ITALY: The government doubles taxes on non-profit sector (UPDATED)

UPDATE 28 Febbraio 2019: at the end of January, the IRES was changed back to 12%:

UPDATE: the measure was approved by the Parliament and came into force on 1st January.

(Translated with DeepL from il Post) The most controversial rule of the budget law will harm thousands of charities and research foundations, but the government promises to change it

Among the tax increases provided for by the Budget Law, one of the most controversial doubles the taxation for non-profit organizations involved in solidarity activities, such as research foundations, charities, schools or hospitals and literary and scientific associations. The new norm will concern associations such as the Red Cross and the Community of Sant’Egidio, research centres such as the European Institute of Oncology and the Humanitas hospital in Milan, but also the Catholic schools. After receiving much public criticism this morning, the Vice-President of the Council Luigi Di Maio said that the measure will be changed in the coming weeks.

If the manoeuvre is definitively approved by the Chamber – as it seems obvious – the increase in taxes will begin on January 1 and will act through the abolition of the IRES rate (the tax paid on company profits) reduced to 12 percent for entities with solidarity purposes. The preferential tax will therefore be replaced by the ordinary rate of 24 per cent. The intervention should bring 118 million euros to the state coffers in 2019 and 158 million in 2020.

The tax regime should have been abolished in the coming years, as soon as the new reform of the so-called “third sector” by the government Renzi entered into force . In the meantime, however, non-profit organizations and associations would have benefited from the transition’s tax concessions that the government has decided to abolish.

According to the latest ISTAT data, in our country there are over 343 thousand non-profit institutions that employ more than 800 thousand employees and 5 million volunteers. The most numerous companies are those that deal with recreational activities, but more than 60% of employees in the sector are employed in institutions that provide social and health care, education or research.

The decision to raise taxes on the third sector is part of a series of tax increases and spending cuts that the government has included in the budget law to reach an agreement with the European Commission and avoid the infringement procedure, including the partial freezing of inflation adjustments for pension benefits of more than one thousand euros net, a series of cuts to tax breaks for businesses and the increase in taxes on gambling.

“So many activities in this way will no longer be sustainable. I fear that we have underestimated the impact of this rule,” said Claudia Fiaschi, spokeswoman for the Forum of the Third Sector, the organization that brings together non-profit organizations and associations. Fiaschi asked for a change to the rule during the transition to the House of Parliament, where the stability law will come today, but the government has already ruled out this hypothesis: the stability law will be quickly approved without any change, to avoid a new move to the Senate that would force the government to enter the so-called “provisional exercise”.

This morning, however, Di Maio promised that the norm will soon be changed. “I pledge to amend it in the first useful measure”, Di Maio said. “They wanted to punish those who do fake volunteer work – continued Di Maio, citing for the first time this reason to justify the rule – and it came out a rule that punishes those who have always helped the weakest. Di Maio then added that he would soon meet the community of the Friars of Assisi, one of the many religious associations that would be penalized by the measure. Shortly afterwards, the President of the Council, Conte, announced his intention to “recalibrate” the norm. Finally, Salvini also said he wanted to change the law to help those who “really volunteer” and hit the “cunning”.

Salvini had been particularly attacked in recent days because of the law, attracting criticism from various organizations affiliated to the Catholic Church, one of the most committed in the non-profit world. The CEI, the organization that gathers the Italian bishops, had harshly opposed the rule and its president, Cardinal Gualtiero Bassetti, had criticized Salvini by calling the measure a “provocation” against the Church. “Mr. Minister, take it out on whoever you want, with the bishops, with the Catholic press, with the sneaky priests and careerists but don’t touch humanity”, he said.

The new rule is particularly damaging to religious institutions, which will lose the reduced rate and will not be able to access the new tax system for the third sector in the future. Among others, Gabriele Sepio, one of the consultants who worked on the reform of the non-profit sector as well as a member of the National Council of the Third Sector, spoke about it in the Catholic monthly magazine Vita.

“With the budgetary manoeuvre, therefore, this type of entity loses immediately, like the others, the possibility to apply the rate of 12 percent and, subsequently, to maintain it for commercial activities carried out directly by the entity outside the branch “third sector”. Think of a religious body that carries out training activities, or social health: in the hypothesis of taxable income equal to 400 thousand euros, the body would benefit for 2018 of the IRES rate halved to 12%, thus paying 48 thousand euros in tax. With the changes introduced by the budget law, the same entity would pay from 2019 a doubled tax, that is, 96 thousand euros.”

The concrete effects of the law are likely to be particularly profound for thousands of charities and tens of thousands of people. Luca Degani, president of UNEBA Lombardy (an association that collects 350 foundations for services to children, the elderly and the disabled), explained to Repubblica what could be the effects of the manoeuvre on some of its members.

“A reality such as Girola, which every year guarantees 150 scholarships for orphans with the proceeds of real estate, seeing its taxation double from 200,000 to 400,000 euros, will be forced to cut: 50 children will not have paid for their studies and a different future. Restelli of Rho, which manages home care for the elderly, for example, will have 60 thousand euros less to spend, which means less care for all. And the Arca association, which among other activities guarantees 3,000 meals a day, will no longer be able to do so”.