“State of Condition of the Draft Law of Georgia on Philanthropy, Charity and Social Partnership"

EU/UNESCO Expert Facility on the Governance of Culture in Developing Countries: Support for new regulatory frameworks to strengthen the cultural and creative industries and promote South-South cooperation

“State of Condition of the Draft Law of Georgia on Philanthropy, Charity and Social Partnership" & "The overview of the stimulation mechanisms in terms of philanthropy in different countries"

This document is prepared by Nikoloz Nadirashvili and Lidia Varbanova, national and international experts, respectively in the framework of the Project – “Designing a Creative Cluster Ecosystem in Georgia”. Its content reflects the opinion of contributing experts and can in no way be taken to reflect the views of the EU/UNESCO. Date: 15/07/2020

“Strengthening the practice of philanthropy and charitable activities makes the countries richer, not poorer. Adopting the draft law1 would indicate that the Government of Georgia strives towards the development of democracy; Later on, the implementation of the law would further act as the steppingstone towards EU integration.”

– Taso Foundation, Georgia “Philanthropy / charitable giving are the lifeblood of civil society. The support of individuals and companies, voluntarily choosing to give their money to help others, is vital to the work of non-profit organizations (“NPOs”) around the world. Although this activity is, by definition, independent of government, governments can still play a crucial role in ensuring the right legislative and regulatory conditions for such activity to thrive. This is something that all governments should strive to achieve, as a vibrant civil society sector is a key element of any healthy society.”

-

E. Quick, T. Kruse, et al.

Table of Content I. II. III. IV.

Introduction: The aim/objectives of the document, description of the research methods Terminology Rationale and Stimulation Mechanisms Current legislative framework in Georgia

V.

Reasons for not adopting the Draft Law on Philanthropy, Charity and Social Partnership and the amendments in the existing Tax Code

VI.

An overview of philanthropy/charity-related incentives on international level.

VII. Conclusions and recommendations VIII. Action plan IX. Appendices

1 Draft Law of Georgia on Philanthropy, Charity and Social Partnership developed by Taso Foundation.

I.

Introduction: The aim/objectives of the document, description of the research methods

The scope of philanthropic & charitable activities extends culture and creative industries.

Philanthropic & charitable activities facilitate the solution of critical problems in different life areas (human rights, health, education, etc.), which further hinder the development of democracy and social justice.

Considering the existing centralized system of funding within the CCI sector in Georgia, the practice of philanthropy & charity is of vital importance for the development of many CCI sub-sectors, amongst them, creative spaces - further leading to strengthening the diversity of cultural expression.

The document describes the state of condition of the existing legislative initiatives on the national level and contours necessary steps to be taken considering international best practices. Therefore, the objectives of the document are: [1] to bring concrete arguments advocating the adoption of legislative/fiscal stimulation mechanisms for philanthropic & charitable practice; [2] to discuss the existing status-quo and point out the major stimulation mechanisms within the Draft Law; [3] to identify main arguments of the Georgian decision- and policymakers for resisting the adoption of the proposed Draft Law and/or the development/initiation of other stimulation mechanisms; [4] to make an overview of state support schemes for strengthening philanthropic & charitable activities in different countries; [5] and finally, to provide the Action Plan for the Georgian decision- and policymakers, also for the civic sector to level the reform up.

The research methods for developing this document comprises secondary data analysis and in-depth interviews. During 6-months long period CCI- and philanthropy & charity-related literature (both: national and international documents, such as: research and policy papers, tax codes and relevant normative acts, draft laws, reports, official correspondence, etc.) was studied and analysed. The stakeholders (the representatives of the State/Governmental agencies in Georgia and beyond, the members of civic society) have been interviewed via in-depth email communication. The retrieved data has been synthesized in order to deliver holistic and conceptual framework of the research subject in question.

II.

Terminology 2

Charity Giving - A financial or material assistance rendered for the specific needs of a person or group of persons, as well as volunteerism and patronage for charity purposes. Charitable activity – Activities of physical persons, civil society and business organizations aimed at rendering the concrete humanitarian and/or urgent assistance to a person or group of persons.

Charity Organisation – In accordance to the existing legislation (GEO), the organisation is eligible to be granted the status of “Charity Organisation”. In order to receive this status, the organisation has to be committed to charitable activities at least for 1 year. The existing legislation gives exclusive rights to these Charity Organisations only (e.g. donors can benefit only with the tax incentives if they contribute to these organisations), while there are a lot of NNLEs committed to the charitable activities as well but are deprived from this and other (fiscal) benefits.

Corporate philanthropy – Selfless giving away of grants, donations and/or property by a business organization directly or a foundation established by it for this purpose for facilitating philanthropic activities, or an organized volunteerism (with voluntary participation of employees) by a business organization to carry out philanthropic activities or social partnership.

Entities carrying out philanthropic and charitable activities – according to the Draft Law, the integrated public registry will be created, uniting wide range of NNLEs carrying out philanthropic and charitable activities.

LEPL – Legal Entity under Public Law (State-subsidized entities).

NNLE – Non-entrepreneurial Non-commercial Legal Entity (Legislative term for non-profit organisations in Georgia/ NGO) Philanthropy - Voluntary giving away of a financial or other resource by a legal and/or physical person, as well as volunteerism and patronage in support of philanthropic activities. Philanthropic activity – Activities of physical persons, civil society and business organizations aimed at social justice, peace, security, public wellbeing and democratic development .

Social entrepreneurship – Profit-oriented activities of a civil society organization [NNLE], an essential part of whose property, pursuant to the objectives and tasks declared in the organization’s statute, is spent on the organization’s philanthropic and/or charitable activities. At this stage the status of “Social Entrepreneurship” is not legally recognized in Georgia.3 The Draft Law – “Law of Georgia on Philanthropy, Charity and Social Partnership” - the draft legislative document developed by NNLE “Taso Foundation”.

2 Note: The definitions of the terms are in light of this document and do not reflect all practical and research viewpoints 3 The term was interpreted from the perspective of the draft legislation developed by the representatives of the civil society organisations (NNLEs) from Georgia. In general, the idea of social entrepreneurship transcends the scope of civil society organsiations and could be initiated and developed by a for-profit organisation as well.

III.

Rationale and stimulation mechanisms

Encouraging philanthropic and charitable activities in Georgia is of vital importance since the funding for the majority of culture-related initiatives comes only from State/municipal entities, amongst them in the autonomous republics of Georgia. The main beneficiaries of these funding schemes are LEPLs and NNLEs registered under the State/municipal agencies themselves. 4 In addition to these limited State/municipal support schemes, there are number of international support schemes, such as “Creative Europe programme”, enabling Georgian organisations to become beneficiaries and implement cross-national creative projects. In line with this, there are cases when enterprises (business sector) and individuals support the implementation of philanthropic activities only in the frames of the corporate social responsibility as there are no stimulation mechanisms within the existing legislation which could act as catalyst for encouraging the business sector and individuals to donate.5 Therefore, first: the incorporation of the stimulation mechanisms within the existing national legislation aimed at facilitating philanthropic and charitable activities would provide the CCIs with alternative funding sources.

Second, by supporting and implementing

philanthropic and charitable activities individuals and

enterprises (business sector) contribute to the implementation of democratic principles and to the development of civic society, as their giving is aimed at following life areas: human rights, fighting against poverty, sustaining peace, normalizing conflicts, meeting the needs of the vulnerable people, protecting the environment, developing arts & culture, sport, education, etc.

Third, NNLEs are usually the entities well-experienced (knowledge and competencies) in dealing with specific causes and/or critical issues in specific life areas (e.g. NNLE committed to the minority rights). Therefore, when these NNLEs receive the funding from the donors for philanthropic & charitable activities, there is greater chance that the received donations are allocated in a more efficient way serving the needs of final beneficiaries.

Forth, when it comes to enterprises (the business sector), philanthropy & charity-aimed stimulation mechanisms encourage the sence of corporate social responsibility, while regulating the relations between donor (business sector) and beneficiaries (NNLEs carrying out philanthropic and charitable activities). As a result, the dependencies amongst these two are transparently put within the contractual agreement.

4 According to the State draft budget of the Ministry of Education, Science, Culture and Sport 88,6999.000.00 GEL is dedicated to the development of culture sector, out of which only 3,000,000.00 GEL are dedicated to the open calls under the Ministry. The rest is directed towards LEPLs and/or the non-governmental legal entities (“exclusive entities”) selected by the Ministry beyond the open call scheme.

5 Without the existing state-initiated stimulation mechanisms and respective legislations, there is the threat that the support from the business sector can result in an unethical dependencies between the donor and the contributor.

Fifth, the endeavour of State, business- and civic sector aimed at developing democratic society is united.

Sixth, e.g. when the donor is the international organisation, local NNLEs are accountable towards these

organisations.

Strengthening

individual/corporate

philanthropy-related

stimulation

mechanisms in Georgia makes the beneficiaries accountable to the citizens of Georgia . On the other hand, the Georgian citizens receive the rights to monitor and evaluate the efficiency of the NNLEs carrying out philanthropic and charitable activities; Sevenths, the implementation of the legal acts related to charity & philanthropy in the sphere of culture would further act as the catalyser towards EU integration (from 1998 international experts are highlighting the importance of the implementation of respective legislation 6).

In response to these arguments, “Taso Foundation” drafted the “Law of Georgia on Philanthropy, Charity and Social Partnership” (final edition in 2016). In 2016 the draft law was presented to different Parliament Committees for consideration however, the document was not adopted by the Parliament (in this regard, please see chapter V).

The Draft Law incorporated following major stimulation mechanisms and technical amendments within the existing legislation: 

An income taxpayer shall be authorized to designate 1% of taxable income (out of 20%, which is income tax ratio) to an organisation (NNLE) carrying out the philanthropy, philanthropic activities, charity and charitable activities recognized pursuant to the Draft



Law; Sums issued to the charitable and/or philanthropic organizations and/or expenses borne for the purposes of charity and/or philanthropy shall be fully deducted from the income



generated from economic activities by an entity carrying out social entrepreneurship; Documentarily proved expenses borne for the purposes of carrying out the charitable and/or philanthropic activities shall be fully deducted from the income generated from economic



activities by the subjects carrying out charitable and/or philanthropic activities; A double amount7 issued by a business organization for the purposes of philanthropic and/or charitable activities shall be deducted from a joint income, but not exceeding 10% of the sum



remaining after the deductions prescribed by the Tax Code of Georgia from the joint income; To regulate the activities and ensure the publicity of entities (NNLEs) carrying out philanthropic and charitable activities pursuant to this Law shall be granted special status (hereinafter the “recognition”). Recognition shall imply the entry of data on respective

6 Note: The very first law (Georgia’s Law on Sponsorship and Charity in the Sphere of Culture) was drafted in 1998 by the Georgian and EU experts in the frames of the World Bank supported project – “Georgian Cultural Heritage”.

7 Deduction of the double amount motivates the businesses to contribute more to philanthropy but not exceeding 10% of the profit. Example: when the company earns 1000 Gel and it donates 100 Gel, it is taxed for 800 GEL only (1000 Gel – 200 Gel (double amount of the donation)).

entities in the integrated public registry. The Revenue Service of the Ministry of Finances of Georgia shall recognize the entities and administer respective registry.

IV.

Current legislative framework in Georgia

According to the article 117 of the Tax Code of Georgia, “The amount donated by an enterprise/entrepreneur natural person to a charitable organisation shall be deducted from gross income, […], but not more than 10% of the amount remaining after deductions under this Code from gross income […]8 E.g. if the enterprise’s gross income equals 1000 GEL and donates 100 GEL to Charity Organisation, the profit tax (15%) will be calculated in the following manner: (gross income – the giving) x profit tax percentage / (1000 GEL – 100 GEL) x 15% = 135 GEL Therefore, by giving 100 GEL to the Charity Organisation, the enterprise pays 135 GEL as the profit tax, not – 150 GEL. The enterprises benefit from this tax incentive when it comes to donating to “Charity Organisation” only; the same benefit is not applied when donating to wider spectrum of NNLEs carrying out philanthropic and charitable activities.

From 114 active “Charity Organisations” in Georgia only 9 operate in arts & Culture sector; this again points to the inefficiency of the existing stimulation mechanism within the CCI sector. Even in case of these 9 organisations, arts & culture do not represent main priorities. 9

8

Complete version of the article: The amount donated by an enterprise/entrepreneur natural person to a charitable organisation shall be deducted from gross income, also the market price of goods (other than immovable property)/services supplied free of charge and included into gross income, but not more than 10% of the amount remaining after deductions under this Code from gross income (without the deductions specified in this article).

9 Source: https://www.rs.ge/4761

V.

Reasons for not adopting the Draft Law on Philanthropy, Charity and Social Partnership and the amendments in the existing Tax Code

The comments regarding the Draft Law provided by the Ministry of Finance of Georgia and by the Budget and Finance Committee of the Parliament of Georgia imply that the rationale (see section III) and corresponding spillover effects of adopting and implementing stimulation mechanisms aimed at encouraging corporate/individual philanthropy is not sufficiently comprehended on different decision-making levels.

Number of comments can be classified as the issues requiring “simple” and/or “medium” problemsolving process in collaboration among the lobbyists of the Draft Law, the Committees and the Government. However, consensus towards the main stimulation mechanisms (which act as the foundation of the reform) requires significant “compromise” on behalf of the Government. The most problematic lines within the Draft Law are: 

An income taxpayer shall be authorized to pay from the rate of an income tax (from 20%) 1% of taxable income to a subject carrying out the philanthropy, philanthropic activities,



charity and charitable activities recognized pursuant to this Law. A double amount issued by a business organization for the purposes of philanthropic and/or charitable activities shall be deducted from a joint income, but not exceeding 10% of the sum remaining after the deductions prescribed by the Tax Code of Georgia from the joint income.

Based on 2012 data 5% of the income tax (1% from 20%, the individuals could designate to NNLEs carrying out philanthropic and charitable activities) equaled 88 million GEL. Therefore, if the Draft Law was adopted and this reform was implemented the state budget would be minimized max. by the above-mentioned amount. It has to be highlighted that not all individuals would practice donation, as there would be some individuals which would prolong transferring the revenue tax fully (20%) “untouched” to the State budget.

As for the individuals which would transfer 1% of the revenue tax to NNLEs carrying out philanthropic and charitable activities, they would be directly committed to the development of democracy nationwide; besides, by analyzing the trend of donations the government would have the tool to monitor the factors which are most important/sensitive for the citizens and could use these data in order to plan and optimize the annual state budget, respectively.

As for the second article within the Draft Law – when a double amount issued by a business organization for the purposes of philanthropic and/or charitable activities is deducted from a joint income – here again, it must be highlighted that the existing legislation already provides alike stimulation mechanisms (when it comes to donating specifically to Charity Organisations), therefore, implementing this article is a matter of quantitative reform, rather than qualitative. Here again, this

would encourage the enterprises to be committed to the development of democracy across the country.

By revoking the status of Charity Organisations and granting special status to all NNLEs carrying out philanthropic and charitable activities, enterprises would have the chance to select from wider range of NNLEs* the ones, it considers to be in consonance with its corporate values. The deduction of a double amount issued by a business for the purposes of philanthropic and/or charitable activities from the income tax would encourage the enterprises to become even more active to donate. This again would encourage the enterprises which are already predisposed to donate; the enterprises which hesitate to do so would not be attracted by this stimulation mechanism either. *Along with NNLEs, LEPLs (state-subsidized organisations), such as the National Culture Fund, the Georgian National Film Center, etc. could also be subjected to receive donations, evoking tax incentives for the donators (please, see the Latvian Scheme in Chapter VI).

VI.

An overview of philanthropy/charity-related incentives on international level.

The extensive research – “Rules to Give by: Global Philanthropy Legal Environment Index” by Nexus Network International (2014)10 states in its foreword section:

We know from experience that generosity is not something that can be directly created by government policy. By its very nature, civil society necessarily exists outside of the state.

However, we also know that at its best, a legal framework can create an enabling environment in which donors are encouraged and incentivised, in which non-profits are well but not over regulated, and in which the transaction of giving is easy and rewarding for all concerned. Equally, we know that at its worst, a legal framework can be a drag on giving through excessive bureaucracy and a failure to reward socially beneficial behaviours (Nexus Network International, 2014, page 7).

Based on these conceptual pillars of charity/philanthropy, the paper analyses the state of condition of respective legislative frameworks for 193 UN countries. The summary of subsequent information can be further front-lined to the decision- and policymakers in Georgia, who have the power to design and implement necessary policies and encourage the Government’s involvement in adopting respective legislative frameworks.

Before proceeding with overviewing legislative frameworks in regard to specific countries, there are eight findings to be highlighted from the above-mentioned research: 1. “Incentives for philanthropy are the norm rather than exception: it is most common that policies envisage special incentives for corporate philanthropy compared to the incentives elaborated to facilitate individual philanthropy.

2. Tax incentives for individuals appear effective in creating a culture of giving: more incentives result in more giving by.

3. Tax incentives appear effective in all economic development contexts: it does not really matter what is the stage of the economic development of the country in question – again, more incentives result in more giving by.

4. Legacy gifts to NPOs are not universally incentivized.

5. There is a global consensus on providing tax exemptions for NPOs. 6. Higher-income countries are more likely to require reporting from NPOs: suggesting a clear link between wealth and the regulatory complexity of the environment for giving.

7. NPOs are unlikely to have reporting requirements sensitive to their size.

10 Source: https://idis.org.br/wp-content/uploads/2014/12/RULES-TO-GIVE-BY-FINAL-with-Country-Reports.pdf

8. Countries with a higher per capita gross national income (“GNI”) tend to score higher on the RGB (rules to give by) Index.”

One hundred and ninety-three countries were classified according to the economic development stage and were sub-grouped as “Low Income”, “Lower Middle Income”, “Upper Middle Income” or “High Income” countries. In line with each country following information was identified: is tax exemption valid for NGOs? are these organisations subjected to special reporting (sensitive to size)?

Are corporate tax and individual tax incentives operationalized? etc.

The answers were coded with relevant scores further leading to the calculation of a united RGB index 11 for each country in question: the higher RGB index, the stronger and more effective/efficient are the policies for charity/philanthropy in the country in question.

The RGB Index for Georgia, as the Lower Middle-Income Country, equaled 6 and it stands along with other 26 countries, out of which 7 are also classified as Lower Middle-Income Country; 5 as Low Income Country; 8 as Upper Middle-Income Country and 5 as High Income Country.

The highest RGB Index (11) is scored by the High-Income Countries, such as: Belgium, Denmark, France, the United States of America, Switzerland, Italy, etc. (in total 11 countries). In the range of 11-6 RGB Index (therefore, before Georgia) there are countries with different economic backgrounds: e.g. Lower Middle-Income Countries’ RGB Index - Ukraine, Bolivia, Egypt, El Salvador, Indonesia, Mongolia, Papua New Guinea, Philippines and Syria – equals 10. Armenia, Guatemala, Cabo-Verde, Guyana, Honduras, India, Morocco, Pakistan, Paraguay, Sri Lanka, Timor-Leste, Yemen and Zambia (all Lower Middle-Income countries again) scored 9 as RGB Index, etc. RGB Index equaling 9,8,7 was also scored by multitude of Lower Middle Income and Low Middle-Income countries from different continents.

Hereby, it must be mentioned that Armenia’s RGB Index is 9; Azerbaijan – 4; Belarus – 3; Estonia – 9; Kazakhstan – 9; Kyrgyzstan – 6; Latvia – 9; Lithuania – 6; Moldova – 5; Russia – 7; Tajikistan – 9; Turkmenistan – 3; Ukraine – 10; Uzbekistan – 6. With the average score for the post-Soviet countries (6.73), Georgia is again below the average.

As for the East-Central Europe, RGB Indexes are distributed as follows: Poland – 9; Slovakia – 9; Hungary – 9; Romania – 9; Bulgaria – 10; Slovenia – 10; Croatia – 9; Bosnia & Herzogovina – 10; Macedonia – 7; Serbia – 6; Albania – 10; Greece – 7; Turkey – 10; Malta – 10. With the average score for the Central-East European countries (8.92), Georgia is drastically below the average.

11

The first Rules to Give By Index (“RGB Index”) provides a striking picture of a complex and disparate global legal environment for philanthropy. On the one hand, it is extremely encouraging that 56% of countries scored 9 or above out of a possible score of 11, with 9 being the median score for the whole dataset. On the other hand, an average score of 7 tells us that globally, we are yet to reach a consensus on the importance of providing the required legal infrastructure to enable the development of a culture of philanthropy (Nexus Network International, 2014).

As mentioned in “Chapter IV Existing Legislative Framework in Georgia” the only national operating stimulation mechanism lies within the article 117 of the Tax Code of Georgia, according to which corporations are subjected to the tax incentives as long as they donate to the non-profit organisations with the status of “Charity Organisations” only; here again, tax incentives are valid as long as the amount of contribution does not exceed 10% of the gross income of the corporation in question.

From this perspective, Georgia partially provides tax incentives for (corporate) philanthropy and this component is respectively scored within the research by Nexus Network International, however this stimulation mechanism has no/limited positive influence on the sphere of culture .12

12 “While this report looks at a vast number of countries, its scope focuses on recorded laws rather than practicality and implementation of these laws. Although the latter is an important component in understanding the functional environment for giving and barriers to non-profit organization operations, assessing the implementation of tax laws would limit the number of countries covered.” – Nexus Network International (2014).

The following chart (excerpt from “Rules to Give by: Global Philanthropy Legal Environment Index”) provides compressed information about different countries’ conditions of national policies aiming at facilitating philanthropy, both corporate and individual. These are mostly countries represented as “Lower Middle-Income and Upper Middle-Income levels”.

Country

Tax Incentives for Philanthropy

Corporate

Individual

Albania

Businesses receive some tax benefits for charitable giving.

Individuals are not generally permitted to deduct charitable contributions. However, Albania allows for “traders”, whether legal or physical persons, to deduct charitable contributions.

Armenia

N/A

Amount of allocations provided to religious, public and other non-profit organizations, but not more than 5% of taxable income is subjected to deduction.13

Belarus

Corporations’ taxable profits may be reduced by amounts donated to enterprises, institutions and other organizations involved in public health or education, social welfare, culture and sports and that are registered with and funded by the state, up to a maximum of 10 percent of taxable profits.

N/A

Bosnia and Herzegovina

Donations by a business to a qualifying charitable organization are deductible to the maximum extent of 3 percent of the business’ income.

In FBIH, donations by individuals are 100 percent deductible, while in the RS, they are deductible up to 10 percent of the donor’s income.

13 http://www.ardani.net/armenia/armenia-taxation-it.php

Bulgaria

Individuals may deduct up to 10 percent of their annual income for donations given to certain categories of organizations, among which are: (1) Non-profit legal entities registered in the central registry for public benefit organizations; and (2) Legal entities, which are not commercial enterprises, having charity, social, environmental, health care, scientific-research, educational, cultural and sport goals.

Corporate donors can deduct up to 10 percent of their positive financial result for donations made to the same categories of organizations.

Croatia

The tax incentives to encourage charitable donations are negligible.

Donations made by corporations or individuals to organizations pursuing cultural, scientific, educational, health, humanitarian, sports, religious and other activities are deductible up to 2 percent of the donor’s income generated in the prior calendar year.

The established threshold may be exceeded upon approval of the competent ministry.14

N/A

Cyprus

Companies are also entitled to deductions for donations to approved charities.

Cyprus provides a personal deduction for contributions to charities approved by the Inland Revenue Department. The list of approved charities is available on the Inland Revenue Department website.

The Czech Republic

For legal entities, if the value of the charitable contributions is a minimum of CZK 2,000, the value of the charitable contributions can be deducted from the tax base of the legal

Individuals can deduct the value of the charitable contributions from their tax base, if the overall value of the charitable contributions in the tax period is greater than 2 percent of their tax base or is a

14 The Government Office for Cooperation with NGOs, the National Foundation and NGOs have

initiated discussion around the concept of public benefit status and the necessity of clarifying the legal framework, in order to expand the list of activities that may benefit from tax deductible donations.

entity. A maximum of 5 percent can be deducted from a previously reduced tax base. This deduction is limited to taxpayers that are established for business purposes.

minimum of CZK 1,000. A maximum of 10 percent can be deducted from the tax base.

Estonia

For corporate purposes, typically all gifts are subject to a distribution tax.

Gifts and donations made to non- profit organizations are exempt from distribution tax up to 3 percent of the amount of the personalized social tax due for the current year or up to 10 percent of the annual profits for the previous financial year, whichever is higher.

A natural person has the right to deduct certified gifts and donations to non-profit associations that appear on the official list.

This deduction is limited to 5 percent of the taxpayer’s income of the same period, after accounting for other deductions.

Greece

N/A

Individuals are allowed a 10% reduction in income tax for eligible donations, provided that the donations exceed 100 EUR and do not exceed 5% of the taxpayer’s total income.

Hungary

Companies may deduct up to 50 % of the amount of a donation (including services in kind) provided to “prominent public benefit organizations” with the purpose of supporting the performance of governmental services. Up to 100 % of pre-tax income is deductible.

Individuals living in Hungary who pay income tax are also entitled to apply one percent of their income tax to specific NGOs that carry on public benefit or public purpose activities.

Kazakhstan

Article 133 of the Code allows an individual or corporate taxpayer to deduct up to 3 percent of the taxpayer’s taxable income for expenses incurred in operating facilities related to the social sphere (as defined in the Code) and to deduct the value of property transferred to an organization that carries out an activity in the social sphere. A taxpayer may also deduct the full value of assets transferred on a chargefree basis to autonomous educational organizations and up to 50 percent of the expenses incurred in connection with the performance of scientific research,

engineering or experimental development.

Kyrgyzstan

Cash and property contributed to charitable organizations as well as organizations of culture and sports are subject to deduction from total corporate income (profits) tax up to ten percent of taxable income of the taxpayer.

N/A

Latvia

The Latvian tax system provides philanthropic incentives for both corporations and individuals. For companies, Latvia allows a tax credit totaling 85 percent of its contribution (up to 20 percent of the company’s income tax pre-relief) to most governmentally sanctioned organizations.

Latvian individuals can receive income tax deductions through donations to approved cultural, educational, scientific, charitable, sporting, health and environmental or religious organizations. These deductions may not exceed 20 percent of the taxpayer’s total income.

For a select grouping of organizations, the tax administration grants a 90 percent tax credit. The Latvian Olympic Committee, the Children’s Fund and the Culture Fund are among those select organizations.

Lithuania

Corporate support granted to charities and international and domestic public organizations is deductible. This deduction may also be doubled, totaling 40 percent of net taxable income.

Membership fees and contributions to non-profit organizations may also be deducted up to 0.2 percent of total income.

N/A

Macedonia

Expenses for donations and grants for scientific, humanitarian, cultural,

N/A

educational, health care, religious and amateur sports purposes may be deducted from a corporation’s tax base up to 3 percent of gross income, provided the donations and grants were made to public organizations financed by the state budget or the Red Cross of the former Yugoslav Republic of Macedonia.

Malta

If a company or individual donates to certain philanthropic institutions declared to be exempt by the Minister of Finance, such donation will be tax exempt.

Moldova

N/A

Montenegro

Under Montenegrin law, corporations and individuals may deduct up to 3.5 percent of their gross (pretax) income for contributions to “medical, educational, scientific, religious, cultural, sport, humanitarian and environmental purposes.”

Poland

Donations to public benefit organizations may be deductible for income tax purposes - corporations may take larger deductions relative to their total taxable income than individuals

Moldova allows a resident taxpayer to deduct any donations made by the taxpayer during the fiscal year as philanthropy or sponsorships, limited to 10 percent of the taxpayer’s taxable income. The Code provides that such donations must be to public authorities and public institutions provided in Article 51, non-governmental organizations provided in Article 52(1)(a) and (b) and in Article 53(3), or to religious organizations provided for in Article 52(1) (c).

Individual taxpayers may designate 1-2 percent of their paid income taxes to be distributed to specific charitable organizations.

(except for donations for religious purposes, which individuals can deduct without limitation).

Romania

If a corporation grants sponsorship under the Sponsor Law, it can claim a tax credit up to the lesser of 0.3 percent of its turnover from the tax profit or 20 percent of the profit tax due.

An individual can designate that 2 percent of his or her annual income tax will provide sponsorship to non-profit organizations operating legally under Governmental Ordinance 26/2000.

Russia

N/A

Individuals may deduct up to 25 percent of their taxable income for monetary donations to NCOs including registered charities, socially oriented organizations, and religious organizations, as well as NCOs that use such contributions for the purpose of building an endowment. Note, however, that the pool of eligible recipients is limited almost exclusively to state-owned or state-subsidized organizations.

Serbia

Serbia provides tax deductions to corporations for donations to organizations that engage in or direct activity benefiting medical, educational, scientific, humanitarian, religious, environmental, and “sport� purposes. A deduction is allowed for up to 3.5 percent of a corporation’s

N/A

In addition, an individual who receives commercial income from independent activities (such as a lawyer in private practice) or from intellectual property rights is eligible for an additional sponsorship deduction of up to 5 percent of the taxable base.

income.

Corporations may deduct an additional 3.5 percent of their income for “investments in cultural purposes,” though it is unclear whether corporations can take this deduction if they engage directly in cultural activities.

Slovakia

A legal person may allocate up to 2 percent of its tax base if the taxpayer can prove that a minimum of .5 percent of its paid tax has been donated to nonprofit organizations.

A natural person may allocate up to 2 percent of his or her paid tax to an NGO that is registered on a special public list, or up to 3 percent of his or her paid tax if the taxpayer can prove that the taxpayer has been involved in voluntary work for more than 40 hours during the tax period.

Slovenia

A legal entity subject to the Corporate Income Tax Law is allowed to deduct cash and in-kind donations to some, but not all, non-profit organizations, again not exceeding 0.3 percent of its taxable income for the reporting year.

An individual liable for tax under the Personal Income Tax Law is allowed to deduct from his or her taxable income the amount of cash and in-kind donations to non-profit organizations, not exceeding 0.3 percent of his or her taxable income for the reporting year.

An additional deduction of up to 0.2 percent of a donating entity’s taxable income can be taken if the donation is made for cultural purposes or to an organization established for protection from natural and other disasters.

Tajikistan

N/A

Taxpayers can deduct up to 5 percent of the taxpayer’s taxable profit (determined without including the amount of the deduction allowed) for payments to charitable organizations or organizations engaged in charitable activities (as defined in the Code).

A taxpayer may also deduct the lesser of the market value of any property contributed to a charitable organization and the production cost of such property.

Turkey

The tax-exempt status of organizations grants donors the right to deduct their donations to such organizations from their taxable income to a certain extent. The allowable donation, for which a receipt should be obtained, may not exceed 5 percent of the taxable income of the donor in the relevant taxable period.

Turkmenistan

N/A

N/A

Ukraine

Corporate taxpayers are allowed to deduct all expenses incurred in the form of charity or other contributions and/or of cost of goods (works, services) to nonprofit organizations.

An individual taxpayer is allowed to deduct from taxable income the amount of funds or property cost passed by the taxpayer in the form of donations or charity contributions to non-profit organizations incorporated in Ukraine and included in the Register of non-profit organizations and institutions as of the date of transfer of such funds or property, not exceeding 4 percent of the taxpayer’s total taxable income for the reporting year corporations may claim a deduction from income for all charitable contributions to nonprofit organizations.

The deduction for individuals is limited to 4 percent of his/her total taxable income for the reporting year.

Uzbekistan

Corporations may deduct up to 2 percent of their taxable profits for contributions made to tax-exempt organizations.

N/A

VII.

Conclusions and Recommendations

The proposed „Draft Law of Georgia on Philanthropy, Charity and Social Partnership“ is aimed not only at the awareness raising of the stakeholders regarding the essence/benefits of philanthropic and charitable activities, but also comprises the articles further requiring amendments within the Tax Code of Georgia. In order to proceed with advocating the formation and implementation of subsequent legislative mechanism (final edition of the Law and/or amendments within the Tax Code of Georgia), the action plan is provided (chapter VIII).

In order to proceed with the advocacy campaign, different international legislative mechanisms have to be studied in depth in order to deliver the most harmonious scheme on the national level.

The overview of Nexus Network International’s research paper demonstrated different aspects/stimulation mechanisms and subsequent legislation facilitating corporate and individual philanthropy. Out of 30 post-Soviet and/or Central-Eastern European countries 24 provided tax incentives for corporate philanthropy; 22 – for individual philanthropy (18 for both and 1 – for none).

In case of Albania, by subjecting “physical traders” (aka. Sole proprietors) to tax incentives is an example to enable individuals to benefit from the tax incentive, when the legislation resists to create one for individual donators. In case of Hungary, Poland and Romania, not only can the individuals benefit from tax reduction, but they can designate 1%, 1-2% and 2% to non-profit/charitable organisations from their income tax due, respectively.

In Ukraine, Cyprus, Estonia, Latvia, Malta and Slovakia there exists special “register database” for organisations (e.g. the organisation with “public benefit status”) which can benefit from the donations from corporations and individuals by evoking tax incentives for the donators. However, some countries have more strict policies in identifying such potential beneficiary organisations: e.g. Bosnia and Herzegovina, Cyprus and Tajikistan implement tax incentives for philanthropists when they donate to Charitable Organisations only, dealing with concrete humanitarian needs of and urgent assistance for the people/causes in need. Moreover, in case of Belarus and Russia, tax incentives for corporate philanthropists are applied if they donate to state-created and subsidized entities only.

Other countries also enable donators to contribute to State-subsidized entities, e.g. Latvia lists National Culture Fund as one of the organisations within the list along with wider spectrum of organisations.

In regard to corporate philanthropy, Lithuania introduces “double deduction” scheme: “Corporate support granted to charities and international and domestic public organizations is deductible. This deduction may also be doubled, totaling 40 percent of net taxable income.” (Nexus Network

International, 2014). Last but not the least, Serbia and Slovenia provide culture-focused tax incentives: in Serbia, on top of traditional 3.5 % deduction, “corporations may deduct an additional 3.5 % of their income for “investments in cultural purposes””. (ibid, 2014). In case of Slovenia, initial 0.3% can increase by 0.2% if the donation has cultural purposes.

Although the research was conducted by Nexus Network International in 2014, it is less probable that the countries in question would lift existing tax incentives – it is more probable that they would strengthen and update the existing tax incentives and other key stimulation mechanisms for facilitating corporate/individual philanthropy nationwide.

The legislative framework encouraging philanthropic and charitable acticities varies in different countries and is considered as the steppingstone for developing democracy and solidarity between the citizens.

Therefore, the state/governmental agencies and relevant committees within the Parliament of Georgia have to mobilise all the resources aimed at studying and analyzing best international practices and implement stimulation mechanisms, which will not act as potential threat for the state budget and at the same time will be effective (not symbolic!) in order to efficiently implement the activities regulated by specific articles and will be in harmony with the homologue legislative frameworks implemented throughout decades on the international level.

Action Plan 15

VIII.

# Activity

Description

Stakeholders

Sept.

Dec. 2020

The Policy Paper (the main

Local

2”

deliverable in the frames of the

International

into the Policy

Project) has to envisage the

Experts

Paper

main

Project

“Deliverable

findings

of

document,

this

and of

Jan.

–

May. 16

1 Incorporating

–

17

2021

Jun.

–

Sept.

-

2021

onwards

x

the

including

incorporating this Action Plan.

2 Developing expert

facility

The

new

research

project

proposal has to be developed in

small-scale

order to elaborate the most

project proposal

suitable

stimulation

mechanisms

aimed

at

encouraging corporate/individual philanthropic and charitable activities

considering

existing and

national

the

Local expert/LEPL

x

Creative Georgia, Open

Society

Georgia Foundation, Nika

Ostapenko,

financial analyst.

legislation

international

best

practices.

3 Implementing the

research

project

In case the research project

Nika

receives

financial analyst

funding,

financial

Ostapenko,

x

x

analyst will conduct large-scale research,

incorporating

15 The Action Plan includes all major activities aimed at advocating for elaborating and implementing legislative framework (including, fiscal stimulation mechanisms) for facilitating philanthropic and charitable activities in Georgia. Tha majority of the activities fall within the framework of the Project “Designing a Creative Cluster Ecosystem in Georgia” 16 In the framework of the Project 17 In the framework of the Project

Sept.2021

economic

simulations

different

for

stimulation

mechanisms.

4 Sharing

the

The outcomes of the research

Local expert/LEPL

outcomes of the

project have to be shared

Creative Georgia

research project

amongst

all

stakeholders,

including

respective

State/governmental decision-

and

agencies,

Nika

x

Ostapenko,

financial analyst

policymakers

and general society.

5 Adapting

the

feedback received

Based

on

the

feedbacks from

the stakeholders

received

from

the

State/governmental

decision

and

updated

policymakers,

package

of

mechanisms

stimulation have

to

Local expert/LEPL

x

Creative Georgia, Nika

Ostapenko,

financial analyst.

be

developed.

6 Advocating

the

Local

expert

Creative

adoption of the

Georgia

updated package

raising the awareness regarding

of

stimulation

the (spillover) effects of the

mechanisms and

general society and decision-

conducting

and policymakers, respectively.

awareness raising campaign

are

and

committed

to

Local expert/LEPL

x

x

Creative Georgia, Nika

Ostapenko,

financial analyst

Creative Georgia advocates the adoption

of

proposed

legislative amendments to the Parliament of Georgia.

7 Adopting legislative amendments in a form of a new law and/or as the amendment

The Parliament of Georgia

x

x

within the Tax Code of Georgia

IX.

Appendices

Appendix 1: Resources/Bibliography

Nexus Network International (2014). Rules to Give By: A Global Philanthropy Legal Environment Index. https://idis.org.br/wp-content/uploads/2014/12/RULES-TO-GIVE-BY-FINAL-with-CountryReports.pdf Taso Foundation (2016). 18818 Kartulad. Tbilisi http://www.taso.org.ge The Ministry of Education, Science, Culture and Sport of Georgia (2019). Report: Open calls implemented by the Ministry in 2019. https://www.mes.gov.ge/index.php?lang=geo Taso Foundation (2016). Draft Law of Georgia on Philanthropy, Charity and Social Partnership.

The Government of Georgia (2020). Tax Code of Georgia. https://matsne.gov.ge/en/document/download/1043717/93/en/pdf The Parliament of Georgia (2016). The comments of the Budget and Finance Committee of the Parliament of Georgia in reference to the Draft Law. http://www.parliament.ge/ge/search/index/? s=ქველმოქმედების The Foundation for Protection of the Georgian Culture Heritage (1998 – 2003). The Draft Law of Georgia on Charity and Sponsorship in the Sphere of Culture.

Appendix 2: List of Interviewees

Khatuna Ioseliani, National Integration Program Manager at Open Society Georgia Foundation Marina Tabukashvili, the Director General of Taso Foundation Mariam Didebulidze, Senior Researcher at Chubinashvili Research Center Nikoloz Ostapenko, Tax Consultant, former Financial Analyst at Taso Foundation Nana Mumladze, Head of Consultancy Unit at the Revenue Service Office