Tax aspects of franchising – for franchisors and franchisees

In practice, we see that attention to taxation within franchise agreements is often underexposed. This could potentially cause problems. The fiscal aspects for the individual franchisee often remain underexposed. Ludwig & Van Dam Advocaten has spoken with the Tax Authorities about the statutory administration and retention obligation under the AWR. The importance of good administration is also always endorsed by the Tax Authorities. Franchising often also involves relieving individual franchisees of all kinds of back-office aspects. For franchisors, it is important that the back office to be managed is fiscally in order when providing the aforementioned support. This is not always the case, for example with regard to tax administration and retention obligations. The franchisee is an independent entrepreneur and is therefore responsible for his own tax obligations. This can lead to challenges if automated administration is maintained (online) by or through the franchisor. Back office care is not always in order or available (made available). When the franchise agreement is terminated, it is important for the franchisee to be able to comply with the fiscal retention obligation. In principle, a fiscal retention period of 7 years applies to this data. The Tax Authorities recognize several types of data. The following three are of great importance with regard to the administration and retention obligation and are explained in turn:

Basic data

Basic data is essential for controlling the primary processes in the organization. Examples of basic data are: – the general ledger – the inventory administration – the accounts receivable administration – the accounts payable administration – the purchasing administration – the sales administration – the payroll administration

Master data

Master data is fixed for a certain period of time. Examples of these are price tables, item tables and debtor and creditor data. The master data can be stored in different ways: – Providing an entry and exit date in the master data files. Is a customer moving? Then add an expiration date to the old address details of this customer so that this data is no longer used, but is retained. – The file with mutation data contains the master data for each transaction that applies at the time the transaction is final. – Changes to the master data are automatically linked to a was/will be file per change date.

Source and derived data

Every transaction that is concluded must be recorded in detail. These initial or primary records (source data) must be verifiable in the information systems via the source data. For the purpose of control, the derived data (direct or indirect) in the information system must contain a reference to the source data. We call this the audit trail. This includes, for example, data from the POS system.

Finally

When drawing up and entering into a franchise agreement, but certainly also when terminating it, it is important to consider whether and how the fiscal administration and retention obligation is and can be met. Further contact about this can be made via Ludwig & Van Dam, via a tax service provider or directly with the Tax Authorities.