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Thread: Death and Taxes...

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  1. #1
    Join Date
    Dec 2006

    Death and Taxes...

    Before we get into the nitty-gritty details, let me reintroduce myself to the newer community members as I have stayed in the shadows for quite a while. I'm one of the founders of this project, and my main contribution was developing the foundations of the current server core. As the project grew and taxation obligations arose, my main focus moved away from the actual development. I chose to start the non-profit company in Hungary that helped us going forward in this situation, which leads up to today's topic.

    Recently as part of a regular process, the Hungarian tax authority decided to review our company and they found an issue with how we paid for a specific provider.

    In 2013 we started using services from a US-based company Softlayer to provide servers for our systems. When we set up the account, Softlayer asked us for our VAT ID, and I offered it without fully understanding the implications. The VAT ID is a number used in the European Union to track transactions between companies to manage taxation. I did not realize that by providing this VAT ID that Softlayer would start invoicing us from an EU based company (instead of the US) and in the EU this makes the buyer responsible for the taxes on the goods and services delivered. I didn't know this was an issue, and our accountant did not notice it either. Because of that, we did not report these VAT transactions nor did we pay the related taxes, because, as far as I knew we were a "tax-exempt non-profit" company.

    There is still time to correct the filings and pay the missing taxes without any additional fees. Had I originally paid Softlayer’s US entity we would have paid $6,237 (8,5%) more than what we did pay. Sadly because we can’t go back in time and pay the Softlayer US entity we now have to pay an estimated $10,068 USD in EU back-taxes. In the end this mistake cost us $3,831 USD. The bigger issue is we have to catch-up with these costs now and I feel horrible because my lack of knowledge of the arcane tax codes has put our project at risk.

    I feel doubly conflicted even sharing this situation with you because in October it got out that the project was in financial trouble because donations were lower than our monthly operating expenses. The amazing part that shocked me was that the community reacted quickly and people donated $8,510 in one month. This extra inflow of cash should have put the project in a great place with the ability to continue the way we are with a comfortable pad for unexpected expenses and other yearly costs (e.g., accounting and legal). However now we need to make up for the back taxes and balance that against keeping enough cash to keep the project moving.

    We have always been transparent and open about the financial details of this project because we value the community's trust above all. We're not asking the community for more help, we will use $5,000 USD of the funds we already have, and handful of the staff and myself will pitch in to help me cover the remaining $5,068 USD. This will leave about one month of operating cash in the company and if donations stay at our current goal we should be able to continue the project barring unforeseen circumstances.

    I'm really sorry for the whole mess and take full responsibility for what has happened here. I have always cared for the good of this project and will continue to find ways to keep it going as long as people are interested in it.

    In the end we feel we can navigate this speed bump and get back to our original mission. Above all I felt it is essential to maintain your trust that we share the details of this situation with you.

    May the force be with you,


    tax balance sheet:

    UPDATE 2:

    tax inspection report:
    Last edited by Vlada; 12-22-2018 at 03:18 PM.
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