
+ ...
Be careful Sep 11, 2008

I do agree with Kevin. Didn't you charge VAT? well, that is your problem, you must pay that VAT to the tax authorities regardless you charged it or not to your client. And you must declare that income in the Spanish IRPF. Can you see why you'd better not say anything to tax authorities?. You are in fault too.

As this is about Spanish tax authorities, you might post it in the country-specific forum "La traducción en España".


[Edited at 2008-09-11 20:25]


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WriuszTran
Germany
Local time: 13:06
Agree Sep 11, 2008

I fully agree with Kevin.

Cover your own liability. Find out what that is.

[Edited at 2008-09-11 21:03]


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Tatty  Identity Verified
Local time: 13:06
Spanish to English
+ ...
Forget about it Sep 11, 2008

As far as I am aware, yes this is an illegal practice, but I'm not an expert.

I wouldn't work with them again, and I wouldn't take any action of any kind.


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Lindsay Sabadosa  Identity Verified
United States
Local time: 07:06
Member (2004)
Italian to English
+ ...
I'd leave well enough alone Sep 11, 2008

You said a US-company contacted you so I'm assuming that meant you were contacted by the US-based offices. If the Spanish offices had contacted you, that would have been different. Or maybe not, maybe the company is set up so that all payments are issued from the US offices (I know of a few translation companies that are set up this way). The PM could have been on vacation in Madrid, on a business trip, visiting family... the point is, why should you care? The PM can be anywhere in the world for whatever reason but since you were dealing with the US offices, you should handle the situation as such (i.e. the company's tax residence is what's important; not the physical location of the PM at the time s/he contacted you). Besides, what are you going to denounce? "A US-based company with offices in both the US and Madrid contacted me and I was paid via PayPal (which isn't exactly in cash as you claim - there is definitely a paper trail) but now I'm worried they didn't pay taxes on the money earned..." You wouldn't have charged VAT to a US company anyway so if you feel guity, pay the taxes you owe in Spain and leave well enough alone. You really don't have any proof that this company is doing anything illegal and I'd be wary of making any claims against someone else unless you had some actual proof. It sounds to me like you are not working for a good client that pays on time for any good reason.

[Edited at 2008-09-12 01:13]


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Alexandra Goldburt
Local time: 04:06
English to Russian
+ ...
No, you should not. Sep 12, 2008

The principle of innocent until proven guilty is the bedrock of Western civilization. Sadly, this principle is being eroded in the United States (ever heard of Patriot Act?).

Now, imagine this scenario: you denounce the company. US Government starts the investigation. Even if the company is completely innocent of any wrongdoing, be sure that the investigation will cost it time, money and a lot of headache.

And what have they done to you do repay them in this manner? Paid you on time?

I would advise you to check the posts in "Money Matters" - dozens of stories about companies not paying translators on time, or not paying at all. I'm sure a lot of people would just love to have your problem!

Bottom line: do not denounce them. There is no good reason to do so.


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Marijke Singer  Identity Verified
United Kingdom
Local time: 12:06
Dutch to English
+ ...
Make an invoice for your records Sep 12, 2008

Using the US address (then you would not have to charge VAT, I think). This will ensure you are 'legal'. Just do not send the invoice to the company but keep it for your records.

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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 13:06
Member (2005)
English to Spanish
+ ...
Quite normal with US companies Sep 12, 2008

John Rawlins wrote:
How can a company with offices in Spain not pay Spanish VAT or income tax when contracting Spanish residents? Do they do the same in their German office?


We have this situation with several customers. Maybe we are talking about the same customer as the situation is so similar as ours.

It is perfectly possible and legal, as you get the order from the US-based firm. You don't get the order from the Spanish office, I fathom. The Spanish office is just an office they rent here, and does not necessarily mean that they have incorporated also in Spain. Employees are also employees of the American firm in Spain, not the employees of a local firm.

As for electronic invoices, all but one of our American customers have this form of electronic invoicing. They can use your electronic invoice as a valid accounting document (unlike what happens in Spain). So they are not breaking any rule at all.

Now, the problem might actually lie on your side. If I were you, I would make sure you issued a physical invoice to be included in your income statements to the Spanish tax authorities. That might be the only pending matter in this case you describe.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 13:06
Member (2005)
English to Spanish
+ ...
Nothing illegal in this situation Sep 12, 2008

Lindsay Sabadosa wrote:
You wouldn't have charged VAT to a US company anyway so if you feel guity, pay the taxes you owe in Spain and leave well enough alone. You really don't have any proof that this company is doing anything illegal...


Exactly. And I reckon nothing is illegal here as these companies DO need your invoice and present the electronic invoice as a valid document to the US tax authorities. If they did not present your invoice, they'd pay tons of unnecessary taxes, so they are presenting the invoice.

The only important point here is not to forget to issue an invoice on paper for the job to be presented to the Spanish tax authorities.

[Edited at 2008-09-12 09:06]


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John Rawlins  Identity Verified
Spain
Local time: 13:06
Spanish to English
+ ...
TOPIC STARTER
Thanks everybody .... but Sep 12, 2008

The consensus seems to be that this may be a legal practice.

I am obviously not a tax accountant, but I cannot understand how a company can establish itself with offices and employees in one European country but handle all invoicing through another non-European country.

If this is legal then why are any of us issuing invoices from Europe?

Surely, we would all choose to invoice via PayPal from a small online office in the outskirts of Timbuktu and so avoid all tax liabilities forever.



PS. I do not wish to seem anti-American. Presumably, this same company could be paying its American-based translators with invoices 'raised' in Europe, or Canada, or Timbuktu.

[Edited at 2008-09-12 09:39]


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Tatty  Identity Verified
Local time: 13:06
Spanish to English
+ ...
Can't quite get my head round the situation... Sep 12, 2008

I can't quite get my head round the situation. If you do work for an American agency you do not include VAT in the invoice. It could be that the people in Madrid simply act as the contact, so for all intents and purposes you are carrying out work for an Amercian agency. So there isn't anything irregular there.

However if I invoiced a company based in Madrid, I would invoice them in the usual way, VAT and withholding tax included.

I wouldn't think beyond that as that is where my obligations end.

I thought you had invoiced a Madrid-based company without including any VAT or withholding tax.


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Felipe Gútiez  Identity Verified
Germany
Local time: 13:06
German to Spanish
+ ...
What about Liechtenstein? Sep 12, 2008

If you have a company based in Switzerland or Liechtenstein, do the translators based outside Switzerland or Liechtenstein have to pay taxes in Switzerland?
Do you know a good site with info on this questions?


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 13:06
Member (2005)
English to Spanish
+ ...
Nothing illegal here John Sep 12, 2008

John Rawlins wrote:
I am obviously not a tax accountant, but I cannot understand how a company can establish itself with offices and employees in one European country but handle all invoicing through another non-European country.


As I said, it's as simple as this: you don't need to create a company in Spain in order to rent an office here or in order to employ Spanish people. Most big corporations create a Spanish subsidiary if their long-term plans allow it (the frequent XXX Ibérica, S.A.), but if your plans are just to create a vendor management center in Spain (or any other European country, for that matter), you don't really need to create a company here.

It all comes down to who requested the job from you: If your PO came from the US branch (i.e. the Spanish office only recruited you, but is not invoicing the end customer for the job; the US headquarters is)... there's nothing more to think about here John. Honest.


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Tomás Cano Binder, BA, CT  Identity Verified
Spain
Local time: 13:06
Member (2005)
English to Spanish
+ ...
Payment method does not change your obligations Sep 12, 2008

John Rawlins wrote:
Surely, we would all choose to invoice via PayPal from a small online office in the outskirts of Timbuktu and so avoid all tax liabilities forever.


John, I think you are confused about something here. Independently on how and when you are paid, you ALWAYS must issue an invoice on paper in Spain. Being paid via Paypal (or cash in hand, for that matter) does not mean that you don't have the obligation to issue your invoice as usual and state that income to the tax office as usual.


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