Government closes cooperative invoicing services

The Ministry of Employment recently forcibly dissolved a cooperative re-invoicing service called Factoo (formally Fidelis Factu, S. Coop) for infringing several employment laws. The most serious charge was that of helping to fake autónomos, according to the Ministry in a press release.

Now people who used the services are the company are being pursued for unpaid taxes by the Ministry. Newspaper El Confidencial says that fines of €600 for each month the service was used -plus late payment penalties – are being levied upon former users of the service.

Financial newspaper El Economista, which broke the story, notes that the use of cooperatives by the self-employed to avoid onerous personal taxes has been on the increase recently in Spain. Although technically legal, their services depend mainly upon the use of loopholes in the law, rather than being based upon any firm interpretation of the regulations.

Factoo described itself as: “a cooperative which allows anybody to work for themselves to become associated and thus invoice without having to become a company, and without having to present personal IVA and IRPF taxes each quarter”.

Factoo – offered a shortcut past taxes with the Authorities did not like

In short, you paid €30 to join plus a commission for each payment you issued through the cooperative. The cooperative took care of all the taxes, social security payments, quarterly and annual declarations and other such matters, so that the affiliated member did not have to register as a self-employed (autónomo) and pay taxes or social security. Members then took a “dividend” from the cooperative, equivalent to the amount they invoiced, which they simply declared on their annual income tax as a once-off payment.

Factoo’s advertising said that “this allows you to join the labour market without the need to worry about the bureaucracy and without having to declare yourself as self-employed”. Their slogan was «Invoice without being self-employed».

But such services ended up attracting the attention of the authorities, to the detriment of users.

The Ministry of Employment said that Fiscal Inspectors from the Valencia tax region investigated the company, which is registered in that jurisdiction, and recommended its immediate closure.

The tax inspectors found that the members of the cooperative were simulating a relationship which did not exist in reality, and that the cooperative members were ignoring their fiscal responsibility to register with the tax authority, comply with the fiscal regulations and issue invoices to clients.

During the two years the cooperative has existed, it claims to have affiliated more than 5,000 members. The investigators said that the vast majority of these members had a business affiliation with Factoo which lasted just days, which runs contrary to the principle that members of a cooperative have an ongoing partnership.

They stated that Factoo “did not realise any cooperative business at all.”

An official report by the State Legal Service ruled in favour of the request by the Valencian tax authorities, and the Ministry has moved to revoke the cooperatives licences.

It remains to be seen whether penal charges are pressed against the members or directors of the cooperative. Fines and back taxes worth thousands of euros are being levied upon users of these services.

Newspaper «El Confidencial» reports that the Ministry is going after more than a dozen schemes similar to Factoo, and intends a major crackdown upon the sector.

Factoo said that it will appeal against the dissolution of the business, and told El País newspaper that it was «business as usual» for the time being. But the Ministry warned that the dissolution meant that the cooperative could not continue to offer services.

Maria Luisa

María Luisa Cervantes is a chartered accountant who graduated from the University of Granada in 2002. Founder of Cervantes Alarcón Consulting, she is an experienced accountant and financial advisor who is a member of the Almería guild of economists. With more than 15 years of experience in business administration and international trade, she is also a subject matter expert in the UK - Spanish bilateral agreements which cover the rights of expats to live, work and retire in Spain.