profit-sharingMe and my friend have worked jointly on few projects. We agreed to split profits 50/50 (after expenses are paid). We both own 1 company each, we are only employees in our respective companies. My friend lives and has his company in Latvia, while I live and have my company in UK. We pay tax in the country of our residence.
My friends company was the one to receive payment for the projects while my company was to invoice his company after the job is done and my share is calculated.
Our joint projects are now over but we cannot agree on the following: my friend holds me liable for a portion of corporation, social and private income tax that he had to pay last year. The reason for some of the taxes is that my friend didn’t calculate my share and his account didn’t indicate my “share” as expense before tax returns. My friends reasoning is we needed my company and company cannot exist without employee, so this is the cost of doing business through Latvian company.
We had no specific agreements on tax when we started the job. Am I really liable for a portion of these taxes?
This is an object lesson why if you agree to share profits after expenses you really should agree which expenses are included to be shared before hand. Then, later, if there is a question whether an expense should be shared, the answer is easy: If it’s included in the list, then it is to be shared. If not, it’s not.
Am I really liable for a portion of these taxes?
Who knows? Your agreement apparently is silent on the matter. Again, if you bothered to list any specific expenses to be shared then if this one was not on the list, then in my opinion, it should not be shared.
As I see it, you have three options to try to resolve this effectively.
Negotiate. ex post facto (after the fact). Try to reach a settlement on your own now, after the fact via negotiation.
Mediate. Hire a mediator to help bring the two of you together on a fair middle ground.
Arbitrate. Submit the facts to an independent arbitrator and have him/her decide the matter for you.
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