CCIA Legal & Compliance Overview, France

An Overview of the Legal and Regulatory Framework for Complementary Currencies in France

Introduction  France  has  a  strong  tradition  as  a  hotbed  of  currency  innovation.    

The  Monnaies  Locales  Complementaires  (MLC)  movement,  defined  as  legal  backed  tender  currencies,  has  been  particularly  strong,  diverse  and  vocal.  There  are  at  present  over  twenty-­‐five  different  MLC  currencies  in  circulation  with  another  twenty-­‐four  in  the  process  of  being  implemented.  

This  community  of  currencies  achieved  a  major  milestone  in  July,  2014,  when  a  new  section  was  introduced  in  the  French  monetary  and  financial  code  explicitly  recognising  MLC  currencies.    

All  complementary  currency  systems  face  a  variety  of  legal  and  compliance  issues  that  need  to  be  addressed  for  sustainability  and  long-­‐term  success.  This  document  addresses  six  key  areas  of  law,  namely:  

i. Taxation    ii. Social  Security  and  Employment    iii. Financial  Services,  Money  Laundering  and  Note  Printing  iii. Insurance  iv. Data  Protection  and  Health  and  Safety  v. Public  Sector  acceptance  of  Complementary  Currencies  

The  document  will  analyse  how  versions  of  the  four  generic  currency  models  outlined  below  are  affected  by  the  relevant  legislation.  

1. LETS  2. Timebank  3. Legal  Backed  Tender  Currency  4. Closed  Loop  Payment  System    

Disclaimer    

This document only offers an overview of the legal landscape that complementary currencies operate within and nothing contained herein should be considered legal advice.

Only the most generic systems are covered. Deviation or hybrid models may alter liability, obligations and compliance issues.

This report has been produced by the New Economics Foundation as part of the Community Currencies in Action (CCIA) collaboration project. CCIA is a transnational partnership project designing, developing and implementing community currencies across northwest Europe. The partnership provides a rigorously tested package of support structures to facilitate the development of currency initiatives across NWE, promoting them as credible policy vehicles. Running from May 2012 to June 2015, CCIA is part-funded through the INTERREG IVB North West Europe Programme, a financial instrument of the European Union’s Cohesion Policy ‒ Investing in Opportunities.

Find out more about CCIA on our website: www.communitycurrenciesinaction.eu

SEL/Banque  de  Temps  (LETS/Timebank)  

i. Taxation    

When  discussing  the  taxation  implications  of  participating  in  a  SEL/Banque  de  Temps  it  is  useful  to  distinguish  between  those  who  engage  in  the  schemes  to  offer  services  in  line  with  a  person’s  normal  line  of  commercial  work  and  those  engaging  with  the  schemes  outside  of  work,  more  as  social  activity.  Most  SEL/Banque  De  Temps  schemes  are  predominantly  comprised  the  latter,  that  is,  of  individuals  engaged  in  social  exchanges.    

The  1998  "SEL  de  L’Ariège"  case  established  that,  provided  that  the  engagements  participants  in  the  SEL  remain  occasional  and  of  low  importance,  participants  are  not  liable  for  social  contributions  or  required  to  make  declarations  of  activity.  

In  contrast,  those  participating  in  their  professional  capacity  should  consider  SEL  exchanges  part  of  any  income  tax  or  self-­‐employment  declaration,  as  well  as  part  of  corporation  tax,  depending  on  how  the  person  or  business  is  registered  with  the  tax  authorities.  

Importantly,  however,  if  income  and  expenditure  balance  out  (which  is,  after  all,  the  aim  of  the  SEL  model),  there  should  be  no  net  profit  to  report.  

If  the  SEL  group  itself  is  a  not-­‐for-­‐profit  association,  then  it  is  not  required  to  register  with  any  body  nor  complete  a  corporation  tax  return  to  the  tax  authorities.  For-­‐profit  company  structures,  conversely,  are  likely  to  trigger  registration  and  reporting  requirements.  

i. Social  Security  and  Benefits  

Occasional  participation  in  an  SEL  will  not  necessarily  impact    benefit  entitlements,  but  exact  rules  are  not  explicitly  stated.  There  has,  however,  been  recognition  from  the  employment  services  that  participation  in    SELs  can  be  of  assistance  to  those  wishing  to  re-­‐enter  the  job  market.  

 ii. Financial  Services,  Money  Laundering  and  Note  Printing  

Financial  Services  regulations  and  money  laundering  requirements  do  not  apply  to  SEL  systems.  

Should  the  system  wish  to  print  physical  notes  or  vouchers,  then  it  is  important  that,  at  a  minimum,  basic  security  features  are  implemented  and  that  it  is  very  clear  that  the  vouchers    are  not  interchangeable  with  legal  tender  notes.  

 iii. Insurance  

All  currency  projects  that  deal  directly  or  indirectly  with  the  public  will  require  public  liability  insurance,  which  covers  the  currency  operator  for  any  damages  awarded  to  

members  of  the  public,  volunteers  or  customers  for  injury,  illness,  disease  or  damage  to  their  property  which  is  sustained  as  a  result  of  negligence  during  business  activity.      

Where  the  entity  running  the  SEL  is  publicly  registered,  it  should  secure  insurance  for  the  network.  However,  where  it  is  not  publicly  registered,  the  entity  will  not  be  considered  a  legal  person  and  therefore  unable  to  enter  into  contracts.  In  such  circumstances,  it  will  be  the  responsibility  of  individuals  to  insure  themselves  for  such  incidents.  

SEL  scheme  administrators  should  also  consider  their  other  liabilities  and  either  be  aware  of  the  risks  or  indemnify  themselves  against  such  risks  through  an  insurance  policy,  where  this  is  possible.  

iv. Data  Protection    

Data  protection  law  makes  provision  for  the  regulation  of  the  processing  of  information  relating  to  individuals,  including  the  obtaining,  holding,  use  or  disclosure  of  such  information.  Where  the  currency  operator  stores  any  personal  information  it  is  vital  that  appropriate  technical  measures  be  taken  to  ensure  the  protection  of  this  data  on  and  offline.  It  is  also  considered  best  practice  to  have  an  internal  data  protection  policy.    Not  for  Profit  organisations  who  only  collect  and  share  information  with  people  and  organisations  as  far  as  is  necessary  to  carry  out  the  purpose  of  the  organisation  do  not  need  to  register  under  the  data  protection  law.    

 v. Public  Sector  acceptance  of  Complementary  Currencies  

SEL  currencies  cannot  be  exchanged  for  goods  and  services  within  the  public  sector.  

Legal  Tender  Backed  Currency  i. Taxation  

Legal  backed  tender  currencies  are  classed  as  vouchers  for  tax  purposes,  since  they  are  sold  at  face  value  and  redeemed  for  real  goods  and  services.  Credit  vouchers  are  defined  as  vouchers  that  are  issued  by  a  person  who  cannot  themselves  redeem  them  for  goods  or  services.  Instead  the  issuer  undertakes  to  give  complete  or  partial,  reimbursement  to  whoever  does  redeem  the  voucher.  

With  regard  to  Value  Added  Tax  (VAT),  this  is  not  due  on  the  actual  sale  of  the  vouchers,  since  they  are  sold  at  face  value.  However,  VAT  is  due  from  the  businesses  that  redeem  these  vouchers.  When  the  vouchers  are  used/redeemed  for  goods  and  services,  the  value  

for  VAT  purposes  is  the  full  face  value  amount.  To  encourage  compliance  with  VAT  law,  all  legal  backed  tender  currency  operators  should  notify  businesses  who  accept  the  currency  that  VAT  is  due  as  normal  on  all  goods  and  services  they  sell,  including  those  sold  for  complementary  currencies.    

With  regard  to  corporation  tax,  the  operating  entity  will  be  responsible  for  paying  all  required  corporation  taxes,  just  like  any  other  company.  It  is  considered  good  practice  to  notify  all  limited  companies  and  other  organisations  including  clubs,  societies,  associations  and  other  unincorporated  bodies  who  accept  the  currency  that  they  must  pay  corporation  tax  on  their  income,  whether  it  is  in  complementary  currency  or  in  Euro.  This  also  applies  to  self-­‐employed  people  and  business  partnerships.  

With  regard  to  income  tax,  for  businesses  that  accept  legal  backed  tender  currencies,  there  are  two  types  of  income  tax  considerations:    tax  paid  by  businesses  on  workers’  salaries,  and  self-­‐employment  tax  paid  by  sole  traders  and  business  partnerships.  Although  the  exact  classification  under  the  law  may  be  under  debate,  the  fact  that  tax  is  due  on  any  salary  earned  in  legal  backed  tender  currency  is  not.  For  those  who  are  self-­‐employed,  all  income  must  be  reported  to  the  tax  authorities,  regardless  of  whether  this  income  was  earned  in  euros  or  in  any  other  currency.  

It  is  very  important  to  note  that  all  of  these  tax  payments  need  to  be  made  in  the  national  currency  and  cannot  be  completed  in  the  complementary  currency  

iii. Welfare  and  Employment  

Individuals  receiving  legal  backed  tender  currencies  in  exchange  for  performing  work  will  count  as  earnings  and  will  therefore  have  an  impact  on  any  benefits  they  receive.  Therefore,  it  is  vital  the  recipients  are  made  aware  that  all  such  currencies  are  a  source  of  income  and  must  be  declared.  

Therefore,  anyone  receiving  legal  backed  tender  currencies  on  a  regular  basis  whilst  in  a  voluntary  capacity  needs  to  be  aware  this  payment  could  be  treated  as  earnings  and  impact  any  benefits  they  receive.    

One-­‐off  gifts  in  local  currency  may  not  affect  any  benefits,  nor  be  described  as  payment  for  work.    

                                 iv.  Financial  Services  Law  

Legal  tender  backed  currencies    have  been  recognised  by  law  in  France  since  31  July,  2014,  and  are  regulated  by  articles  L.311-­‐5  and  L.311-­‐6  of  the  French  Monetary  and  Financial  Code.    Legal  tender  backed  currencies  may  only  be  issued  by  certain  types  of  entities,  which  belong  to  the  so-­‐called  Economie  Sociale  et  Solidaire  (social  economy),  i.e  mainly  associations,  foundations  and  cooperatives  which  exist  solely  to  operate  within  this  economy.    

In  basic  terms,  legal  tender  backed  currencies  can  be  divided  into  two  categories  in  France:  those  regulated,  which  fall  under  the  supervision  of  the  ACPR  (i.e.  Autorité  de  Contrôle  Prudentiel  et  de  Résolution),  the  supervisory  authority  of  the  banking  sector  in  France;  and  those  which  are  unregulated  and  may  operate  freely.  The  operators  of  regulated,  paper-­‐based  legal  backed  tender  currencies  are  considered  to  be  providing  banking  services  and  therefore  need  to  register  with  the  ACPR.    These  schemes  may  apply  for  an  exemption  of  banking  license  requirements,  provided  that  the  money  circulates  within  a  limited  network.  Unregulated  currencies  do  not  need  to  file  with  the  ACPR.    In  France,  the  category  of  unregulated  currencies  has  been  extended  beyond  the  limited  scope  of  non-­‐convertible  closed-­‐loop  currencies  to  include  paper-­‐based  currencies  where  (1)  only  the  businesses  participating  in  the  system  can  exchange  the  currency  back  for  legal  tender  and  (2)  where  it  is  not  possible  for  users  of  the  currency  to  receive  change  for  the  their  purchases  in  any  form.  In  addition,  the  French  government  has  recently  expanded  these  exemptions  by  stating  digital  currencies  are  to  be  unregulated,  provided  that  they  are  not  convertible  into  euros  in  any  respect.  

These  wide-­‐ranging  exemptions  from  the  legislation  mean  that  there  few  of  the  thirty  complementary  currencies  currently  in  existence  are  registered  as  payment  systems.  

Local  currency  schemes  where  either  condition  is  not  met  fall  into  the  category  of  regulated  currencies.  

For  regulated  issuers,  ACPR  has  struck  a  good  and  proportionate  balance  in  the  only  known  application  and  acceptance  of  an  exemption  based  on  the  limited  network  criteria  under  the  European  Payment  Systems  Directive  (PSD).  The  ruling  relates  to  the  Galleco  currency  in  France  that  will  eventually  operate  across  a  whole  region  of  France,  but  in  its  initial  phase  will  be  piloted  in  the  region’s  major  city  and  some  of  the  surrounding  areas.  In  the  case  of  the  Galleco  currency,  the  ACPR  accepted  that,  during  the  pilot  phase  of  the  project,  the  currency  operator  could  use  the  limited  network  exemption,  but  that  once  it  was  fully  rolled  out  it  would  have  to  reapply  and  be  re-­‐assessed.  

The  euros  backing  the  money  in  circulation  must  be  deposited  in  a  segregated  bank  account.  

In  deciding  whether  to  grant  an  exemption  to  the  requirement  of  obtaining  a  banking  license,  the  ACPR  will  closely  review  the  operational  risks  inherent  in  the  system,  such  as  the  robustness  of  safeguards  against  the  forgery  of  notes.  

As  regards  electronic  money  schemes,  currently  in  France  the  interpretation  of  what  kinds  of  currencies  may  fall  within  the  scope  of  e-­‐money  legislation  is  very  narrow.  There  is  a  general  understanding  that  e-­‐money  legislation  is  reserved  for  currency  models  that  accept  payment  in  legal  tender  in  exchange  for  a  card  (or  e-­‐wallet)  onto  which  money  has  been  preloaded.  The  e-­‐money  then  sits  on  the  card  (or  e-­‐wallet)  to  be  used.  The  important  distinction  with  a  normal  bank  card  is  that  a  bank  card  has  all  the  features  necessary  to  transfer  money  within  the  banking  system’s  payment  infrastructure  and  loss  of  the  card  would  not  equate  to  loss  of  the  money  in  the  bank  account  (cases  of  fraud  notwithstanding).  In  contrast,  a  person  using  a  card  that  operated  as  a  form  of  complementary  e-­‐money  would  lose  all  the  money  stored  on  the  card.    

An  electronic  legal  tender  backed  currency  is  not  regulated,  provided  that  it  is  not  convertible  (with  the  exception  of  closed-­‐loop  systems).  Other  electronic  schemes  must  apply  to  the  ACPR  for  an  exemption  as  an  electronic  money  provider,  provided  that  the  e-­‐money  circulates  within  a  limited  network  and  that  the  amounts  loaded  on  the  card  or  mobile  phone  (depending  on  what  device  is  used  to  transfer  the  money)  is  limited  to  250  euros.  Electronic  money  is  quite  heavily  regulated  and  issuers  should  carefully  assess  the  compatibility  of  their  money  model  with  electronic  money  regulations:  for  instance,  e-­‐money  must  be  redeemed  at  par  value,  making  demurrage  and  redemption  penalties  difficult  to  implement.  

 In  addition,  currency  operators  will  need  to  consider  whether  they  fall  within  the  European  Payment  Services  Regulation  or  the  E-­‐Money  Directive.  The  decision  tree  shown  below  can  help  guide  any  assessment  of  the  need  to  comply.  

The  current  legislation  in  the  France  states  that  only  the  Banque  de  France  is  able  to  print  banknotes;  therefore,  those  wishing  to  print  legal  tender  backed  currencies  should  avoid  any  possible  confusion  with  the  national  currency.      In  order  to  combat  money  laundering,  it  is  vital  that  there  is  a  strong  ‘know  your  customer’  system  is  in  operation  and  that  all  suspicious  activity  is  reported  in  a  timely  manner  to  the  relevant  authorities.  For  activity  conducted  in  cash  there  is  a  legal  requirement  that  

authorities  be  informed  of  all  suspicious  activity.  However,  most  currencies  in  operation  are  relatively  small  scale  and  so  use  a  lower  amount  to  trigger  reporting  requirements.  For  electronic  accounts,  it  is  vital  that  customers  are  properly  identified  using  appropriate  documentation  when  opening  an  account.  It  is  then  also  important  to  ensure  that  the  correct  triggers  are  put  in  place  to  inform  authorities  of  suspicious  online  transactions.  In  fact,  unregulated  schemes  and  regulated  schemes  benefiting  from  an  exemption  from  the  requirement  to  obtain  a  banking  license  or  electronic  money  issuer  license  are  not  within  the  scope  of  anti-­‐money  laundering  checks,  although  good  practice  would  still  see  the  principles  applied.  

ii. Insurance  

All  currency  projects  will  require  public  liability  insurance,  which  covers  the  currency  operator  for  any  damages  awarded  to  members  of  the  public,  volunteers  or  customers  for  injury,  illness,  disease  or  damage  to  their  property  which  is  sustained  as  a  result  of  negligence  during  operator’s  business  activity.      

Where  the  entity  running  the  currency  is  publically  registered,  it  should  secure  insurance  for  the  network.  However  where  the  entity  is  not  considered  a  legal  person  and  is  therefore  unable  to  enter  into  contracts,  it  will  be  the  responsibility  of  individuals  to  insure  themselves  for  such  incidents  

Currency  operators  should  also  consider  the  other  liabilities  of  the  board  and  either  be  aware  of  the  risks  or  indemnify  the  board  against  such  risks  through  an  insurance  policy.  

 iii. Data  Protection    

Data  protection  law  makes  provision  for  the  regulation  of  the  processing  of  information  relating  to  individuals,  including  the  obtaining,  holding,  use  or  disclosure  of  such  information.  Where  the  currency  operator  stores  any  personal  information,  it  is  vital  that  appropriate  technical  measures  be  taken  to  ensure  the  protection  of  this  data  on-­‐  and  offline.  It  is  also  considered  best  practice  to  have  an  internal  data  protection  policy.      

iv. Public  Sector  Acceptance  of  Complementary  Currencies  

In  the  France,  despite  numerous  attempts,  no  public  authority  currently  accepts  legal  backed  tender  currencies  for  municipal  services  and  taxes.    

B2B  Closed-­‐loop  currency  systems  i. Taxation  

Under  the  standard  model,  these  currency  systems  specify  a  peg  for  the  newly  created  currency,  usually  to  national  legal  tender.  

All  transactions  within  the  system  are  considered  part  of  the  normal  economy  and,  therefore,  VAT  should  be  charged  on  all  transactions  at  the  standard  level.  Similarly,  all  trade  conducted  through  these  systems  should  be  counted  as  income  for  the  purpose  of  reporting  corporation  tax.  If  a  self-­‐employed  person  engages  in  trade  within  a  closed-­‐loop  system  then,  this  should  be  included  in  their  tax  declaration.  

i. Social  Security  and  Employment  

These  systems  are  focused  on  facilitating  trade  between  businesses  and  so  concerns  about  social  security  implications  should  not  generally  be  arise.  

If  a  person  where  to  receive  such  a  currency  as  part  of  their  wage,  then  it  should  be  accounted  for  in  the  same  way  as  legal  tender,  along  with  all  the  implications  that  this  has  for  benefits  and  taxation.  

ii. Financial  Services  

These  systems  do  not  normally  come  under  most  financial  services  regulation,  since  they  generally  do  not  produce  any  paper  notes,  the  currencies  are  non-­‐convertible  into  national  currencies  and  one  cannot  buy  into  the  system,  but  instead  must  trade  to  participate..  

The  one  are  of  concern  for  operators  is  to  ensure  that  the  system  is  not  used  for  money  laundering.  It  is  therefore  vital  that  appropriate  safeguards  and  policies  are  put  in  place.  

iii. Insurance  

All  currency  projects  will  require  public  liability  insurance,  which  covers  the  currency  operator  for  any  damages  awarded  to  members  of  the  public,  volunteers  or  customers  for  injury,  illness,  disease  or  damage  to  their  property  which  is  sustained  as  a  result  of  negligence  during  operator’s  business  activity.      

Where  the  entity  running  the  currency  is  publicly  registered,  it  should  secure  insurance  for  the  network.  However,  where  it  is  not  publicly  registered,  the  entity  will  not  be  considered  a  legal  person  and  will  therefore  be  unable  to  enter  into  contracts.  In  such  circumstances,  it  will  be  the  responsability  of  individuals  to  insure  themselves  for  such  incidents  

Currency  operators  should  also  consider  the  other  liabilities  of  the  board  and  either  be  aware  of  the  risks  or  indemnify  the  board  against  such  risks  through  an  insurance  policy.  

Since  insurance  companies  are  likely  to  be  unfamiliar  with  complementary  currencies,  it  is  likely  that  they  will  require  additional  detail  in  order  to  be  able  to  accurately  calculate  the  risk  and  provide  an  accurate  quote  

iv. Data  Protection    

Data  protection  law  makes  provision  for  the  regulation  of  the  processing  of  information  relating  to  individuals,  including  the  obtaining,  holding,  use  or  disclosure  of  such  information.  Where  the  currency  operator  stores  any  personal  information,  it  is  vital  that  appropriate  technical  measures  be  taken  to  ensure  the  protection  of  this  data  on-­‐  and  offline.  It  is  also  considered  best  practice  to  have  an  internal  data-­‐protection  policy.  

Not-­‐for-­‐profit  organisations  which  only  collect  and  share  information  with  people  and  organisations  as  far  as  is  necessary  to  carry  out  the  purpose  of  the  organisation  do  not  need  to  register  under  the  Data  Protection  Act.    

 v. Public  Sector  Acceptance  of  Complementary  Currencies  

Public  sector  goods  and  services  do  not  normally  form  part  of  these  kinds  of  systems.