Legal question regarding fees for users in paid clubs and do

[marina_ls]

Hi there!

I'm setting up my community and I just saw that regarding paid clubs and downloads, when an user buys any of them, the total price arrives to admin's account and later creator of club or download must ask for a withdraw. I see two disadvantages with this system:

1. No automatic withdraws. You will have to be dealing with payments to creators. PayPal and Stripe offers an option to split the payment and send directly the fee for creator and fee for admin directly to each of their accounts. Before, creator has had to configure its PayPal/Stripe and link it from his control panel.

2. Under my country laws, like the invoice is being generated in full under my name (admin), under government eyes I'm getting much more money that the real. If the total is $10 from which I only would take $1, as I've received the full $10, my government will think I've made $10, not $1...

So, I would strongly suggest that in next version there is an option to can manage this directly, without manual withdrwas. For example, check this flow with the escrow system.

An user that wants to create a paid club or post a paid download must before link his Stripe/PayPal account so he can receive directly his payments, while the admin fee is send directly to admin. All works automatic and no legal questions, because admin only receive $1 and not $10, that is the real amount he will get.

As I need this, if there is some developer interested into build this to me, freel free to PM me.

 

Thanks

[SJ77]

Hi,

Marina, you won't have to worry because you will only need to pay taxes on PROFIT not income.

Stripe will send you a 1099K, from there you can deduct any expenses. The payouts to owners are expenses.

You can use https://invisioncommunity.com/files/file/8665-export-payouts-to-csv/  (thank you @Adriano Faria)

That will show you exactly how much you paid out during a given time frame. This helps a lot during tax season.

Hope that helps.

[marina_ls]

Thanks a lot SJ77.

Yes, I see that that plugin is helpful. However, I would still be interested into that owners and creators have their own paypal/stripe account linked and only then can directly receive the funds. I really believe it's a much better solution for both parties.

Furthermore, in Spain I'm not 100% sure that I won't have problems with this flow. Because the owner/creator is the one that has to ask manually for a withdraw. While he doesn't do that, the payouts remains in the admin account and someone could think that it never exit from there and that they are not expenses but income...

Thanks

[SJ77]

6 minutes ago, marina_ls said:

Thanks a lot SJ77.

Yes, I see that that plugin is helpful. However, I would still be interested into that owners and creators have their own paypal/stripe account linked and only then can directly receive the funds. I really believe it's a much better solution for both parties.

Furthermore, in Spain I'm not 100% sure that I won't have problems with this flow. Because the owner/creator is the one that has to ask manually for a withdraw. While he doesn't do that, the payouts remains in the admin account and someone could think that it never exit from there and that they are not expenses but income...

Thanks

Yes, that's called an accrual and there are accounting rules to deal with it in Spain. I am certain.  However, there are many ways to handle this. Force withdrawals, or simply pay the taxes on it. Then the following year it should balance out when it's finally deducted because it will look like you made less profit or even a loss.

However, a CPA will know how to handle an accrual if you go that route.

[marina_ls]

I see there is an option to use PayPal payouts, but if I enable that then withdraws are instant and payment is send directly to creator and I only receive in my account my fee?

Thanks

[SJ77]

Contributors will withdrawal and you will approve. The rest is handled automatically 

[marina_ls]

45 minutes ago, SJ77 said:

Contributors will withdrawal and you will approve. The rest is handled automatically 

One problem I’m thinking is that you can’t take those payouts as expenses because for that, you would need that each of the creators send you an official invoice with his VAT number/Tax ID, etc. Most of them are not going to be registered as companies or professionals, so they won’t be able to send you an invoice...

Here in Spain to can use that as expense you need an invoice. Not sure if the original invoice will be enough. There it’s shown that the site is only taking a fee and not the entire payment.

how do you handle that?

thanks

[SJ77]

The line item goes under misc 

Its not your money to begin with is the point. So it gets broken out into a write in item called “Digital content owners share/payout”

 To be fair I am not a CPA nor do I live in Spain. I’m just trying to help. I believe the aforementioned will work. 

Oh and yes, you have all invoices in your ACP if you get audited 

[opentype]

14 minutes ago, marina_ls said:

 you would need that each of the creators send you an official invoice with his VAT number/Tax ID,

Not necessarily. You can also give out credit—which is essentially a “reversed“ invoice.  This is standard practice for royalty and affiliate payments for example. 

I kind of doubt IPS will solve your general problem for you. You probably will have to weigh the pros and cons of doing this kind of business and see if it is worth it for you. And there is not just profit tax. Things are definitely much more complicated over here in Europe. If you take the money, then yes, it is treated as business income and taxes usually apply for both taking the money and passing (most of it on) to your partners. That also requires lots of documentation over here in Europe. And don’t get me started on the problem of tax for digital services for consumers being based on the country the consumer lives in. 

Taking in a certain amount of money might also mean you hit certain limits for taxation, which can have very serious consequences. I wish it were as simple as SJ77, where just the profit matters. But it’s not in the EU. 

[marina_ls]

22 minutes ago, opentype said:

Not necessarily. You can also give out credit—which is essentially a “reversed“ invoice.  This is standard practice for royalty and affiliate payments for example. 

I kind of doubt IPS will solve your general problem for you. You probably will have to weigh the pros and cons of doing this kind of business and see if it is worth it for you. And there is not just profit tax. Things are definitely much more complicated over here in Europe. If you take the money, then yes, it is treated as business income and taxes usually apply for both taking the money and passing (most of it on) to your partners. That also requires lots of documentation over here in Europe. And don’t get me started on the problem of tax for digital services for consumers being based on the country the consumer lives in. 

Taking in a certain amount of money might also mean you hit certain limits for taxation, which can have very serious consequences. I wish it were as simple as SJ77, where just the profit matters. But it’s not in the EU. 

For that I do believe the most safe and simple method would be to send directly money to the Stripe account of creators and receive only in admin Stripe account the fee. This is what does for example Dokan marketplace plugin for Wordpress/Woocommerce.

[bfarber]

What you are doing is akin to what Apple does with its app stores. They accept the payment and distribute it to the app developers as a middleman, and I'm certain Apple does not pay taxes on the entirety of the payments they accept, but which aren't theirs.

In short, I would suggest speaking with an accountant on your tax position just to be sure you set things up right from the start. I can't give you advice there I'm afraid.

As to the suggestion itself - split payments is not a bad idea, and is one we have interest in. I can't say when or if it will be included in a release at this time, however.

[SJ77]

I agree with bfarber.

It looks confusing on paper because you're getting money that actually isn't yours in the first place. Merely forwarding the payment on to the rightful owner should not be taxed. There must be some way to document and arrange this in the EU taxation system.

[opentype]

7 minutes ago, marina_ls said:

For that I do believe the most safe and simple method would be to send directly money to the Stripe account of creators and receive only in admin Stripe account the fee. 

Sure, I get what you are asking, but I would be cautious to call that save and simple. You just get other problems for split payments, e.g. how to handle reversals, or different payment providers, or fraudulent partners and whatnot. 

 

1 minute ago, SJ77 said:

Merely forwarding the payment on to the rightful owner should not be taxed. 

That is not what is happening legally. Sorry, it is just not true. 

[SJ77]

Taxes suck! (in every country) It's legalized theft

[opentype]

It’s not an opinion. If I make factual statements, I can demonstrate them to be true. Or I wouldn’t say it to begin with. You are throwing around the opinions. Feel free to point me to the law texts, which demonstrates this “should not be taxed” statement, which is by definition an opinion, not a legal assessment, since it merely contains the personal judgement of “should not”. Or show me the legal basis for this “merely passing on money” claim, which is also not true. You are right about profit taxes. It (usually) doesn’t matter there, since the net income is the relevant figure in this case. But there aren’t just taxes on profits. There can for example also be sales taxes between everyone involved, and they are based on the full transaction amount each time, because legally the client deals with the provider and the provider with the creator separately. Those are independent business transactions. The money is not just passed on to the “rightful owner” and the provider can’t just say “it doesn’t concern me, I’m just passing it on”. Legally, the provider takes the money as a full payment to them and has all the obligations and responsibilities that go with such a transaction, whether he passes on 90%, 10% or nothing later on. It’s still regular business income. 

[marina_ls]

@opentype @SJ77 Hello guys,

I've thought in an option that could make this a lot easier. Using plugin Members shop, I just could sell points packages to users and they later can spend them to join clubs, for example. At this way, I issue an invoice for selling a product (50 points package, for example), and later the club's admin will set how many points are necessary to join the club. When he ask me for the withdraw, I will send him the money. I'm just not sure how will be seen that withdraw and how I can take it as an expense for me.

But a lot of websites that have a credit system and reward users for make contests or whatever work at this way.

Ideas?

Thanks!

[SJ77]

That could be a good way to eliminate recurring charges. However, I would read the rules at stripe/paypal about selling points. Not sure what their position is on this. I know they are concerned about anything that could lead to charge backs.

[marina_ls]

1 hour ago, SJ77 said:

That could be a good way to eliminate recurring charges. However, I would read the rules at stripe/paypal about selling points. Not sure what their position is on this. I know they are concerned about anything that could lead to charge backs.

Hello,

But any buy can produce chargebacks. An user could buy the subscription to join a club with the default flow and later ask for a refund too, right?

Thanks

[SJ77]

yup!