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Taxation of Patronage. The necessary strengthening of the non-profit sector.

Fundación Impuestos y Competitividad considers this to be the appropriate time to reflect on the status of the special scheme for non-profit entities, including the provisions on sponsorship and patronage, despite the latest legislative reforms affecting the tax treatment of patronage. The increasing responsibility taken on by non-profits in finding solutions for the social, educational and cultural issues caused in Spain by the economic crisis, which are on the way to being resolved, combined with certain relevant restrictions or limits that remain, are sufficient arguments to take the view that the sector needs to be strengthened.

A comparison of the Spanish model with the solutions applied in other countries, and the areas of uncertainty encountered in daily aspects of the sector’s activities, or the specific situation of the “banking foundations” brought about by the transformation of savings banks following the crisis in the industry, which are responsible for very important community projects, have further stimulated the need for this analysis and defined its structure.

For these and other reasons, the book “Taxation of Patronage” (Fiscalidad del Mecenazgo) was presented in Madrid, on 22 May, at the headquarters of Fundación Ramón Areces, which has collaborated in the promotion of this Fundación Impuestos y Competitividad project.

At the top table sat Mr. Raimundo Pérez Hernández and Mr. Victor Mendoza Díaz Aguado, the director of Fundación Ramón Areces and the chairman of Fundación Impuestos y Competitividad, respectively, who presented the project and the contributions made in the ordinary course of their activities. Also present were Mr. Javier Nadal Ariño, the chairman of the Spanish Association of Foundations and Mr. Manuel de Miguel Monterrubio, the deputy director general for income tax at the Directorate General for Taxation, who commented on the relevance of the matters addressed in the book from the viewpoint of the foundations sector and the Ministry of Finance.

Following their comments and the event’s formal opening, a second table was formed, chaired by Miguel Cruz Amoros (representing PwC Tax and Legal Services, the firm coordinating the project), who was accompanied by the general coordinators of the three areas of analysis covered by the project. They summarised the book’s content in the following order:

  • Isidoro Martín Dégano (UNED) commented on “Highlights of the tax scheme for patronage”;
  • Alejandro Blázquez Lidoy (Universidad Rey Juan Carlos) referred to the analysis of “Comparative law”;
  • Antonio López Poza (lawyer-tax advisor) summarised the “Appearance of the Banking Foundation patronage model”.

The speakers emphasised the project’s development model, in which the general coordinators were supported by representatives of all Fundación Impuestos y Competitividad’s trustees and by distinguished people from academia, the foundations sector and the central tax administration (Ministry of Finance).
Their comments made it clear that it is difficult to draw simplistic conclusions on this work, in which a broad range of subjects are analysed by a variety of authors. They did, however, mention that there is a “list of improvement proposals” at the end of the book, which simply groups together the individual proposals made by the authors of each paper. An interesting approach is offered to the main matters to be addressed should the patronage tax scheme undergo a desirable review.

The list of proposals includes:

  • afford equal treatment to entities formed abroad with similar objects, even if they are not registered in Spain, in line with the European Court of Justice’s stance;
  • definitively confirm the suitability for protection under the special scheme of the heritage foundations (“fundaciones patrimoniales”), which achieve their purpose by making donations to other entities;
  • extend tax benefits to cover donations of services;
  • resolve the issue of donations with minor financial advantages for the donor, particularly in the case of collaboration arrangements in which the collaborator receives a small consideration in addition to the announcement of their participation;
  • create a tax scheme that attracts large donations, which is not currently the case, since the existing scheme only targets micropatronage;
  • as regards activities prioritised by law, benefits for private-sector entities should be afforded the same treatment as benefits for public entities, and other social activities should be included alongside cultural activities and R&D;
  • resolve the fiscal cost of corporate donations to food banks, stimulating a suitable amendment to the value added tax regime in the EU;
  • the comparative law analysis reveals better treatment for large donations, or at least higher limits for tax deductible donations, as well as solutions for mixed donations or donations of services, or a deduction entitlement for volunteer expenses, in some cases,
  • as regards the banking foundations created following the savings bank crisis, a review of the tax scheme is recommended since it is incompatible with the special scheme for non-profits, which on occasions complicates funding in the form of donations and the continuity of their community projects.