France I Germany I Netherlands I Portugal I Turkey I United Kingdom
Recent
Ministerial Instructions
Regarding Tax Treatment of NPOs
By Caroline L. Newman, ICNL
There has been ongoing discussion in Germany of various aspects of legal reform for the foundation sector and the larger public benefit sector. The Commission formed by the Bertelsmann Stiftung and the Maecenata Institut for Third Sector Research to consider these matters has completed the first phase of its discussions, with a concluding public forum held on 20 January 2000. The proposed principles for legal reform developed by Bertelsmann and Maecenata were presented at a meeting of the Committee on Culture and Media of the German Bundestag on December 15, 1999. A fuller discussion of the principles can be found in Maecenata Actuell No. 19, which can be obtained (in German) from Dr. Rainer Sprengel of the Maecenata Institut at rsp@maecenata.de.
In addition to the proposals developed by the Foundation and Institute,
all the political parties in Germany have been developing positions of their
own, some of which are in the form of legislative proposals.
Difficulties remain and developing a legislative draft that will satisfy
all the interest groups will not be easy. The sensitive issues include: 1)
deciding whether it is necessary to deal with the law affecting public benefit
organizations generally or only with the law affecting foundations;
2) deciding whether there should be a focus only on tax reform or on
broader legal reform for the sector; and
3) deciding how to divide responsibility for the eventual oversight of public
benefit organizations between the federal government and the state (Laender)
governments. Naturally the details will need to be worked out over time.
ICNL will be following the developments in Germany and reporting on them from time to time. For additional information, please contact Dr. Sprengel at the Institute, as suggested above. See also the previous discussion of developments in Germany in the March 1999 issue of the Journal.
As of 1 January 1999, associations and foundations which obtain income
through
The tax changes for 1999, which took effect from 1 January 1999, included the introduction of an additional 7% deduction (in addition to the actual cost) of training expenses for those nonprofit organizations that are subject to corporate income tax, e.g. if they carry on regular business activities that compete with the commercial sector (Bill 26245).
In
March 1999 the government passed the Patronage (Sponsorship) Statute (PS). This
Decree, effective from 1 of January 1999, has three main objectives:
to provide for separate regimes of
social, cultural, environmental, scientific, and sporting patronage;
to provide a harmonized framework for
such donations; and
to grant more favourable tax treatment to social patronage than to the other types of patronage
Under
the PS regime tax relief will be given for donations in cash or in kind to NGOs
which do not involve the receipt of any monetary or commercial benefits by the
donor. This relief, with the exception of the donations made to the central,
regional or local government or to exempted public utility entities, is
dependent upon recognition by means of a Joint Dispatch of the Minister of
Finance and of the Minister responsible for the relevant sector of activity.
Corporate
income tax
For
these purposes relief will be granted as costs or operating losses for an
amount equal to a percentage of the total amount donated up to a limit that is
defined by reference to the company turnover or services rendered.
Social
patronage:
130%
of the total amount donated to IPSS or legal
entities considered comparable to an IPSS by law, legal entities of public
administrative utility, cooperatives of social solidarity engaged in activities
of charity, assistance, benevolence or to the cultural and sporting centres
prescribed up to a limit of 0.8% of income;
however, this limit may be
disregarded if the recipient's activities were considered of high social
interest;
the deduction is increased to 140% of
the gift when the donation is connected with the support of nurseries and
elderly people, drug addiction, AIDS, cancer, diabetes and rehabilitation
through the promotion of working opportunities for individuals, families or
socially excluded groups.
Cultural,
environmental, scientific, technological, sporting and educational patronage:
120% of the total amount donated to
associations, foundations and cooperatives engaged in the pursuit of the above-mentioned
activities (e.g. defense and promotion of cultural heritage, music, dance,
museums, libraries, environmental NGOs, Olympic Committee of Portugal) up to a
limit of 0.6% of income;
however, this limit may be
disregarded if the recipient's activities were considered of high social
interest;
a percentage of 130% will be
applicable when the donations are made under an agreement lasting more than 1
year.
Donations
to associative bodies:
the total amount, up to a limit of
0.1% of income, donated by the member in order to allow the pursuit of the
stated purposes.
Donations
made to central, regional or local government, to foundations where the said
levels of government contributed at least 50% of the initial endowment of the
foundation, or to foundations of private initiative aimed at the accomplishment
of social or cultural goals by means of the initial endowment:
140% of the total amount donated when
connected to the pursuit of social goals;
120% for donations to NGOs pursuing
cultural, environmental, scientific, technological, sporting or educational
goals;
130% when made under an agreement lasting more than 1 year
Further,
there is no limit to such donations.
Individual
income tax
For
this purpose relief will be granted to resident individuals as a deduction from
net income for donations towards the above-mentioned purposes, subject to
the following limits:
25% of the total amount donated
whenever there is no limit for corporate income tax purposes; or
15% of the donor's total net income, whenever there is a limit
This
latter limit also applies to donations made to religious entities. In such a
situation the donation shall be regarded as 130% of its amount.
Deductions
included in the expenses of a business are disallowed in computing the taxable
income of the business.
(Decree-Law 74/99 of 16 March 1999, as amended by Law 160/99 of 14 September 1999)
Provision
for allowable donations for earthquake relief is made in certain special laws
(e.g. the Disaster Act of 1999). Pursuant to this legislation, the Ministry of
Finance announced new rules for donations provided for earthquake relief. Donations
given to the public institutions, local administrations, the Turkish Red
Crescent and certain other relief agencies which is to be used to repair the
damages of the earthquake can now be deducted by individuals and companies
without any limitations, provided that the donations are substantiated with
proper documents. Furthermore donations of goods and services for earthquake
relief will not be subject to VAT.
(See Corporate Tax Communiqué No. 65 dated 3 September 1999)
Legislative
Developments
1. The
Finance Act 1999 amended the Millennium Gift Aid Scheme in the following
respects:
the
relief for cash gifts was extended to apply to gifts for the relief of poverty
of refugees from designated countries or territories (Sec. 56). Kosovo was designated
as such a territory with effect from 21 August 1999 (Statutory Instrument SI
1999/2118);
the
relief for cash gifts was amended to enable charities to reclaim basic rate tax
on donations received in installments straddling one or more income tax years at
the tax rate applicable in the year in which the first installment is paid (Sec.
57).
In
addition, the existing Millennium Gift Aid relief for gifts of equipment and
trading stock was abolished and replaced by a broader relief with no time limit
for similar gifts in kind to all UK charities wherever they operate (including
heritage bodies and similar institutions within TA, Sec. 507) with effect from
27 July 1999 (Sec. 55).
2. On
9 November 1999 the government announced details of its proposals for legislation
following completion of its review of charity taxation (for prior coverage see
IJNL Spring 1999). The proposals, which are intended to be introduced with
effect from April 2000, include:
abolishing
the £1,200 maximum limit on allowable donations under the payroll giving
scheme;
abolishing
the £250 minimum limit on allowable single donations under the Gift Aid scheme,
and removing the requirement to complete a form for each gift under the scheme;
replacing
the rules for gifts under deeds of covenant with the Gift Aid rules;
removing
the requirement for corporate donors to withhold income tax from their
donations;
allowing
a deduction for income tax purposes of charitable gifts of listed shares and
securities based on their market value;
exempting
from income and corporation tax the profits of small fund-raising events run by
charities, and aligning the conditions for exemption with those applicable for
VAT purposes;
extending
relief from VAT to the supply of advertisements to charities, bathrooms in day
care centres and donated goods sold to people with disabilities and on low
incomes.
Further details of the new measures are expected to be announced in the March 2000 Budget.
(HM
Treasury Press Release, 9 November 1999) For further discussion of these
proposed changes see Debra Morris, How
Does The Common Law Assess Public Benefit In Order To Define A Charity?
News
from the Charity Commissioners for England and Wales
1. The
Charity Commission has announced the next stage of its review of the register
of charities established in England and Wales (see IJNL Volume 1 Issues 1 and
3). The Commission has issued four new consultation papers:
"Trustee
Remuneration", which discusses the circumstances in which it is
appropriate for charity trustees to be paid for their duties;
"The
independence of charities from the state", which explores the criteria used
to determine the charitable status of bodies established by central or local
government;
"The
public character of charity", which examines the nature of the public
benefit test of charitable activity; and
"Preservation
and conservation", which reviews the charitable status of organisations
dedicated to the built or natural heritage.
The
consultation period for the paper on trustee remuneration runs to 31 December
1999 and for the other three papers runs to 31 January 2000.
(Charity Commission Press Releases PR 17/99 dated 15 September 1999 and PR 20/99 dated 28 October 1999)
2. The
Charity Commission has issued guidance on the law and best practice on the use
of charity funds to pay for a the cost of preparing a will as part of a
fundraising programme.
(Paying for wills with charity funds, Charity Commission briefing note, 24 September 1999)
3. In
June 1999 the Charity Commission published its Annual Report for 1998. During
1998 the Commission registered over 6,200 new charities and de-registered about
4,400. At the end of 1998, some 70% of the 186,000 registered charities had an
annual income of less than £10,000, whereas the largest 271 charities
represented 40% of the £19,700 million total annual income of registered
charities.
The
Commission's activities during 1998 also included:
assisting
an umbrella charity to revise model governing documents for use by its members;
facilitating
the creation of 5 new charities to take over the assets of 90 small charities
with purposes that had become out of date;
modernising
the investment powers of a 13th century charity;
removing
charitable trustees who had committed a breach of trust involving the improper
use of charitable funds;
intervening
to protect funds raised in the name of charity by a non-charitable body.
The
Commission employs 540 staff and has an annual budget of £21 million.
(Report of the Charity Commissioners for England and Wales for the year 1998)