In a report published on Wednesday February 10, the French Audit Office (Cour des Comptes) highlighted the inadequacy of the tax authorities' controls on tax-exempt donations to associations, which it deems to be "few in number and not very thorough".
Tax advantages for donations to associations
As the Cour des Comptes reminds us, the taxation of donations to associations represents a major issue. There are over 1.5 million associations in France, which in 2018 received 7.2 billion euros in subsidies and 3.7 billion euros in tax benefits.
5.5 million households and 77,000 companies benefit from the sponsorship tax scheme, which enables them to obtain a reduction in income tax, property wealth tax and corporation tax in exchange for donations to associations.
The amount of these exemptions is estimated at 1.5 billion euros for income tax, and 0.8 billion euros for companies (combining corporate and income tax).
However, a special French feature allows associations to issue tax receipts without prior approval, provided they meet the following criteria:
- be of general interest
- and carry out a principal activity of a "philanthropic, educational, scientific, social, humanitarian, sporting, family or cultural nature, or contributing to the enhancement of the artistic heritage [...], the protection of the natural environment or the dissemination of French culture, language and scientific knowledge".
It is only in the event of a tax audit, or a request for a rescript by the association, that the tax authorities can verify the validity of the sponsorship scheme.
The Court of Auditors questions the rescrit procedure
According to the Court of Aud itors' December 8, 2020 referendum, "tax administration checks on beneficiary associations or donors are few and far between, and fines for non-compliance with the rescript are not very dissuasive".
Moreover, the rescrit procedure has come in for criticism, and its scope is deemed uncertain. The rescrit, and more specifically the " sponsorship rescrit ", is a procedure that enables an association wishing to ensure its legal security to question the tax authorities on its right to receive donations and to issue tax receipts itself.
The Cour des Comptes does not consider this procedure to be entirely satisfactory, firstly because it is optional. Each association is free to decide whether or not to apply for a rescript.
What's more, the rescript is subject to a number of conditions, and "is only valid at a given point in time, in the light of the association's situation and the documents submitted".
Lastly, the fine incurred by an association failing to comply with the rescript issued is deemed to be of little deterrent effect.
The question of ideology
At a time when the bill to combat separatism and the article on religious associations are the subject of debate, the Cour des Comptes considers it desirable to "strengthen the means of control and reporting obligations [...] in particular to ensure that associations benefiting from the sponsorship scheme respect the values of the Republic".
The Cour des Comptes targets 3 categories of associations:
- associations "conveying a political message",
- militant or advocacy associations
- and religious or sectarian associations.
The assessment of these so-called "ideological" associations is guided by an internal memo from the tax authorities, which the Cour des Comptes considers "highly imperfect"." It is based on fragile legal foundations, leaving a large part to the sometimes subjective assessment of the administration, and the Court has noted that its application is heterogeneous across the country", states the report.
The Cour des Comptes therefore makes three recommendations concerning tax-exempt donations to associations.
- Firstly, she would like the tax authorities to rely not on an internal memo, but on sector-specific fact sheets published in the Bulletin officiel des finances publiques (BOFiP).
- It is also calling for an increase in the number of inspections.
- The reinstatement of the appendix to the tax return "detailing the list of associations receiving donations and the amounts granted".
The aim is to ensure better control of both associations and donors.