Non-profit organizations – towards increased control of the sponsorship system

The proposed law “Strengthening the respect of the principles of the Republic” adopted by the National Assembly on February 16, 2021 and sent to the Senate, whose purpose is to fight against “separatism” will have repercussions on the taxation of non-profit organizations (NPOs). Indeed, in order to fight against the financing of separatist ideologies, the government intends to strengthen its control over the tax regime of patronage so that these tax reductions do not benefit those against whom the law intends to fight.

The government wants to better control the condition of general interest which justifies the application of tax reductions and to reinforce the conditions of the benefit of the patronage regime for companies.

As it stands, the bill proposes to put in place greater control over all NPOs.  

The new control of the administration

The tax benefits granted to donors are, in principle, conditional on the organization fulfilling a mission of general interest that is listed in articles 200 and 238 bis of the General Tax Code (CGI) (in particular, organizations of a “philanthropic, educational, scientific, social, humanitarian, sporting, family or cultural nature, or contributing to the enhancement of artistic heritage…”).

The report of the National Assembly committee in charge of examining the bill notes that “as the law stands, the tax authorities have limited means of checking that the organizations benefiting from these tax incentives meet the eligibility conditions”.

Thus, article 10 of the bill proposes to rewrite article L. 14 A of the Book of Tax Procedures to allow the administration to verify the eligibility of donations and payments received by an organization for tax reductions and to ensure that this organization respects, if necessary, the conditions provided for in articles 200, 238 bis and 978 of the CGI.

As the legal definition of general interest is particularly broad, this provision will give the tax authorities significant discretionary power, which could be a new source of litigation.

Moreover, at this point of the bill, the text remains unclear on the modalities of this new control, which do not present procedural guarantees in favor of NPOs similar to those that exist in common law for all taxpayers. 

Reinforcement of the means of control of the sponsorship system for companies.

Article 11 of the bill creates an article 222 bis in the CGI that requires organizations issuing tax receipts to declare annually to the administration the number of documents issued as well as the total amount of donations and payments received.

Currently, individuals who wish to benefit from income tax and wealth tax reductions must be able to present the tax receipts of the organizations that receive these donations. This obligation, which does not currently exist for tax reductions granted to companies, is introduced by Article 11 of the bill.

Article 11 thus inserts a new provision in article 238 bis of the CGI which provides that the benefit of the corporate tax reduction from which a company can benefit because of its donations and payments is subject to the condition that it “is able to present, at the request of the tax authorities, the supporting documents corresponding to a model set by the authorities attesting to the reality of these donations and payments”.

The purpose of these provisions is to better measure the extent of the tax reductions granted and to facilitate tax audits.

In any case, the path from this text to its promulgation is still long. This text -very political- still has to go through the Senate, and, if necessary, the Constitutional Council. The fate of non-profits is not yet fixed.

Laetitia Squercioni, partner at UGGC Law Firm and Gaspard Salvator, intern at UGGC Law Firm