Draft law on tax concessions for business donations

Ministry of Economic Development sends draft law to Ministry of Finance on
concessional taxation on donations from businesses

If this law is passed businesses will be able to include
donations to NGOs in their non-operating expenses (amounts not exceeding 10% of
the taxable income received in the reported taxation period). NGOs that qualify
for this law are as follows: religious NGOs, who engage in authorised
activities; charitable NGOs; socially oriented NGOs, who engage in activities
in accordance with the Russian Federation’s law on NGOs; non-profit
organisations working in the field of science, culture and sports (excluding
professional sports), education, awareness campaigns, health, protection of
human rights and freedoms and civil rights, social and legal support and protection of citizens,
prevention, environmental and animal protection, as well as public charitable
trusts and foundations funded by financial endowment.

Tax incentives for businesses that support charities and
other non-profit organisations are widely used internationally. For example, in
Germany the tax base for corporate profits tax may be reduced by the amount of
donations made to NGOs, but by no more than 20% of the taxable income. In the
Netherlands there businesses make a minimum donation – each donation must be no
less than 227 Euros and no more than 10% of taxable income. This is stated in
an explanatory note from the developers of the draft law from the Ministry of
Economic Development.

According to the Russian Industrialists and Entrepreneurs
Union, the amount of donations from commercial organisations in 2011 totalled
about 150 billion Roubles. If the law is passed, developers predict an increase
in donations from commercial organisations of up to 300 billion Roubles.
Corporate tax is currently at 20%, so developers believe that for every Rouble
of lost income the budget system will accrue 5 Roubles to spend on state
projects, primarily in the social sphere.

As the explanatory note says: “Experience has shown
that business organisations provide high efficiency and effectiveness from
their spending on charitable activities and social problems.” According to
the authors of this note, the adoption of this stimulating amendment will also
create conditions for further development of NGO-targeted capital, improving
the financial sustainability of social-oriented NGOs (including state and local
government agencies) and religious organisations.

To prevent possible abuse, developers propose the use of a
mechanism similar to the existing practice of tax administration concerning
businesses who overestimated or do not account for their actual costs. In this
way, on detecting a transfer of donations where the aim is not for public
benefit, but with the aim of withdrawing funds without paying tax on the
organisation’s profit, the tax authorities will surcharge and recover the
amount of tax, according to established procedure. However, the Russian
Ministry for Economic Development are convinced that the bill will not lead to
a serious increase in tax abuse.


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