Reform of the Law of Patronage to debate

14 November, 2022
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Fiscal
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Amaia Forcada


The SAR defines patronage as “protection or assistance provided to a cultural, artistic or scientific activity”. In essence, the patron acts selflessly, driven by altruism and its social commitment.

In Spain, this activity is regulated by Law 49/2002, of 23 December, on the tax regime of non-profit entities and tax incentives for patronage. This rule was last reformed in 2014, introducing, among other issues, a 75 % deduction on the first EUR 150 donated to non-profit entities. According to data from the Tax Agency, this modification boosted the donation of natural persons from 2016, increasing the deductions for donations by more than 37 %. However, the third sector qualifies this standard, approved 20 years ago, as insufficient and obsolete, and believes that its comprehensive reform would undoubtedly increase donations and the number of donors.

According to the Spanish Association of Foundations, the Tax Agency estimated the tax cost of patronage in 2020 at just under 700 million euros, compared to the more than 15 billion euros of expenditure on general interest purposes made by non-profit entities. However, Spain is far from at the head of donations at the European level. A 2017 European Fundraising Association study places us in seventh place behind countries such as Germany, France, Italy or the Netherlands.

The non-profit organisations defend that the promotion of philanthropy in Spain goes through a reform of the tax incentives of patronage. Although they celebrate legislative changes such as that operated by Law 7/2022, of 8 April, on waste and contaminated soils for a circular economy, which abolished VAT on donations of food and non-food products to non-profit organisations, they demand a comprehensive reform of the Law on patronage. They argue that this would allow, among other things, to establish new models of social financing and to establish a greater demand for transparency.

On 20 May 2020, the Government submitted a draft law to amend the Law on patronage, whose deadline for amendments was finalised in autumn 2021. In the same year, two Parliamentary Groups presented two bills that were discussed: one is the Nationalist Parliamentary Group, which received the endorsement of the House, and another that amended it, from the People’s Parliamentary Group, and which was rejected. The first of these, presented by the PDeCAT, promoted, among other issues: a deduction of 90 % for the first EUR 150 donated to a non-profit entity, the deduction being 50 % compared to the rest of the donated amount; tax incentives benefiting donations through crowfunding; as well as deductions of up to 20 % for actions for the protection and dissemination of Spanish Historical Heritage and cities, sets and assets declared World Heritage. According to the estimates made by the Tax Agency, the deductions and exemptions provided for in this proposal would have an approximate impact on the public coffers of EUR 295 million per year.

On July 12, 2022, during the debate of the State of the Nation, the president of the Government Pedro Sánchez announced the approval of a new law of patronage, although he did not set any deadline in this regard.

However, recently the situation seems to have unraveled. The result of a Day of Debate on the Law of Patronage held last Monday, October 17, 2022 in the Congress of Deputies, a compromise has been reached to speed up the process of reforming this standard. More specifically, the Committee on Finance and Civil Service of the Congress has affirmed that next week it will convene the presentation that will begin the processing of the initiative. A news that has been celebrated by the main entities of the third sector, which also attended the event.

Such entities, including the Spanish Association of Foundations, the Spanish Fundraising Association or the Third Sector Platform, in a document entitled “Manifesto for philanthropy. Patronage cannot wait any longer,” they demand that this new rule:

1. Adjustment of the definition of non-profit entities;
2. Update the list of purposes of general interest provided for in the law (including sustainable or social impact investment and scientific dissemination or social entrepreneurship by non-profit entities);
3. Allow the third sector to participate in the definition of priority areas of patronage;
4. Make donation compatible with recognition to patrons/donors;
5. Recognise the patronage of competences or professionals;
6. Provide for new financing formulas conditional on the social impact results achieved, or the free financing of their activities;
7. Promote investment aligned with the social mission through social impact investments;
8. Encourage so-called “fondos de dotación” or “endowments”;
9. Extend the limits of deductions and adapt incentives to contribution capacity;
10. Incorporate crowdfunding platforms; y
11. Ship solutions to the payment of VAT by non-profit entities.

It remains to be seen whether or not the final text of the law will include all the demands made by non-profit entities, as well as the effects that deductions and tax incentives will have on the number and amount of donations, although it seems that the legislative process, at last, progresses.

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AEATTaxLaw

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