Formal requirements for tax
exemption status of non profit
entities
Prof. Fabrizio Amatucci
EATLP Congress 2012
Taxation of charities
1
Formal and material requirements for
tax exempt status
• Selection of criteria ( formal and material)
• Analysis and evaluation of opposing interests in relation
to formal and material requirements of non profit entities
(NPEs) in National Tax Systems
• Existence of mixed systems (formal and material) in
most EU Member States
• Difficulties of distinguishing formal and material
conditions ( e.g final destination of revenue criteria )
2
Arguments in favour and against formal
requirements
• Formal requirements ( authorizations, registrations, formalities)
define the prevailing purpose of a body as stated in its founding
articles .
•
Certainty and simplification of assessment for the Tax Authorities
• Formal requirements can be used to guarantee the existence of
material conditions
• Some requirements (registration and other formalities) can be
unrealistic
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Compatibility of formal requirements
with EU Law
• Difficulties in assessment of formal requirements of non resident
NPEs and refusal of tax benefit.
• The ECJ in Stauffer ruling considers difficulties of purely
administrative nature not sufficient to justify a refusal.
• The Proportionality principle ( ECJ Judg. Hein Persche – Paint
Graphos p. 75) in the elaboration and application of formal criteria.
• No presumption can exclude automatically non commercial activities
on the basis of failure to comply with a specific formal condition
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Difficulties concerning application of
material conditions
• Material requirements (nature of activities, effective purpose, size
and absence of business activities, remuneration of activities etc)
are complex for Tax Authorities to assess.
• Absence of common characteristics to define business activity and
supporting activities in different Member States makes it difficult to
grant non profit tax status on the basis of material requirements.
• Different ECJ notions of business activity: the influence on free
competition ( France, The Netherlands and Finland are compliant )
5
Non relevance of purpose in State aid rule
•
State aid ( additional) requirements influence tax allowances systems
including advantages to NPEs
•
The objective pursued ( public benefit too) by State measures is not
sufficient to exclude those measures outright from classification as ‘aid’ for
the purposes of Article 87 EC” (see, inter alia, Case C-487/06 P British
Aggregates v Commission [2008], Cassa di Risparmio di Firenze SpA
judgm. C-222/04 SpA of 2006, and Paint Graphos p. 67
•
Tax exemptions which are the result of an objective that is unrelated to
the tax system of which they form part must comply with the requirements
under Article 87(1) EC ( Paint Graphos p. 70).
6
Extension of formal requirements to non
resident non profit entities
• To avoid discrimination additional conditions should not
be required from non resident non profit entities
• The ECJ (judgm. Stauffer p. 40 and Hein Persche p. 50,
Huekelbach of 2011 p. 34) does not accept justification
of differential treatment based on the difference
between two entities
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Conclusions
• Requirements for tax exemption status of non profit entities and non
profit activities in EU member States should still be predominantly
formal
•
Difficulties to assess the effective nature of activity and the real
purpose without reference to statutory clauses.
•
Formal conditions can be used to guarantee the existence of
material conditions.
• Harmonization of formal conditions ( as for Foundations) is
desirable for all NPEs
•
Material requirements should be allowed only in exceptional cases
in which there are difficulties with formal conditions.
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