The income tax status of investment and business activities supporting non-profit

entities or non-profit activities: Tax incentives for patronage

Susana Bokobo. UAMMarcos Pascual. U.OVIEDO

DER2011-26725

The income tax status of investment and business activities Introduction Special Tax Regime Subjective scope of application of the special tax regime Objective scope of application of the special tax regime Types of grants, donations and gifts Tax incentives Study case: Spanish business collaboration agreements

concerning activities which are of special interest to the State and expenditures in activities which are of special interest to the State

Conclusion

Introduction

o The aim of this presentation is to answer the question: why does the State establish a special tax regime?

o Special tax regime for NP Entities and NP Activities that consists of certain tax incentives

Special tax regime

Special Law: Spain, Portugal, Hungary, Turkey, Russia

General Tax Law: Germany, Greece, France, Finland, Russia.

Subjective scope of application of the incentives

Patronage beneficiary entities:

Distinction between Foundations and Associations (Italy)

Distinction between domestic and foreign entities: Greece; Denmark (foundations established in low-tax countries); Switzerland (only domestic foundations); Belgium (until December 2009).

Legal entities with a special status (Switzerland, Spain, Sweden)

Special entities: Turkish Crescent Association, Instituto Cervantes (Spain), religious entities (Germany, Spain) universities (Austria, Belgium, Sweden, France)

The State, Autonomous Communities and Local Entities (Spain).

Museums, Trusts (UK).

Hospitals, rest homes for the elderly (Turkey)

Objective scope of application of incentives

Activities:Charitable, public benefit, religious.Trade union, sports, higher education and research

activities (France)Cultural, environmental, educational.Promotion of citizenship, human rights, women

rights (Spain, Portugal)Special events (Olympic Games)

Types of grants, donations and gifts

• Cash donations: Norway (only cash)

• In kind i.e. donations of historical heritage assets or donations of cultural assets, movable and immovable property, capital assets and industrial property: Switzerland, Turkey, Portugal, Spain.

• Association membership fees: Spain, Russia, not in Switzerland

Tax incentives (corporate/income tax) For entities: • Exemption from income tax: Germany (with exceptions), Italy,

Belgium, Greece (list of income sources), UK and Denmark (under special conditions), Turkey

• Special tax rates: Greece, UK, Spain

For donors:

• Exemption from taxation: Russia, Poland, Spain

• Deductions from the tax base with limits: Finland, Austria, UK (individuals), Portugal, Norway, Belgium

• Deductions from the tax liability with limits: Spain, Sweden, Italy, Poland

Study Case: Spanish business collaboration agreements concerning activities which are of special interest to the State

Definition: The beneficiary party agrees to collaborate in the dissemination of the sponsor’s participation in exchange for financial aid to carry out its activity of a sporting, charitable, cultural, scientific, promotional or other nature.

Tax treatment:

• These amounts are deductible expenditures in Corporate Tax, Personal Income Tax and Non-Resident Income Tax

The dissemination of participation is not a service; therefore there is no VAT

Business collaboration agreements vs. Sponsorship contracts: The main difference is the advertising nature of the sponsorship contract

Study Case: Spanish regime of expenditures in activities which are of special interest to the State Definition: Expenditures in activities which are of special interest to the State are

deductible in Corporate Tax, Income Tax and Non-Resident Income Tax (art. 3.1º de la Ley 49/2002):

“defence of human rights, defence of victims of terrorism or violent acts, social assistance and social inclusion, civic, educational, cultural, scientific, sport, health and labour activities, institutional strengthening, cooperation for development, promotion of volunteering, promotion of social action, protection of the environment, promotion and attention for persons in danger of exclusion for physical, economic or cultural reasons, promotion of constitutional values, promotion of tolerance, promotion of the social economy and the information society, scientific research and technological development”.

Incompatibility with other tax incentives

Conclusion: why does the State establish a special tax regime?

States encourage the private sector to support NPEs or certain activities because we all know, as a community, that the welfare state cannot be sustained by the public sector alone.

We all know that the State cannot be everywhere and with everyone.

Tax incentives are useful for this purpose.

Thank you for your attention