Is there any EU regulation Re: Freelancer status?
Thread poster: Uldis Liepkalns

Uldis Liepkalns  Identity Verified
Latvia
Local time: 20:48
Member (2003)
English to Latvian
+ ...
Aug 2, 2005

I am interested if anybody knows any EU Regulation, saying that Freelancer is a Service Provider, not an Employee.
I know recently (year ago?) there was an outcry in the UK when the Government wanted to reclassify all Freelancers as employees, but is there any EU document clarifying the exact status of a Freelancers (those based in EU States other than Outsourcer?)

The problem is, I have constant fight with local IRS, who wants to count, say, Freelancer in Finland as my employee, while I insist he is a Service Provider, he sells to us his service/product (translation) and we buy it.

There is no such problem if a Freelancer is registered EU VAT payer, but if he isn't?

Uldis

[Edited at 2005-08-02 20:38]


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Charlie Bavington  Identity Verified
Local time: 18:48
French to English
To clarify the UK situation Aug 2, 2005

Uldis Liepkalns wrote:

I know recently (year ago?) there was an outcry in the UK when the Government wanted to reclassify all Freelancers as employees, but is there any EU document clarifying the exact status of a Freelancers (those based in EU States other than Outsourcer?)


The legislation in question was called "IR35".
In a nutshell, it said that any freelancer who earned ALL their income from one source could no longer be considered a freelancer, and would be considered an employee of that "source" instead.

The idea was to stop companies taking advantage of those working for them - not paying them for holidays, sick-leave, maternity, and so on - by obliging those people to work for them as freelancers, not employees. The companies also saved on employers' National Insurance (=social security, pension) contributions.

I worked in the IT industry at the time, and there were many IT contractors who had been working on renewed contracts for long periods for the same company who were affected, inadvertently, by this legislation. These people weren't really being taken advantage of at all - IT contracting is very lucrative

I wonder therefore if that is possibly the view being taken by other administrations in other countries?


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RobinB  Identity Verified
Germany
Local time: 19:48
German to English
No EU legislation (yet...) Aug 2, 2005

The issue of the status of what are known variously as "economically dependent self-employed" or "bogus self-employed", or even of what is termed (heaven help us) "parasubordinate employment" (that looks like a direct translation if ever I saw one) is not the subject of any EU legislation, and although some initiatives have started in this area, they do seem to have petered out.

See e.g.

http://europa.eu.int/comm/employment_social/labour_law/documentation_en.htm#6.

It is certainly an issue for the member states, however, and most EU countries have introduced legislation to clamp down on bogus self-employment. The parameters applied vary from country to country, but one of the general rules seems to be that if a self-employed person generates all or most of his or her income from a single "customer", they are deemed to be an employee of that "customer".

It's also an issue for legitimate translation companies, believe me. If you employ in-house translators, you have a pretty a substantial cost overhead to cover, plus there's all the employment legislation you have to consider. Competitors who use "in-house freelances" are illegally cutting costs and gaining an unfair competitive (cost) advantage.

There is no such problem if a Freelancer is registered EU VAT payer, but if he isn't?


Firstly, it's not normally a rule that simply having a VAT number offers exemption from bogus self-employment rules. After all, it's far cheaper for the customer to pay VAT than to pay social security contributions! But: if this gives your freelance exemption from bogus self-employment in Finland, why the hell doesn't he/she get a VAT number and save him/her and you a lot of hassle?

Roughly how much of this freelance's time is spent working for you and/or what percentage of his/her total revenue is attributable to working for you?


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Uldis Liepkalns  Identity Verified
Latvia
Local time: 20:48
Member (2003)
English to Latvian
+ ...
TOPIC STARTER
Yes, I see Aug 2, 2005

I include also answer here to RobinB.

Charlie Bavington wrote:
The idea was to stop companies taking advantage of those working for them - not paying them for holidays, sick-leave, maternity, and so on - by obliging those people to work for them as freelancers, not employees. The companies also saved on employers' National Insurance (=social security, pension) contributions.

I worked in the IT industry at the time, and there were many IT contractors who had been working on renewed contracts for long periods for the same company who were affected, inadvertently, by this legislation. These people weren't really being taken advantage of at all - IT contracting is very lucrative

I wonder therefore if that is possibly the view being taken by other administrations in other countries?


Yes, I see. But that's not the case here. We, as a normal Agency, contact many hundredZ of Freelancers yearly, maybe 1 to 5 jobs per person a year (or more, but in no case the Freelancer is working only for us). We issue PO (Purchase Orders)- we are buying, they are selling. (In our PO it is stipulated the Supplier himself is responsible for any taxes- so all taxes on supplier's side are included in our payment and there haven't been any complaints from Suppliers- after all, they know what they are subscribing to in advance). In all cases the Freelancers are registered in their countries as Self Employed.

But there have been recently several cases that out local tax authorities insisted that foreign based Self Employed should be considered as our employees- with all consequent taxes paid locally. OK, that would free them from taxes at home, so no great difference here for us- only- we receive all these disagreements from our Tax Authorities very late- months after we have paid our suppliers in full. OK, with loud screech these previous matters have been settled, but in order to avoid such happenings in future is why I'm asking for an advice.

As to VAT No- yes, some has it, some hasn't. I guess in every country there is some turnover (or income) threshold you have to overstep to qualify for VAT No.
E.g. I heard that in Lithuania it is about 2 times higher than in Latvia (EUR 14 300 here in Latvia- either in a year or if sooner- as you reach that turnover)- no problem for a Company, but so-so for a Freelancer.


Uldis



[Edited at 2005-08-02 23:08]


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Anjo Sterringa  Identity Verified
Spain
Local time: 19:48
Member (2003)
English to Dutch
+ ...
'proof' of being an independent contractor / double taxation Aug 3, 2005

I can only tell you about the situation in the Netherlands and in Spain. In Spain about everybody can be a freelancer/independent contractor - as long as you pay your social security payments and taxes. There is no threshold for obtaining a VAT number. A Spanish freelancer can show proof that he/she is paying income tax (IRPF) and VAT with a (stamped) copy of those two tax forms. In the Netherlands there was some concern about 'bogus' self-employment and the tax authorities demand that a freelancer has at least 3 Clients. They issue a 'certificate of being a freelancer' to indemnify the agencies that use their services.
Anyway, the general rule is that we all pay income tax over our world income in the country we live in. There are treaties that prevent double taxation (paying income tax) in more than one country. Social security however is paid in the country where the person works (as an employee). There must be treaties about Social Security somewhere that prevent double social security payments as well. This sounds as something you should work out with your tax authorities though, maybe with an association of translation agencies or companies that tend to subcontract work? It is of course totally illogical that a freelancer would have 10 employers in different countries, all paying social security. If your Finnish freelancer got ill, would he/she have to go to hospital in Latvia for one day, then on to the UK, then to Germany? Good luck!


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RobinB  Identity Verified
Germany
Local time: 19:48
German to English
VAT only part of the problem Aug 3, 2005

But there have been recently several cases that out local tax authorities insisted that foreign based Self Employed should be considered as our employees- with all consequent taxes paid locally. OK, that would free them from taxes at home


Not at all. The fact that you may be required to pay taxes for these freelances in Latvia is unlikely to cut much ice with the tax authorities in other EU countries.

But the big issue I see here is that your tax authorities in Latvia are trying to write new law, i.e. by claiming that anybody domiciled outside Latvia who provides services to a company in Latvia is automatically an employee of that company. I wonder how the Latvian government handles this, as presumably various government departments also source translations from outside the country?

But you seem to say that if the freelance is VAT-registered, your tax authorities aren't bothered. This seems to me to be confusing two entirely separate issues: VAT, which is regulated at EU level, and income tax/social security, which is purely a matter for the member states.

I really do think you're going to have to consult a tax lawyer on this issue. But you could start by asking the tax authorities to cite exactly which legislation they're applying to classify foreign-domiciled individuals as Latvian taxpayers. If they claim something like the EU "posting of workers" directive, tell them to get lost. My feeling is that you'll win this one, but you'll have to invest in a good tax lawyer and be prepared to go to court.


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Uldis Liepkalns  Identity Verified
Latvia
Local time: 20:48
Member (2003)
English to Latvian
+ ...
TOPIC STARTER
The main problem is Aug 5, 2005

that there are no law to this effect in Latvia and our tax clerks just cannot perceive the concept when service provider is an individual situated, say, in South Pole, and providing his services via Internet. As nothing like is envisaged in Latvian tax laws, so they go by assumption that if a person is a VAT payer, than he is a Company and can be considered as a Service Provider (0 % VAT applies), but if an individual is not a VAT payer, he's an employee.

That's why I'm asking if anybody knows some regulations to this respect- of course, our POs state that clearly, but POs written by us is not enough to convince State Tax Authorities.

Have you tried to argue with IRS? We do regularly, but only in regard of our accountancy, however, here it comes to interstate principles, no way for us to prove anything if the case isn't envisaged in State legislation at all and if we cannot point to some relevant EU legislation (which automatically is the Ruling Law if they contradict).

RobinB wrote:
But the big issue I see here is that your tax authorities in Latvia are trying to write new law, i.e. by claiming that anybody domiciled outside Latvia who provides services to a company in Latvia is automatically an employee of that company. I wonder how the Latvian government handles this, as presumably various government departments also source translations from outside the country?

But you seem to say that if the freelance is VAT-registered, your tax authorities aren't bothered. This seems to me to be confusing two entirely separate issues: VAT, which is regulated at EU level, and income tax/social security, which is purely a matter for the member states.

I really do think you're going to have to consult a tax lawyer on this issue. But you could start by asking the tax authorities to cite exactly which legislation they're applying to classify foreign-domiciled individuals as Latvian taxpayers. If they claim something like the EU "posting of workers" directive, tell them to get lost. My feeling is that you'll win this one, but you'll have to invest in a good tax lawyer and be prepared to go to court.


And there are no tax lawyer to consult- cases some individual provides his virtual services to Latvian Companies from abroad via Internet are still so few (or statistically non existent)that no one locally is able to advise anything.

Uldis


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Is there any EU regulation Re: Freelancer status?

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