Civic Chamber consider tax breaks for philanthropists
Participants in the ‘zero reading’ advise combining two draft laws on tax breaks for philanthropists
On 24 August the ‘zero reading’ of two draft laws proposing amendments to the Tax Code took place in the Civic Chamber of the Russian Federation. The amendments are intended to improve the normative base of the non-profit sector. Participants in the reading deemed it advisable to combine the two draft laws, which are “shooting at the same target”.
Participants in the ‘zero reading’ reviewed the drafts of the federal laws ‘On the introduction of amendments to part two of the Tax Code of the Russian Federation’, developed by parliamentarians, and ‘On the introduction of amendments to the Tax Code of the Russian Federation in connection with the improvement of mechanisms for the formation and use of financial endowments by non-profit organisations’, developed by experts from the Ministry of Economic Development.
Both drafts directly relate to President Putin’s request to the Civic Chamber, the Presidential administration and the Ministry of Justice for the adoption of additional incentive measures for socially-orientated NGOs. This includes the provision of tax breaks to organisations.
The aim of the draft law ‘On the introduction of amendments to part two of the Tax Code of the Russian Federation’ is to encourage charitable donations for the financing of state and municipal cultural institutions. It was developed by a group of deputies and senators and proposes to give an individual the right to social tax deductions to the value of donations totalling up to 30% of income, if the recipient is a state or municipal cultural organisation. It simultaneously proposes to include donations from organisations to state and municipal cultural institutions and non-profit foundations for the formation of endowments as part of overhead costs for income tax purposes.
The second draft law, ‘On the introduction of amendments to the Tax Code of the Russian Federation in connection with the improvement of mechanisms for the formation and use of financial endowments by non-profit organisations’ aims to strengthen the financial sustainability of the activities of socially-orientated NGOs, to increase in the volume of special purpose revenue they receive, and to attract long-term financing for largescale social projects.
The draft law provides corporate income tax payers with tax deductions on income received in the current tax period to the value of donations to tax-paying non-profit organisations for the formation or replenishment of financial endowments. The draft law was developed by the Ministry of Economic Development in 2013 and has twice been subject to public discussion on www.regulation.gov.ru. In August 2014 the draft law was submitted to the government; however a decision has yet to be reached.
The participants in the readings noted that the draft law developed by the Ministry of Economic Development and that developed by senators and deputies are, in principle, aimed at one and the same thing.
“The Ministry of Economic Development proposes to establish the right to tax deductions on income received in the current tax period. While we say that this should be the amount which the taxpayer has spent on the formation of endowments for non-profit organisations, our senator colleagues say that it should be the sum of donations to cultural institutions and the formation of endowment funds for those same cultural institutions. But we are shooting at the same target. We would like to combine these things together, because we want to make amendments to one article of the Tax Code”, says Head of the Ministry of Economic Development’s Department of social development and innovation Elena Yasinskaya.
The two draft laws have in common the provision of incentives to companies donating to financial endowments. However in this sense the Ministry of Economic Development’s draft law is broader, notes the Executive Secretary of the Donors Forum Natalya Kaminarskaya. In her view, it should be included in the ‘cultural’ draft law that expenditure in the form of donations can go not only to the formation of financial endowments, but also to their replenishment.
“A financial endowment is the most transparent model, requiring no additional documentation, where it is possible to monitor the use of these funds. This monitoring is carried out, in particular, by the board of trustees… If we look at how financial endowments work, they grow over time, and major donors are not individuals but companies. Therefore it should be stated that funds can be used on both the formation and the replenishment of a financial endowment”, considers Kaminarskaya.
Furthermore, in her words, if the ‘cultural’ draft law offers support only to cultural institutions, then the Ministry of Economic Development’s draft relates to all organisations which are covered under legislation on financial endowments.
According to Oksana Oracheva, General Director of the Vladimir Potanin Foundation, the Ministry of Economic Development’s draft law is more general and in order to be combined with the ‘cultural’ draft it must be more precise. She suggests ‘cleaning up’ the draft law employing terminology already used in other legislation, especially with regard to the law on endowments. In addition, the expert proposes extending the list of recipients of donations to include not only state and municipal cultural organisations, but also NGOs operating in the cultural sphere.
“Now many state cultural organisations – museums, theatres, galleries — are creating development foundations which actually collect donations. It is not the museums which receive donations, but their foundations. We have private theatres and museums which are established as NGOs. If the provision is extended to all non-profit cultural organisations, this will promote the development of cultural institutions in general”, says Oksana Oracheva.
Overall, participants in the reading welcomed the initiative to provide tax breaks to benefactors and philanthropists, and believe that both draft laws should be harmonised to ensure that everyone who donates receives preferential treatment.
Author: Yulia Vyatkina