Legislative changes stops accessing 20% of the tax facility

Legislative changes stops accessing 20% of the tax facility

Companies are increasingly responsible for community problems, but legislative changes dramatically reduce the number of those who could use the tax incentive facility to target up to 20% of corporate tax to the non-government sector.

EY Romania in partnership with the Association for Community Relations and HOSPICE Casa Sperantei, in the period October - November 2018, in the joint promotion of the Sponsorship Law, carried out a survey between October - November 2018 to evaluate the notoriety and accessibility of the facility tax rate of 20% among local companies that have an annual turnover of at least 1 million euros.

Questions were answered by 59 corporation taxing companies, out of which 58% with a turnover of more than 10 million euros and 42% between 1 and 10 million euros.

The main findings of the research:

  • Fiscal Facility is more and more known among companies, a significantly higher percentage of respondents heard about this mechanism in 2018 (97%) compared to 2015 (87%).
  • The main motivation of those who directed funds to NGOs through this mechanism in fiscal year 2017 is the responsibility for community issues (75%).
  • Areas targeted by funds in 2017 are: education (68%), health (64%), social services (55%), culture (41%), medium (11%), sports (9%).
  • Most of the companies chose to target funds to NGOs (94%), but also to schools (30%), hospitals (26%), individuals (21%), churches (11% by the entity (23%).
  • 84% of business representatives said they are constantly supporting one or more non-governmental organizations through sponsorship.

However, only one of two companies taxed on profits throughout the year 2017 chose to use the 20% tax facility.
This estimate was made by the Association for Community Relations based on analysis of data on turnover and net profit for over 124,000 companies and extrapolation of the results obtained from the data provided by ANAF.

According to ANAF data, in 2017, 27,784 companies registered sponsorship expenses, mecenate or private scholarships, targeting non-profit entities, including non-governmental organizations, the total amount of over 1.27 billion lei (280 million Of euro)

If all companies were directed to the non-government sector, the maximum amount provided by law - over 2.25 billion lei (494 million euros) could have key areas such as health, education and the environment, the Association for Community Relations estimates.

Three Ordinances That Stop the Access and Benefits of the Sponsorship Law

Although Romania grants tax incentives to sponsors, according to law no. 32/1994 on sponsorship and law no. 227/2015 - The Fiscal Code, the legislative changes in the last two years dramatically reduce the number of companies that could use the state-granted facility and especially the funds that could be directed to the development of the communities in which they operate.

Ordinance 3/2017 amending the Fiscal Code, whereby the maximum turnover limit for microenterprises was increased from EUR 100,000 to EUR 500,000, it decreases by 63% the number of companies that can use the Fiscal Facility and by 10% the amount that can be direct.These companies, which had a total sponsorship potential of over 50 million euros, became subject to income tax, not profit, without the possibility of directing a percentage of profit tax to social causes.

Ordinance no. 79/2017 for the amendment of the Tax Code, whereby from 1 January 2018 all companies with a turnover of up to EUR 1 million are taxed on the basis of turnover and not of profit, result in a 78% decrease in the percentage of companies that can no longer make sponsorship deductible, and generate a drop of about 17% of the total amount of money that could be directed at national level. The potential for sponsorship estimated by the Association for Community Relations is 82 million euros.

Additionally, the two ordinances generate an unfair environment for tens of thousands of companies that, for identical behavior, do not benefit from the same tax incentives as companies taxed on a profit basis.

According to Ordinance 25/2018, only non-governmental organizations that are accredited social service providers with at least one licensed social service are eligible for sponsorship, while other organizations in key areas such as education, the environment, or even some organizations in the field medical, are restricted.
Eligible organizations represent about 5% of all non-governmental organizations active in Romania.

The negative impact of these changes is reflected in most non-governmental organizations, especially those of small and medium size, who can no longer access large corporations or public funds, and depend on the sponsorships that these companies could have provided.

"The provisions of GEO 25/2018 allow microenterprises, taxed on the basis of turnover, to support through this fiscal facility only non-governmental organizations that offer licensed social services, but all NGOs, regardless of the field, should benefit from it.

In Romania, there are over 40,000 active nongovernmental organizations that offer absolutely necessary services in many key areas, where the state does not intervene at all or does not intervene quickly enough.
That is why the activity of these organizations, which is highly dependent on this fiscal facility, is essential.
These organizations often manage to solve society's problems more efficiently in terms of time and money than the state, "said Laszlo Bodor, NGO Capacity Building Manager, Association for Community Relations.

"All the services provided by HOSPICE House of Hope are free for patients and their families. In order to continue its work, HOSPICE House of Hope needs community involvement, and the campaign targeting 20% ​​of the income / income tax is one of the most important ways of attracting funds used by our organization.
In 2017, the amount collected by HOSPICE through this mechanism was 3,345,935 lei (712,000 EUR) and accounted for 19% of our fundraising income, "said Patricia Puschila, fundraising and communication director of HOSPICE House of Hope.

"Beginning in 2018, microenterprises can use this tax facility if targeting is done to an NGO accredited as a social service provider, as in the case of HOSPICE. Social assistance is one of the pillars of palliative care, and this year's legislative changes allow the sponsorship of accredited social services provided by the foundation.
Almost 50% of the companies that support us through this mechanism are now classified as micro-enterprises, so their contribution is essential for HOSPICE. SMEs can still direct 20% of their HOSPICE Housing House tax. Details on www.romaniafarahospice.ro ", completes Patricia Puschila.

"Good is done in Romania discriminating. In 2018, the largest social responsibility project was removed from the list of 80% of the companies in Romania who could have been involved in its construction, "said Carmen Uscatu, president of the Lifetime Gift Association. "At present, 2% of Romanian NGOs can benefit from the fiscal facility for 80% of Romanian companies that have become income tax since 2018," said Carmen Uscatu.

"From a calculation that the Lifetime Gift Association made it in-house, it turned out that 43% of the companies that supported us in 2017 can no longer sponsor us in 2018. The sponsorship potential of these companies is about 500,000 Euros. With this money, the Association could have completely renovated the oncology department of the St. Mary's Hospital in Iasi, "Carmen Uscatu said.




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