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Krita Foundation in Trouble (krita.org)
529 points by gcp on Aug 1, 2017 | hide | past | web | favorite | 226 comments

Just a quick reminder, if everyone here donates just 3-5$, the expenses will be paid in no time :)

Krita is a great software, and even though I'm not an artist it's worth supporting.

Thanks for pointing that out. I usually don't donate but did so this time.

Is there a list of open source software that is going through similar hardships that need donations?

Pretty much all of them?

I'm not in any financial hardship at the moment, but I am looking to stop doing other work and focus more exclusively on WireGuard, so I put up a donation and patreon page:



You're right. Although i don't use it, i just spent a few euros :)

Same. I don't use it, but I've heard it's extremely high quality, open source software, which we could always use more of. So I've thrown a few euros their way.

I'd love to find out how much is raised via HN :) I donated a few euros as well.

That's a bit hard to figure out, since paypal doesn't track that. The total donated since the story came out is 3159.95 euros.

A few more now! :)

That's great! Thanks for the update, it's nice to see how things are developing. I hope you guys get out unscathed.

Gave 10 euros via paypal

How would I dontate? The site seems down atm.

It's very slow... The hackernews effect, I'm afraid. Internationally, paypal is easiest: just use foundation@krita.org.

Otherwise, for people in the EU, our bank account is ING, BIC: INGBNL2A, IBAN: NL72INGB0007216397 .

I don't even use Krita, but donated €15 anyway, just because I know what it's like to deal with the utter shitstains at the VAT department of the Dutch tax service.

As someone who recently paid 200€ in fines to another EU tax authority over 150€ in income, of which I was exempt, just for marking the wrong box, I can sympathize. Just made a small donation.

In the US, a wrong "box" cost me around over $3K last year. This shit happens, unfortunately.

I hope this (the "Hacker News effect") doesn't bump up your hosting costs as that's the last thing you'd need.

For what it's worth, I've donated. :)

EU bank transfers are free of charge.

SEPA transfers are usually free for personal accounts, be it sending or recieving, but business accounts usually charge a < 10 cent fee for recieving a transaction.

He meant server hosting costs.

This is not true for every bank in every EU country.

Yes, I believe the only requirement is that the cost can't exceed of a national transfer, which is unfortunately still not free everywhere in the EU.

I think you can also be charged if a currency conversion is involved (both directly and indirectly through poor exchange rates).

Euro denominated transactions within the SEPA zone (more than just the EU!) cannot be more expensive than domestic euro transactions. See https://nl.wikipedia.org/wiki/Single_Euro_Payments_Area .

But if your country doesn't use the Euro (i.e. the UK), domestic Euro transactions can be more expensive than domestic transactions in the home currency.

The same loophole is used in Bulgaria. Our largest bank charges 7 EUR for receiving 1 EUR, and 19 EUR for sending 1 EUR.

ING Bank charges about 7 cents per transaction on business accounts... it's free on personal accounts.

nope, only in comparison to domestic charges. In some countries like e.g. Cyprus you have to pay ~3 Euro for a SEPA transfer.

What about Project of the month on www.unixstickers.com/donations ? I can help

I sent you 50€. Hope it helps.

Thanks, direct bank is way easier for me than PayPal. Just donated!

Never heard of Krita before, but certainly looks like a high-quality, valuable project that tried to do things right. Donated!

Donated, good luck Krita team!


Donated 10 Euro.


You are not supporting the software but bad practices resulting in fines and fees. But there's hoping a lesson was learned. It would be a shame if something like this damaged the product.

Getting accounting correct in this kind of situation is just very hard, and sometimes people get it wrong even with due diligence and advice from trained professionals in the field.

Saying this is "supporting bad practices" when they are addressing the problems with their set up is IMHO disingenuous.

(This kind of problem also illustrates why Mozilla is set up the way it is, with a Foundation and a Corporation. Tax Law doesn't always deal well with doing both in the same org.)

Just to add to your point:

Mozilla is set up that way because they got in trouble with the IRS, and had a tax debt for - if memory serves me well - some years after setting up the corporation.

Taxes and accounting is not easy.

Boudewijn Rempt replied elsewhere in this thread with a little more details [1]. After reading this, I don't think the fines are based on bad practices by Krita, but rather on the over-complicated Dutch tax system.

[1] - https://news.ycombinator.com/item?id=14899324

Still better than supporting a new project from scratch that would take many years to reach the state of Krita. Despite this setback, they still deserve donations IMHO.

You say bad practices, but they got advice from a registered qualified professional in a complex area of tax law.

Yeah, I see, I didn't mean to say it was intentional.

If this were the case, wouldn't that person be liable then?

They would need to prove they suffered loss (and an actual error!). That's not clear in this situation. Not paying taxes you were due isn't extra costs due to your accountant, although fines and interests may be.

So it doesn't work like this?

A: Hey B, how do we have to set up our company/foundation so this doesn't blog up and we have to pay non-sensical taxes only because of the way we are set up?

B: Do it this way: ...


Z: A, you have to pay taxes because your setup is strange and makes no sense to our rules.

B: Damn, we're liable for the bad advice we gave...

(honest question)


Legally, the hired professional is an advisor. The board/management are collectively responsible for picking a good advisor and double-checking his/her recommendations.

Bottom line: no one takes responsibility for anything (unless they're on the board) and you are on the hook for everything.

This also applies to lawyers, property professionals, medical professionals, engineers, architects, and so on.

Of course this is outrageously unfair, but the reality is that winning compensation for incompetence and malpractice is incredibly hard and expensive - and most professional contracts include explicit disclaimers of responsibility in an attempt to make it even harder.

There's no reason why this is outrageously unfair. An external consultant is only held to an advisory standard because they are external - they are not party to the detailed nuances that management may have inadvertently or deliberately concealed.

It's outrageously unfair because when you hire an advisor you typically know so little about their domain of expertise you have no idea what questions to ask them.

So you have no effective oversight over the quality - or otherwise - of their work.

Of course you can hire another professional to double check the advice of the first professional, but that soon gets expensive, you're pretty much guaranteed some angry muttering, and you're still not guaranteed a reasonable outcome.

It's a remarkable fact that consumers have more rights when buying a toaster than when hiring an accountant or lawyer - and the toaster is going to be more reliable, and much less expensive to run.

Sounds like what they should have gotten was "audit insurance". IDK if such a thing exists, but if it does I'd think you could reduce your premiums if you can prove your risk is low (by providing documentation, or by getting sign-off by a 3rd party tax accountant).

Point is, I'd want to pay money to remove my liability, not just reduce its likelihood.

They say the money made by the developer is only due because of iffy status of the Foundation, and now the income is tax free. So it seems that the taxes due were because of the accountant advice on the structure of the Foundation - unless the sales started later, or the laws changed in between.

That's a fair point. Still won't be easy to actually come out on top when litigating, though.

I'd like to drop a note on how much I appreciate Krita. I'm not an artist by any mean, I'm a programmer and while I think I write/draw/sketch a lot on paper. A few months ago I switched from paper to digital hand-writing and bought an old Wacom Intuos drawing tablet. I'm on Linux and Krita works great with a stylus; very comfortable and intuitive, I haven't looked back.

I only tried a drawing tablet once for a few days (also with Krita), but I too was very surprised by how easy it is to setup everything. Basically just install the package with the Wacom driver (xf86-input-wacom on Arch Linux), restart the X server and you're good to go.

Tried exactly same setup yesterday and was surprised how it just works.

same attitude but im still missing that Wacom, thx for info about linux

Huion are good as well, and very cheap.

There are some problems with Huion, but they really try to work with us and we with them -- the latest drivers even fixed the rocker-switch click bug :-)

Huion tablets are way cheaper than Wacom of course ;-)

> The Foundation was created to be able to have Dmitry work full-time on Krita. Because we sell stuff, the tax inspector has determined that we’re a company, and should have paid VAT in the Netherlands over the work Dmitry has been doing in Russia. Even though there is no VAT in Russia on the kind of work Dmitry is doing.

As someone who has dealt with VAT in the EU a bit this sounds really odd to me. Even if the inspector determines that VAT needs to be charged on these services, shouldn't it be Dmitry who is paying them, not the foundation?

In other words, they should be coming after the person providing the services for the VAT that he neglected to charge, not after the foundation who just paid the invoices they were given.

This is an understandable assumption, but it's actually not the way it works. I'm sure the Dutch tax authorities have equivalent documentation, but the UK description of the 'reverse charge' should explain the basic principle https://www.gov.uk/guidance/vat-imports-acquisitions-and-pur...

Link to the Dutch Tax Authority:

- [1] Reverse-charging VAT (English)

- [2] Calculating VAT for services to and from non-EU-countries (Dutch)

[1] https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/...

[2] https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...

Oh, I see! That makes sense then.

> Even if the inspector determines that VAT needs to be charged on these services, shouldn't it be Dmitry who is paying them, not the foundation?

From the look of it, Dmitry is outside the EU, making the foundation the importer and thus responsible for the VAT.

I never heard of this. Is that actually a rule in the Netherlands? I don't think/hope it is in the UK at least.

This is a rule everywhere, in every nation with any serious tax system - otherwise it is a big loop hole for everyone and no taxes at all would be collected.

Example: a dutch company sells a product to dutch consumers. They have to pay VAT. However what if they setup a company in another country that first buys the products for 0.001 cents and then sells the products back for full price to the consumer.

Most, if not all, countries do not apply VAT on exports.

In the end it doesnt matter where it was produced. Its taxed based on where it was consumed.

When an economic union such as the EU refer to an internal market they mean stuff like this. But as a result all VAT in the EU are now almost identical (or else your own producers would be tempted to move the profit to another EU country)

Cross-border VAT is the foundation of something called carousel fraud.


The EU changed its cross-border VAT rules a couple of years ago, and they're now insanely complicated and probably unenforceable.

But unfortunately if a company/charity is domiciled in the EU then EU laws apply, even if the person with a controlling interest is domiciled elsewhere.

> a dutch company sells a product to dutch consumers. They have to pay VAT.

Just a clarification: the consumer pays the tax. The company collects the tax and transfers it to the state (deducting the taxes they paid in their activity, so what they actually give to the taxman is a "value added" tax).

The EU VAT system was overhauled very recently (VAT rate of buyer, not seller) exactly because many businesses were "moving" to low VAT countries like Luxembourg.

So dumb.

Dumb from whom?

It makes a lot of sense, unfortunately it's more of a hassle which hurts small businesses relatively more.

This is EU wide so it would apply to the UK, for now.

Note that the rules for intra-EU B2B transfers may be different (deferred VAT).

No, you must pay VAT at the point of import if your supplier is outside the EU.

Not doing so would allow unfair competition from suppliers outside the EU. Note that for goods, these are import tariffs.

I would like to leanr from the article, but it is low on facts (I may have overlooked them while reading).

What is the relationship between Krita Foundation (Krita) and Dmitry?

Is Dmitry an employee to Krita living in Russia? How can there be any VAT involved?

Is Dmitry a freelancer who sends invoices to Krita? Do those invoices include VAT? If they do, why does Krita need to pay VAT to Dutch authorities? Does he have a VatID on the invoice?

Do they just send money to Dmitry?

Dmitry is a freelancer who lives in Moscow, not an employee. For the kind of work Dmitry does, there is no VAT appliccable in Russia. If the Krita Foundation had been Russian, no VAT would have been applicable. There is no VAT ID on his invoices, but he does send invoices. He also keeps ownership over his work, and the Foundation doesn't tell him what to work on...

But since the Krita Foundation is in the Netherlands, the tax authorities feel that the VAT is transfered to the Foundation. Like I said below... If 100% of our income had been from donations, no VAT would have been transfered. If 100% had been from sales, it would have been transfered, and then we would have claimed it back. Since it's a mixed bag, 100% is transfered, and we could only claim 15% or so back.

I still don't understand the logic behind that, though...

They think you should pay VAT on imported services? That sounds very fishy to me. I've never heard of such a thing (and I have been exporting into the EU for many years).

Are you selling to consumers or companies? If companies: they need to pay taxes: not your legal risks but you be wise to warn them. If consumers they need to declare it or the service or good can be confiscated.

None of this is fishy.. it works like this between all Western nations and all other modern economies. And if you find a country that is an exception that that would be a huge bussiness opportunity for every one just moving profits that way.

There was actually a way to do this. Cheat your way out of VAT. But its a complicated trick only companies like Apple and IKEA use and that trick is under full attack by both the US and EU government.

Really? I always need to charge/pay VAT on services. The only exception is if both are VAT-registered businesses in the EU (but in different member states), in which case you can charge 0% VAT.

We're talking about things imported to the EU from outside the EU. Do you really pay VAT in europe on services you buy in the US? Or in Asia?


You have to declare this. You don't physically pay of course, it's just taken into account for the VAT balance.

The problem (at leas in Japan) is the other way around. If I export an service from Japan to another country, I have to pay the Japanese equivalent of VAT. The importer does not generally have to pay (but I guess it depends on the place) because it has already been paid.

The problem for the Krita foundation was that their employee (who was outside of the EU) was doing consulting work through Krita. It didn't matter that he resided outside of the EU, because he was working as an employee. I presume if he were an arms-length contractor, he could have invoiced the work personally (and that's how they really should have set it up -- I assume he was trying to avoid Russian tax by invoicing through Krita, but I'm speculating).

So it was an EU service done in the EU (even though the employee was physically outside of the EU). VAT has to be paid for that. What I don't quite understand (and what seems to also mystify the Krita people) is why they have to also pay VAT on their donations. That's a pretty crazy law.

I think you got it completely wrong. He was not an employee. He was providing a service to the foundation and sending them an invoice. I guess that if he had been in the EU instead of Russia, they would have noticed earlier that they were required to pay also the VAT. As he was in Russia, they had to account for the VAT owed to the tax authorities for this imported service themselves but they didn't.

Oh I see. Because the VAT was never paid in Russia. That makes sense (in the twisted way that VAT makes sense). Thanks for clearing that up!

Yes... It's no wonder that my first accountant never realized that this could be possible.

Seems if you click enough, the tax site does mention it in some obscure tool. I always thought it only applied to goods.

For the dutch: https://www.belastingdienst.nl/rekenhulpen/diensten_in_en_ui...

Honestly, your accountant sucked. All the rules are about making sure value produced is taxed exactly once. No more no less. If you find a loophole out of that, you better triple check that, because it is definitely not the spirit these tax laws are written in.

Not to blame you - i too would trust a professional. Also, in Holland, accountancy is a protected profession. You can report them, because at the end of the day he/she took a risk that you would likely personally not have taken if you were aware of it.

You should, in most places of the world that have VAT. E.g. you pay VAT on inbound courier services like UPS, FedEx, atop of the duty on the goods they carry. (but not on outbound ones).

What do you mean? You pay VAT on imported goods. Not on imported services.

You pay VAT on imported services. If you don't and you aren't a resident of an exempt territory, you breach the law.


see the 'services' tab.

"If you receive services for the purposes of your business from a supplier based outside the EU, you must generally pay VAT at the rate that applies in your country, as if you had supplied the service yourself "

If that distinction would exist (it doesn't) it would be another huge loophole.

Ill sell you a car for 1 cent if you also take the car care service where we email you a magazine for 60k. Tax avoided.

And companies within the country that would have to pay tax couldnt compete with that. So soon everybody in the country would be unemployed.

Europe wants you to pay VAT on "electronically supplied services online" even if the seller is outside the EU. That might not apply in Dmitry's specific case (as a human and not a robot), but it's certainly not restricted to just goods:


(EDIT: Ahh, varjag beat me to a similar point while I was typing!)

You might pay a customs duty on imported goods, but you don't pay VAT.



> You pay VAT on goods sent from non-European Union (EU) countries and EU special territories (eg the Canary Islands) if they’re:

> gifts worth more than £39

> other goods worth more than £15

> alcohol, tobacco products and fragrances (eg perfume, eau de toilette and cologne) of any value

Customs duty is different.

> You’ll be charged Customs Duty on gifts and other goods sent from outside the EU if they’re above a certain value.

> The value includes:

> the price paid for the goods

> postage, packaging and insurance

   Type and value of good   Customs Duty
   Anything under £135      No charge
   Gifts worth £135-£630    2.5%, but rates are lower for some goods - call the helpline
   Gifts above £630 and other goods above £135	The rate depends on the type of goods and where they came from - call the helpline

It depends. Goods from inside the EU: you'll pay VAT (and recover it). Goods outside EU: you pay import duty (which might include VAT - but you don't actually pay that VAT as a company, because it's VAT)

If this wouldn't apply to services, it would give non-EU suppliers an unfair advantage.

You need to pay VAT on imported goods into the EU.

In Germany it is called "Einfuhrumsatzsteuer".

Hey, kudos on great product! You really should create donation page for new features once a year or something like that, because Krita has value.

Also, ignore critique, most of them never dealt with bureaucracy in EU and native countries. Such a mess.

Just curious, if Russia has no vat for that service, Dmitry is based in Russia and the sole purpose of the foundation is to support him, why was the foundation set up in the Netherlands and not in russia?

From the article it sounds the Foundation is run by other (Dutch) people working on Krita who may or may not be paid from it as well.

Yes... I'm Dutch, so that's where I created the foundation. Originally, we wanted to work through the German KDE e.V., but they couldn't support development work financially.


It looks if you're importing services into the EU you need to pay VAT on those services (just like importing goods) - which Krita didn't.

If you do not have other VAT from sales, you will get the money back, which essentially means you do not have to pay that VAT - "would not have to pay VAT" from the article (but declare it).

If you have VAT from buying and selling items, the VAT you've paid for services is deducted from the difference of selling and buying.


Btw, a business model: let artists pay to enter their names in a directory of artists for hire. They can charge clients extra (eg fee) to pay for these ads. True, it would be ideal to include reviews etc but links to their portfolio are often good enough, and it further highlights the power of krita... If interested, contact me via my HN profile - I've done this before successfully, both for startups and at scale, and I don't need your money. :-)

That's really sad to hear. With how complex laws are, it's scary that going to a professional may not be sufficient.

But when you're totally unfamiliar with what the requirements are what can you do?

Do large law/accountancy firms give a guarantee for their advice in the case that it was incorrect?

No, they can be slippery as all hell. Ask a question by e-mail, expect a definitive yes/no answer, instead receive a phone call that's instantly claimed to be "off the record", and receive a parable about a nameless other customer who had this one situation this one time.

Chances are the accountancy firm had never set up a charity before and has misunderstood the constraints, and chances are also high that they won't be liable for the problem caused without some long drawn out struggle.

True, but it is worse than that. If you call the tax office and ask them direct questions about doing business abroad then even they still give you an answer with a disclaimer that it might not be correct.

My flatmate is an international sales tax expert. I helped her debug hairy tax problems a couple times - not that I have any expert knowledge of tax laws, I was mostly rubber-ducking her - it sounds like an absolute clusterfuck.

Like other domains of law it's not always clear cut, it wasn't like, yeah Alice Inc. owes exactly X% taxes because of law A, it was like, we can argue that Alice Inc. owes X% based on laws A and B, C, but the tax authority could argue they owe Y% based on an argument that actually, laws B, D, and E apply to their case, which we would counter-argue with, etc., etc., etc.

So I'm not surprised the tax office wouldn't give straight answers; even they may not know how a court would rule depending on the specifics of the case.

One of the first things I'll do in the future when creating a company is establishing a good relationship with a reputable business lawyer and accounting firm. It's literally one of the first things I'd put money towards. Sounds like their accountant might not have been entirely on the up-and-up.

As soon as I get my paycheck I'm totally donating a little. I've used Krita and enjoyed it as an alternative to when I do not have access to Photoshop. Now if only ZBrush had a top-tier alternative that would be something.

You can only ever sue a law/accounting firm for the total cost of services rendered to you in that year or whatever. Depends on the client agreement.

Even then it's always a grey area where it's advice that may or may not be what you should do and it depends on your decision, blah blah blah.

"Do large law/accountancy firms give a guarantee for their advice in the case that it was incorrect?"

Do you give a guarantee on your code, including damages?

The company I work for does, that's why we have insurance.

Say what you will but this is simply fraud. If they were selling stuff, they should've collected and paid the VAT for Dmitry. You are NOT a non-profit if you sell stuff.

There is absolutely no complexity about this. Didn't they see anything wrong with selling stuff without collecting the VAT from every transaction?

And the best part: they are now separating the sales from the foundation so they can avoid paying taxes. This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita! Then let's allow it!!!

Well, actually there is complexity. We did pay the VAT over everything we sold, of course. That was simple.

What we didn't do was pay VAT in the Netherlands over the money we sent Dmitry for his work in Russia. If the Foundation had been a company, we would have had to pay that VAT in the Netherlands, but would have claimed it back -- net result, 0. If the foundation had never sold anything, so not been company-like, there wouldn't have been VAT due. Because it was a mix, the tax people wanted the full VAT paid, which could not have been reclaimed. In short: you're enough like a company that the VAT gets transfered, not enough like a company that you can claim it back. Even the accountants found that complex and disputable...

Also, I would try going to the local tax office. Maybe yours is a friendly one (I've been to both types) and you can get to speak with a your tax area local management. They might have enough knowledge and administrative power and help you out. Human to human protocol. Been there, done that, got a t-shirt.

Maybe you should read the original article first. Just saying. They spent months, got a lawyer involved, and got the fine reduced, a bit.

> Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."


>Say what you will but this is simply fraud. If they were selling stuff, they should've collected and paid the VAT for Dmitry. You are NOT a non-profit if you sell stuff.

Non-profits sell stuff all the time, and whether you are exempt from VAT or not for that depends on the jurisdiction and even within a single country can have several subtleties.

>There is absolutely no complexity about this.

Oh yes, there is. Here's how an expert puts it: "Sadly not. Charity VAT is one of the more complicated areas of VAT, which is a great shame given that many charities are operated by unpaid volunteers who have to administer the complex rules." [1]

>Didn't they see anything wrong with selling stuff without collecting the VAT from every transaction?

Why would they? It's not like they pocketed anything -- the VAT that was not collected was not imposed into the salary in the first place. Besides, they are volunteers running a non-profit, and had asked a consultancy, not seasoned merchants.

>And the best part: they are now separating the sales from the foundation so they can avoid paying taxes. This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita! Then let's allow it!!!

Because a small open source foundation giving its product for free and largely based on volunteer work (with the occasional donation funding only part of what needs to be done) that has stumped upon a tax issue due to inexperience is the same as a global behemoth looking to avoid taxes.

[1] https://www.theguardian.com/society/2009/dec/15/charities-ta...

> Oh yes, there is. Here's how an expert puts it: "Sadly not. Charity VAT is one of the more complicated areas of VAT, which is a great shame given that many charities are operated by unpaid volunteers who have to administer the complex rules." [1]

And then add the complexity of an international situtation...

Involving a party outside the EU. I bet the latter is what really threw your first accountant off: nonprofit + suppliers outside EU. Most accountants never have to deal with something like this in their entire career.

It's not that uncommon; I'm a member of a tiny cultural non-profit association, and we buy stuff (mostly props and other materials) from China regularly.

That said, I do strongly advise finding an accountant that specializes in non-profits. Ours works with a lot of cultural associations, so he knows that law inside out.

What defines a non-profit is that none of the income it generates should go to members, directors, or officers; and not that it can't sell stuff. [0] Most if not all non-profits I know sell stuff to pay the bills.

[0]: https://www.law.cornell.edu/wex/non-profit_organizations

Pedantic, but income can and does go to employees through salary. Profit is not split among share holders and must be reinvested or saved.

That's for US law, unrelated to this case.

This is the kind of stuff HN abhors... ooops it's not Amazon, it's Krita!

Amazon want to skip taxes with the intent of making more money for themselves.

Krita want to skip taxes with the intent of making free software for strangers.

Seems like there's a moral difference there (as well as, of course, the actual legal difference).

Krita wants to skip taxes that for either a company or a non-profit would be skipped, but since they are both they fall into a weird zone where they cannot.

I thought fraud involves intent to deceive. Seems like they made a mistake, and they aren't trying to avoid the bill.

In some case (see "abus de bien sociaux" in belgian law), tt's the other way around : if you make a mistake in your management of taxes, then the state considers that it was with the intention to deceive (because you are meant to 1/ know the law 2/ apply it). It's not the state who needs to prove your intention to deceive, but it's you who has to prove that there were no intention.

Splitting a company in two so you can avoid paying taxes is not an attempt to deceive? Is it horrible when Apple uses Ireland to avoid taxes, but OK if KDE does it?

It seems you didn't actually read (or understand) the post: The problem is that - until now - they DIDN'T split it in two, so currently the tax authorities say "you are some kind of mix between company and non-profit, we do whatever we want with you" (obviously simplified, read the post!). But at least they gave them a suggestion for the FUTURE: Split up, you will have no more problems.

So, there is no intention to deceive, just a simple misunderstanding which leads to very grave problems (as usual when taxes are involved and you are small).

That's exactly what I'm saying. They have busted them cold so they're going to be more careful about their fraud in the future by splitting the company in half.

Do you even understand what VAT is and how it works?

They are and were collecting VAT on their sales. This part is unavoidable regardless.

For the stuff they buy, they're not avoiding VAT. There's no point in avoiding VAT because it doesn't cost a business anything. YOU GET IT BACK FROM THE STATE. The whole point of VAT is that it is a zero-sum game for businesses. But due to their old structure, they're in a situation where they have to pay but can't get back. That's not how VAT is supposed to work.

Of course I know what VAT is. I am a freelancer based in Europe. And I know if I'm paying SOMEONE for his services I also have to pay VAT, regardless of whether I'll get it back later or not. Why? Because I have to prove that VAT was spent in something related to my business (I can't have the VAT from my food returned, for example). It does not only apply to goods, it also applies to services.

What you say is (or used to be) false for deferred VAT transactions, but anyway.

If you understand the nuance, why are you saying they're dodging taxes? The VAT on the freelancer is related to their business, so it is intended to be recoverable.

Do you think it is acceptable to not pay VAT just because you know you'll get the money back? It is not legal, at least. Who are you to judge that? The government must know, because they are the ones to judge.

That's what VAT deferred transactions are...I'm giving up on your dear sir.

You are a freelancer, not a nonprofit, right?

That 'fraud' has been advised by the tax authorities themselves. That would probably be a world-first that the tax authorities that just 'busted' you recommend how to not be busted in the future.

That's not the same thing at all. The one is a non-profit that had some additional commercial activity to finance it. The other is a multi-billion dollar company that avoids paying any taxes at all, as much as possible, to avoid doing their part for the economies and societies they profit from.

The one is using the law, the other is misusing loopholes.

The tax authorities in the UK (at least) would prefer that charities set up trading subsidiaries for commercial activities. Although there are rules for handling trading through charitable books, everything is much cleaner if the two entities are taxed separately and the profits of the commercial activities paid on from the subsidiary to the charitable parent.

So it seems very unlikely that it's an attempt to deceive. If Dmitri isn't involved in the merchandising, it seems that this structure reflects the proper intention of the tax system.

Well, that's what the tax inspector suggested we do...

mrkrabo is not being fair or reasonable. Please don't let their comments add to your stress. You've helped build something fantastic. This situation will be over soon enough. Good luck and thank you for your efforts.

I think there's a clear distinction between what Krita is doing, where the products sold are largely independent of work on developing software, and Apple, where the second company solely dealt with money and didn't perform work independently.

Well combining the for profit sales and accepting donations was a mistake. but to correct that mistake they are now setting up two entities, one for doing business and one for non-profit things. they are not deceiving anyone, if they do business they will do it with the entity which is intended to do business. They are not routing the profit to the non-profit organisation nor they are backing off in paying the taxes.

It's not an attempt to deceive. It's an attempt to navigate a complex tax system. I personally have no problem with any company avoiding tax where they can. I do have a problem with governments opening up huge tax loop holes for companies to use. Of course companies will do all they can to avoid tax. It's up to governments to build fair and robust tax frameworks.

This is a group of passionate people developing a great product and giving it away. I'm not sure any law maker would want to target these guys for tax revenue. I'm not sure the auditors actions represent the spirit of the law.

> Splitting a company in two [..]

Splitting an organization in two so the non-profit part can enjoy the benefits the law intends to bestow upon a non-profit is exactly what the government wants you to do.

Separate rules for separate kinds of organizations are a lot easier to make than rules for combined organizations. The latter invites loopholes, but to prevent them the government tends to err on the side of 'anti-loopholes' such as the one the Krita Foundation fell into.

This is not even what the government intends, just an unfortunate side effect.

This is using the tax system as it's meant to be used. This isn't doing anything weird to aggressively avoid tax.

Splitting a company in two so that they can precisely pay VAT taxes on things that VAT is supposed to apply to, no more tax, no less tax.

That is definitely not an attempt to deceive.

You call yourself a 'good person' in your bio, but you show little evidence of that. A good person would be charitable and assume good faith.

Boudewijn Rempt is a good person.

Not true, see e.g. Museumkaart, which is a non-profit foundation created by the Dutch museums that sells cards for accessing them for a flat fee.


For a perhaps more well-known example, see the Raspberry Pi Foundation. They sell, obviously, Raspberry Pis - a lot of them. They are a charitable organization, which is a type of NPO.


Yes, but that's in the UK, I was giving an example of a Dutch non-profit.

> You are NOT a non-profit if you sell stuff.

That's not true in the for example the UK, where there are a couple of corporate structures that allow you to trade as a non-profit.

And there are rules about registering for VAT: https://www.gov.uk/vat-charities/registration


VAT is complex, and it seems the advice they got wasn't robust.

"Note: in the interests of full transparency, you can find our end-of-year reports for 2013, 2014, 2015 and 2016 here." https://docs.google.com/spreadsheets/d/1SXm7DQAGfw4Qr1VrXln6...

Lazy post. Also a Non-Profit Foundation and Amazon are two totally different beast. So your saying the Red Cross and Amazon should have the same practices?

> You are NOT a non-profit if you sell stuff.

Depends on the legal system. From what I remember (once worked in a foundation myself) the general approach in EU is that donations are "tax-free" but if you "sell" anything, you should calc profit/loss and pay a corporate tax.

Paying for Dmitry is a statutory expense, so don't understand why that would raise an eyebrow.

Because of how VAT works (which in turn is different for companies and nonprofits).

Can I buy something rather than donate ? Its hard for me to donate using my company account - but very easy to buy stuff. It doesnt matter even if its a license to email you 10 times a year.

Sure: we have a shop full of stuff: https://krita.org/en/support-us/shop/ (though the website is still being hammered...)

Will you release any of the Made with Krita books as eBooks/PDFs in the near future?

I don't think I'd be open to forking over 12 EUR for shipping. I'd gladly pay 8 EUR for an eBook edition though.

That's a good point... We totally underestimated the shipping costs, and as a result, we've got boxes and boxes of the things around! I'll try to add it to gumroad today.

Done, it's in the shop now. Three pdf's: cover and content suitable for printing, and content suitable for viewing on a tablet are in the package.

If only you sold a KiKi plushie or print... (so cute)

We looked into creating plushies, but unless you order them in lots of 1000, they are incredibly expensive to make. And since plushies are bulky, also very expensive to ship!

Maybe get a volunteer to make a really limited run by hand, Etsy-style?

(incoming joke about how Etsy is mostly AliExpress now...)

Does the money from the shop go to foundation or just to the creator of the content?

I hear this all the time with Octave too.

What exactly constitutes a purchase? How can we help you fool your company into thinking that you're buying something?

You're not fooling anyone. You're assisting your user in navigating organizational complexity required to pay a preferred software vendor.

At my previous companies, the only thing I would need to purchase software was an invoice/receipt I could point to to show that I had purchased a software license. The contents of that license don't matter, and in fact, I even told a few projects "Please invoice me for a commercial license of your software. If you don't have a commercial license, I will accept your existing [e.g. MIT] license as a commercial license. If you do not have a price list already, I will accept a quote of $1,000 without any further negotiation required; just send me an invoice for it."

I think that software developers are really weirded out that the same bits can be free-as-in-beer and _also_ cost $1,000. [+] But _software buyers want to purchase outcomes, not bits_. The outcome I want to buy is "$PROJECT continues to exist in the world." I have sufficient internal authority to purchase this outcome, as does the other commentator on this thread -- we've announced that fact loudly, as does anyone else who either requests a quote or actually pays you. I have sufficient legal authority to purchase that outcome as an officer of the company I was employed at, which enjoys an incredible amount of discretion in how it chooses to spend its own money in the pursuit of its legitimate business objectives, and which has chosen to invest that discretion in me. Reasonable third parties might disagree with our expensing policies (or think they shouldn't have hired me), but reasonable third parties don't get a vote.

[ + ] I sold trial-based software, and a fair bit of it, for many years. The difference between a trial version and a registered version was... nothing at all, if you just compared the binary artifact. The sole thing that distinguished the two was that, if you proved to the software's satisfaction that you were a paying customer, it would act like it was registered (displaying that fact and removing the trial limitations). This was, literally, a single if statement.

Could I have sold software on that same model without the trial limitation at all? Clearly yes; registration would then only cause the software to display you were a registered user. Could I have sold software on that same model with the only display that you were a registered user being outside the software? Yes. How about if that were _only displayed on the purchase confirmation email itself_? Absolutely freaking fine.

None of this gets harder or legally murkier with OSS in the picture.

But I don't want to actually sell anything. I just want your money. You can get the software, working or not, with or without the money. You are telling me that in order to get your money I have to sell essentially nothing.

It's a stupid dance for a donation while we're telling the people paying that it's not really a donation. We have to fool them and pretend like it's a business transaction.

I wish we could just be honest and lose the stigma around donations.

Your code, coming from an organization that is sufficiently funded and therefore more likely to be maintain it in the future, is significantly more valuable than the identical code coming from a less funded organization with murkier future prospects. "Maintenance security", "peace of mind", "de-risking adoption for users", "ongoing delivery of feature development", or however you want to phrase it, is a product that you could choose to sell. patio11 is just telling you the language that businesses and their accountants speak - documentable expenses = YES, donations = NO.

It has nothing to do with stigma and everything to do with tax code and accounting regulations.

It's so easy for organisations like Octave to sell stuff to companies that it blows my mind why you don't.

Octave Pro would simply be a support license to email you 10 times a year. Or the right to create 10 bugs per year on a bug tracker.

So easy to get past accounting. A plushie would be hard.

It's not easy. Or if it is, would you do it for us? There's really no "us", it's just a bunch of people together on the internet. Except for write access to our website, you're as qualified and authorised to do the legwork as I am. Even receiving donations is complicated, which is why we're grateful that the FSF does it for us.

I've also heard mixed reports about whether this would help with a revenue stream or not. I remember hearing organisations that set up this fake-purchase process but didn't really get that much more money than just plain donations.

Why dont you write in to https://stripe.com/atlas . It is run by @patio11 - the resident god of running self-sustaining software companies. I dont know of anyone better to either help you or advise you.

We all want you to succeed. Trust me - it may feel we are condescending, but it comes from a desperation to not see great open source software die. So please excuse my language if it offended you.

I'd always be happy chatting with an OSS project about monetization options -- email me any time, work-related or otherwise. I should also write about it a bit; thanks for reminding me to do so.

Minor corrections:

a) Atlas is built by a team of smart people.

b) Although I appreciate the praise, I am just an entrepreneur. There are many on HN and elsewhere who do that better than me. I get mildly frustrated by how we sacralize the mechanics of business, because this is one of the reasons why smart people who know what compilers are come to believe that a sales tax filing is an impossibly high barrier.

I firmly believe that anyone capable of writing a meaningful software product can run a company. We're trying to make this radically less daunting than it is right now; if particular problems about running a company (OSS or otherwise) worry you, we'd love to hear what they are and brainstorm how we could possibly help.


How RStudio do it.

They provide 'priority support' by email in return for an annual license fee. They also do something about the AGPL license that they use with RStudio source code.

Not sure if this helps any and it might be worth finding out what kind of legal entity is involved &c

Could you start a partnership to sell t-shirt with your logo or even simple stickers. Something that could be tracked.

And your company will be okay with buying, say, a 500 USD sticker?

Yes. This is what people don't understand. I call it "gratitude-ware".

You give me an invoice, and I will pay you 500$ for a pixel on a page.

That's all you need? An invoice? I don't need to form a company or send you tax forms? I can make an invoice rather easily in LaTeX.

So, can I do that? Add a note under the donation page that says, "if you need an invoice for your donation, email us here"?

I am not an accountant. This is not tax advice. However, I do international consulting and have to deal with this kind of stuff all the time. Basically, for him, he needs an invoice. It should describe what he's getting and how much it costs. Then it's up to him to convince his company to pay the invoice. Whether or not they can claim it is an expense is probably important to the company, so something like a support contract is much more useful than a sticker (I really, can't imagine how to declare a sticker from a non-partner as an expense...)

From your point of view, you have sent and invoice and received funds. You need to pay taxes on those funds. How you do that depends a lot on your tax laws. Where I am (Japan), you can be self employed, in which case it is treated just like extra income (Japan doesn't have multiple categories of income, which is super awesome for getting rid of tax evasion). You can also set up various kinds of companies. These companies can shield you from certain kinds of taxes, but accounting becomes much more difficult. Usually it does not pay to set up a company in order to receive $500.

Depending on where you live, you might also be liable for VAT (or the equivalent). Exported goods are usually exempt, but exported services often aren't! Be careful! The reason for this is that value added taxes are usually only taxed once. So if you have a physical good that you are exporting, you have already paid the VAT on the things that made that physical good. Since a service is not made up of physical things, then you are liable for tax on the whole thing.

As is relevant to the original article, where you pay the tax is dependent upon where the company is base, or where the work is done. It gets really complicated from there, but basically if you are providing a service remotely (and not needing a work visa to provide the service), then you are performing the work in your country (even if you are working over the internet) -- or at least that's what my accountant has decided.

TL;DR: giving him an invoice (especially for a service) will make it easy for him to pay you, but will make things complicated for your taxes. It only makes sense if you think you will make a lot of money.

> Whether or not they can claim it is an expense is probably important to the company, so something like a support contract is much more useful than a sticker (I really, can't imagine how to declare a sticker from a non-partner as an expense...)

+100 - absolutely bang on target.

> TL;DR: giving him an invoice (especially for a service) will make it easy for him to pay you, but will make things complicated for your taxes. It only makes sense if you think you will make a lot of money.

Question - is it easier to take and account for donations ? that's what I dont understand. In India, donations are taxable as income - in fact they are a bigger pain to account for (gift tax) than normal business income. So the question is not "nothing vs invoice" - it is "donation vs invoice"

The whole point of this thread from Krita was that they thought they were exempt ...but got screwed badly because they ran afoul of tax laws. Is this not a case of better safe than sorry : Dont take any money ... or do it the right way ?

Well... There were complications. This service is not subject to VAT in Russia. There was no service delivered to the Foundation: the Foundation didn't get anything in return for Dmitry's work.

Oh, and in the Netherlands, donations received do not count as income. Stuff just got too complicated for an outfit as small as ours.

I think some form of gift is excluded from tax in india, atleast thats what my accountant told me sometimes back

I submit the invoice you give me to my tax authority. Depending on where in the world you are, governments do check this stuff (and share it between themselves ).

I would urge you NOT to do this. Setting an invoicable entity shouldn't be hard - I'm in India and it's not hard here, and we are fairly at the bottom of the Ease of Doing Business listings .

Sidekiq Pro uses Plasso - I'm sure there are tons of alternatives where I don't have to email you for an invoice

IANAL, but as was said elsewhere, please don't do that carelessly. It really depends on your local law, but don't go around making fake invoices if you don't have a legal structure. Depending on where you are it would be more or less easy, but don't go exposing yourself. In most countries, those on the receiving end of a (fake) invoice have much less risk than those emitting them.

It's actually the jist of this blog post. They thought they were square, but tax authorities don't understand how open source non profits work, and they made mistake in the structure. So depending on where you are you have to make sure you stay within the law.

"It's actually the jist of this blog post. They thought they were square, but tax authorities don't understand how open source non profits work, and they made mistake in the structure. So depending on where you are you have to make sure you stay within the law."

Amen. I spent hours telling the inspector what it was we were doing, and why. And in the end, she still asked what our future profits were likely to be. It just didn't register...

The link's not working for me, google text only cache:


Or head to https://planet.kde.org for an aggregated version of the full article.

It works but is very slow.

I have to admit, I really respect the absolute transparency.

I just bought a Lenovo X1 Yoga which came with a Wacom stylus. I got it to be recognized in GIMP with pressure sensitivity. I was looking for other painting apps and forgot about Krita. I'll give it a try and see how I like it.

Good for them trying to get donations directly. They might get more money through GoFundMe or having a KickStarter for v4.0 or something. Those sites would offer a little transparency in that you can see how much they've already received... but try direct donations first.

Also, where is the BitCoin donation address?

Chucked some money their way, I suggest others do too. The last thing we need is less competition for Adobe.

Donated some euros. I hope they'll make some announcement if this donations helped them.

The response has been great. I cannot currently edit the website... But we've had donations worth about 1000 euros in total now.

While I don't personally use Krita, I've been following its development for years and really admire the work that's gone into the app. Just donated a few Euros, good luck!

A simple solution would be to incorporate outside of such a convoluted and destructive tax regime. There are much friendlier locations.

This is a good reminder that for very small organizations, it's important for the founders themselves to understand at a basic level the relevant applicable tax laws and typical exceptions. The level of accounting consultancy a small organization is going to be able to afford is unlikely to be comprehensive, and all the right questions may not be asked when making plans. But if the founders who do know all that's going on have a basic understanding of the parameters of tax law, they will have a much better chance of figuring out what exceptions might be applicable to their organization. A few days or weeks of research early on could have saved many months of stress and many thousands of euros when the problems were discovered.

This comment is correct. People seem to rush the legal and tax implications and end up paying for it in the long-term. Legal and tax advice is inexpensive at the earliest stages and a lot of those expenses can be deferred or reduced. But this isn't the case when you're already in legal or tax jeopardy.

I've been thinking about creating a Dutch foundation for one of the open source projects I work on in order to provide a legal entity to collect donations and apply for services like code signing in a organization name. This makes it a whole lot scarier!

I had no idea that there even existed a foundation or that the development used money.

Maybe they should add a popup dialog that shows up every 100th time you run the program and tell users about it. Something like "Hey, you started Krita for the 200th time. Please consider donating a small amount to help the further development" and a link to the donation page.

Could all of this have been avoided with good accounting / tax advice to begin with? I don't mean to be that person that gives 20/20 hindsight, but this is the sort of legal and tax problem that gets many startups into trouble. A lot of startups just wing it with legal and tax advice and end up paying more in the long run with tax liabilities and legal problems.

Yes. They got bad advice, probably from an accountant without enough experience in this matter.

Maybe a little off topic. I've just learned about Krita. The birthday gift for my son was a Wacom board. How would the opinion of my fellow HR about the included software (Art Rage) compare to Krita for a 11 years old. I'm all for open source, but usability is a main issue here.

I don't get it. Isn't Dmitry the guy responsible for paying the VAT for the Dutch authorities?

If they were within the EU they would be. But because Dimitry is outside the EU, whoever's importing their work from outside the EU is responsible. (This prevents avoiding VAT by having your work done outside the EU). The EU has no way to go after an outside entity, so that's how it has to be.

Maybe I'm not quite intelligent but doesn't the VAT only work in the same jurisdiction? I mean, if we are on different tax jurisdictions then VAT should not be applicable. That's, at least, how it works in my country.

Right, if I (in the US) buy something from Krita that was made in Russia: Kritia needs to pay the VAT when they buy the work from Russia. Then when they ship to me they get a refund of that VAT. The sum collected is zero, but a lot of paperwork had to be done correctly to get there.

A simplified explication is Krita's situation is so complex nobody in the world can figure out how to get the paperwork correct, but they are not in trouble because they didn't. Tax law doesn't care if you can figure it out how to do it right, just that you do it right.

What do you mean by "work"? You don't get to just not pay VAT by having the transaction take place across a border. (At least, not when that border is on the boundary of the EU).

No, the Krita Foundation is.

Cannot be loaded and seen. Can you put your text on some public blogging service instead of a weak small server that overloads when people on hackernews actually are interested on your thing?

software looks cool, will play around... love the idea of ur project - just donated 10 euro, hope you will be all good!

Why don't they have an Ethereum, Bitcoin, or other donation address?

Donated, and tweeted about it. Join me!


Did the same accountant that advised them in the first place bag the 4k for cleaning up the mess?

Definitely not. When we got the notification, I asked Ton Roosendaal which accountant the Blender Foundation uses, and approached them. My thinking was, they at least had experience with one open source organization.

Ah, good :-)

Donated 20EUR

I freaking hate tax. Especially those on the left yelling to tax the "rich" (very few are actually rich nowadays). This is the end result. Innocent companies go out of business (and then there is nothing to tax).

Taxation is theft by definition, but getting rid of it altogether is a completely unrealistic endeavor. All we can hope for is reducing tax rates and educating people about "taxing the rich" (label that is usually used to advocate raising taxes on capital gains).

> Taxation is theft by definition

No, it's by definition not theft. Theft is the unlawful taking of property without consent of the owner; taxation is by definition done by legal authority, and, ipso facto, is not theft.

Now, if you dismiss any moral status of legal authority (not merely legal authority which lacks some proper accountability, but all legal authority irrespective of accountability and structure), then, sure taxation is the moral equivalent of theft without being theft. And if you take the more moderate view that some legal authority is morally relevant, but that that depends on structure and accountability to the governed, then taxation by an improper authority is morally equivalent to theft.

But, by definition, taxation is not theft.

Why not fold it and move to Bitcoin-only donations?

The authorities will have nothing to chase, the problem can't re-occur, accounting will be transparent, and accountants will not be required in future.

Seriously, Dutch should start a petition against their tax authorities for victimizing an open source project.

> Why not fold it and move to Bitcoin-only donations?

I'm a huge advocate for Bitcoin, but this is a terrible idea. They're trying to support staff and the last thing you want to do in that circumstance is to limit the potential donor pool.

I also don't see how changing the currency of the problematic transactions changes the tax implications.

In fact changing currency doesn't change tax implications if you intend to be legal. If you want to be illegal and risk not getting noticed you can hide behind bitcoin but the first auditor will notice this and report "I don't know how much, but there is tax fraud here so lets give maximum fines".

Yes, but folding the entity means in most cases you are no longer liable for those past accounting hiccups.

In future, you don't have to pay accountants, or waste time dealing with the state.

Immensely practical.

As far as donor pools go, if there is no way to obtain a monthly subscription from people via cryptocurrency then build it, as there is clearly demand.

>The authorities will have nothing to chase,

Yeah. Then the judge will tell you "Pay your taxes - then fines, etc - or we'll liquidate your corporation/foundation". If you don't pay, or give them access to the Bitcoins when they liquidate, they may hold you for contempt (or equivalent in the Netherlands).

Don't think you can mess with a Nation State by simply not using the national currency. It's like wanting to evade corporate taxes by burying gold in a corn field...

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