A tax that taxes philanthropy ? That sounds very strange, but this practice is still a reality in Brazil because of the ITCMD (Inheritance and Gift Tax) . Now, a very important step is about to be taken in Congress so that civil society organizations will finally be free from this tax. In this post from the Movimento Bem Maior Blog, you will understand more about the exemption and why it is super important for the culture of giving.
Current scenario
The ITCMD (Inheritance and Gift Tax) is a state tax, meaning each state government sets its own rules. Therefore, the criteria and rules for applying this tax have varied throughout Brazil. The tax rates also vary between states, but the maximum rate, set by the Senate, is.. 8%.
As the name itself indicates, the tax aims at the transfer of property or rights left upon the death of the owner to be distributed to the heirs, and also aims at the transfer in cases of various donations .
Thus, it covers very different situations : the tax has the potential to apply to private donations (such as an apartment passed from father to son), but also to contributions made to philanthropy (such as a donation made to an institution that works on social causes).
In other parts of the world, there is usually a different treatment . When analyzing the taxation of inheritances and donations in 75 countries, a study – published in 2019 by GIFE (Group of Institutes, Foundations and Companies) and the Getúlio Vargas Foundation – observed that only our country, Croatia, and South Korea taxed private donations and contributions to civil society organizations without differentiating between them.
Advocacy
The fact is that the current state of the Brazilian ITCMD (Inheritance and Gift Tax) represents a barrier that discourages the establishment of a culture of giving in Brazil. And organized civil society has led in-depth discussions on several fronts, both at the state and federal levels, to convince authorities of the need to change the legislation .
As a result of these mobilizations, some specific victories had already been achieved, as was the case in Rio de Janeiro, which exempted private law associations and foundations that maintain activities with social objectives. The demand to not tax philanthropy gained increasing strength in the country, and today we have the chance to approve a clear national rule through Constitutional Amendment Proposal No. 45/2019 , the PEC that makes the Tax Reform .
While a plan for a new tax system was being discussed in Brasília, several organizations expressed their views on the importance of the ITCMD (Inheritance and Gift Tax) ceasing to affect the field of private social investment. Meetings were held, and the suggestion from the NGOs was accepted by the Ministry of Finance and by members of parliament, and incorporated into the text of the Proposed Amendment to the Constitution.
Approval in Congress
The rapporteur for the Reform, Deputy Aguinaldo Ribeiro (PP-PB), highlighted this crucial topic during the reading of the final report: “Regarding the ITCMD (Inheritance and Gift Tax), exclusion of the tax on transfers and donations to non-profit institutions with a purpose of public and social relevance, including welfare and charitable organizations of religious entities and scientific and technological institutes, and carried out by them in the pursuit of their social objectives, subject to the conditions established in complementary law.”
The Tax Reform was approved in a second vote in the Chamber of Deputies by 375 votes in favor, 113 against, and three abstentions, in the early morning of July 7th. The Constitutional Amendment Proposal (PEC) went to the Senate , where the matter will also need to be voted on.
Impacts on the sector
If confirmed, the exemption of this tax for civil society organizations will have a very large impact . It will help with the financial sustainability of CSOs and the strategic social action they undertake. With more resources, their work can be strengthened in the pursuit of social innovation and systemic transformation.
It is very important to have a national rule, with legal certainty, without the current bureaucracy and obstacles, which today vary from state to state. The lengthy processes and the legal risk of taxation contribute to discouraging social investors . Strengthening private social investment requires a regulatory environment that encourages and expands the culture of giving.
Granting ITCMD (Inheritance and Gift Tax) exemption to social organizations means eliminating an obstacle that hinders the increase of donations in Brazil .
">
