Aillagon Act: 10-year anniversary of France s TAX INCENTIVES FOR PHILANTHROPY program: what do you make of it? Survey

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1 Aillagon Act: 10-year anniversary of France s TAX INCENTIVES FOR PHILANTHROPY program: what do you make of it? Survey

2 Summary of the French tax incentives for philanthropy program created by the Aillagon Act Act no of 1 August 2003 on philanthropy, associations and foundations, the so-termed Aillagon Act, instituted a tax incentive system aimed at promoting corporate and individual philanthropy in France, whose main features (ordinary law regime) are as follows: for businesses (Art. 238 bis, FTC): corporate income tax reduction equal to 60% of the amount of gifts (in cash or in kind) made to general interest bodies or charities, subject to an annual giving limit of 0.5% of the company s turnover. If the limit is surpassed, the business has five fiscal years in which to use its tax reduction. for individuals (Art. 200, FTC): individual income tax reduction at the rate of 66% of the amount of any gifts made to general interest bodies or charities, subject to the limit of 20% of the donator s taxable income, with a 5-year carry-forward possibility if the limit is surpassed. Survey conducted in October 2013 by the Philanthropy, Foundations & Businesses team. The following analysis is based on the 213 replies received from professionals concerned by this subject. 2 SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM?

3 1 A law considered to be very positive for corporate philanthropy QUESTION 1: In your opinion, the French tax incentives for philanthropy program in place since 2003 has: (several answers possible) 58.5% 48.3% 35.8% 14.0%... made it possible to significantly develop THE FINANCING OF GENERAL INTEREST BODIES... encouraged businesses to take SOCIETAL ISSUES MORE INTO ACCOUNT... contributed to the emergence of a culture of PRIVATE GIVING IN FRANCE... a limited impact with regards to the APPLICABLE TAX INCENTIVE Around 58.5% of professionals consider that the Aillagon Act has had a real impact on the development of corporate philanthropy. For 48% of the survey participants, the tax incentives for philanthropy program has also played a direct role in inducing businesses to take societal issues more into account. These responses are very encouraging, as only a small minority of participants (14%) consider that the tax incentives for philanthropy program has not had a real impact. 3

4 QUESTION 2: The French tax incentives for philanthropy program gives businesses tax relief on 60% of the support they provide (in cash or in kind) to general interest bodies. After 10 years of existence, do you see this tax regime as: 56.8 % 24.6 % 11.1 % 2.5 % 5% A real accelerator for the development of corporate philanthropy 11.1% Insufficient to develop philanthropy 2.5% An excessive tax break in a period of economic crisis Other 5% 24.6% Attractive for businesses but subject to overly restrictive conditions of application 56.8% For around 57% of the people surveyed (only one answer possible), the tax scheme is the true accelerator of philanthropy. The tax relief is not seen as unjustified, even in a period of economic crisis. On the other hand, almost a quarter of the professionals consider that the conditions for applying the tax incentives for philanthropy program are too burdensome and undoubtedly slow down the growth of philanthropy in France. 4 SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM?

5 Eligibility criteria for the French tax incentives for philanthropy program under ordinary law Two main conditions must be met, which are strict and not sufficiently known: Philanthropy involves a gratuitous operation. However, for businesses, the gratuitous nature of philanthropy: does not preclude associating the corporate sponsor s name with the operation it is sponsoring; will not be called into question if the economic consideration or advantages granted to the business by the sponsored partner remain disproportionate (a ratio of 1-to-4 is tolerated between the amount of the gift and the corresponding consideration). To qualify as philanthropy, the gift must be made to an body of general interest (association, foundation, endowment fund, etc.) For tax purposes, the general interest criterion means: disinterested management, engaging in a non-profit activity (non-competitive or of social utility), not functioning merely for a limited circle of people, an action in at least one of the fields provided for by statute: environment, social work, culture, sports, education, research, etc. It should be noted that the territoriality rules (location of the registered office and, above all, of the actions of the body receiving support under the tax incentives for philanthropy program) have been under discussion since January 2012, when the French Ministry of Finance decided to review the framework of the geographic distribution of philanthropy in Europe and at an international level. 5

6 2 Main beneficiaries of the Act: NPOs ( associations, endowment funds foundations etc.) and culture QUESTION 3: In your opinion, over the last ten years, the French tax incentives for philanthropy program has benefitted primarily 32.4 % EVERYONE TAX INCENTIVES FOR PHILANTHROPY PROGRAM 46.3 % RECIPIENTS NPOs are the main beneficiaries of the Aillagon Act, according to over 46% of the participants, well ahead of businesses (14.5%) and individuals (2.4%). More generally, 32% of participants consider that this reform has benefitted all stakeholders % BUSINESSES In other words, insofar as the system primarily benefits the final recipients (the NPOs), and not the donators (beneficiaries of the tax relief), the professionals viewpoint is the complete opposite of a tax break logic which some people evoke to describe the tax incentives for philanthropy program. 4.4 % NOT MANY PEOPLE 2.4 % INDIVIDUALS 6 SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM?

7 QUESTION 4: In your opinion, which sector has benefitted most from this reform? HUMANITARIAN SOCIAL WORK 17 % ENTREPRENEURSHIP 3 % SPORT % 9.50 % HEALTH 3.50 % 3 % 34 % 2.50 % ENVIRONMENT 3 % SCIENTIFIC RESEARCH GENERAL AND HIGHER ÉDUCATION CULTURE AND HERITAGE As for the winning sectors, culture (34%) is considered as the leading beneficiary of philanthropy ahead of social work (24.5%) and humanitarian (17%). On the other hand, the environment (3.5%) and scientific research (2.5%) are perceived by professionals as being insufficiently covered by the tax incentives for philanthropy system. This result is undoubtedly the fruit of the communication efforts undertaken, particularly since 2003, by the French Ministry of Culture and its Philanthropy Task Force. 7

8 YES 94.2% QUESTION 5: The French tax incentives for philanthropy program limits giving to 0.5% of the annual turnover. Do you think this annual tax limit: NO 51.1% IS APPROPRIATE YES 48.9% NO 5.8% NEEDS TO BE ADJUSTED An overwhelming 94% majority of businesses want the tax incentives for philanthropy program to be modified primarily in favor of SMEs, particularly by adjusting the turnover-based tax limit. This position is not surprising: mediumsized companies very (too?) quickly reach the annual giving limit of 0.5% of their turnover *(see summary on page 2). Whereas what large groups, particularly companies on the CAC 40, actually reach their annual giving limit?...is appropriate...needs to be adjusted according to the business, particularly to make it more accessible to SMEs and very small companies In order to develop corporate philanthropy across the whole country, it seems that the annual giving limit should be adjusted to take into account the size of the company. 8 SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM?

9 3 Changes expected in favor of SMEs and hybrid schemes QUESTION 6: In your opinion, what will be the main trends in corporate philanthropy in the coming years? Philanthropy will develop through other forms of support for the social and solidarity economy Strong growth in philanthropy in the form of giving skills A rise in all forms of philanthropy No major change Most of the survey participants (53%) think that philanthropy will continue to grow in a hybrid form crossed with other techniques or tools linked to general interests (the social and solidarity economy, SRI, crowdfunding, etc.). This spirit of opening up philanthropy to new areas and approaches reflects a real issue: philanthropy is one of various means (such as taxation, subsidies, etc.) of meeting countless modern societal needs. Therefore, the question is whether the legislator should not look more closely at this opportunity and open up the tax incentives for philanthropy program to certain other areas 53.5 % 18.1 % 17.5% 10.9 % * (Socially Responsible Investment, crowdfunding...) 9

10 4 Lawyers are viewed as the best partners for project leaders jet QUESTION 7: Who would you turn to first for support with a major philanthropy project, either directly or by setting up an association, foundation or endowment fund? A SPECIALIZED LAWYER AN ACCOUNTANT 42 % 8.7 % 28.9 % 9.2 % 1% A BANK A SPECIALIZED CONSULTANT 0.5 % 9.2 % AN INSTITUTIONAL NETWORK A NOTARY NONE OF THESE, I WOULD PREFER TO HANDLE THE PROJECT ALONE INTERNALLY 0.5 % A COMMUNICATIONS AGENCY A specialized lawyer is viewed as the best partner to assist with philanthropic projects (42%), followed by a specialized consultant (28.9%). This is a logical result, given that tax expertise (corporate taxation, NPOs, wealth and assets) and legal expertise (drafting bespoke agreements, setting up philanthropic vehicles, etc.) is necessary in order to put the tax incentives for philanthropy program into practice. However, it is necessary to highlight the importance of the work of philanthropy consultants to construct real strategic projects or to provide general support to smaller project leaders. 10 SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM?

11 5 Prospects for philanthropy: what are businesses looking for? FIDAL and the philanthropy sector Our survey gave professionals a chance to indicate what improvements they would like to see in the area of philanthropy. The first area for improvement would be to ensure a better promotion of philanthropy, because it is still unknown and misunderstood by many economic players, particularly SMEs, despite the many measures taken both nationally and locally since Another measure which many businesses are calling for is tax relief on international gifts, first in Europe, where tax relief on gifts is still considered to be too restrictive and complex despite the progress that has been made through EU case law. Also, the participants regularly mentioned the need to increase the number of sectors eligible for the tax incentives for philanthropy program, in order to better meet societal needs. In particular, many businesses would like a guarantee that the tax incentives for philanthropy program will be continued. This demand for legal certainty seems to have been heard by Aurélie Filippetti, Minister for Culture and Communication, who announced at the Philanthropy Meetings on 5 and 6 November 2013 in Paris that the Government was committed to maintaining the current tax regime for philanthropy until Ever since the tax incentives for philanthropy program was introduced 10 years ago, FIDAL s Foundations, Philanthropy & Businesses team has been advising the firm s clients companies, private individuals and general interest bodies on this subject. Our lawyers put these tax incentive rules into practice on a day-to-day basis and are thus fully conversant not only with the strict conditions for implementing the rules but also with the various legal vehicles which benefit from this fuel (foundations, endowment funds, associations, etc.). They are capable of listening to and answering the needs of an evolving society looking for innovative, hybrid and alternative economic or societal models. 11

12 Contacts Stéphane COUCHOUX Partner Head of the Foundations, Philanthropy & Businesses team Stéphane GODLEWSKI Philanthropy strategy consultant Foundations, Philanthropy & Businesses team SURVEY WHAT DO YOU MAKE OF FRANCE S TAX INCENTIVES FOR PHILANTHROPY PROGRAM? FIDAL 2014