EBOOK: Highlights: economic sustainability of civil society organizations

ECONOMIC SUSTAINABILITY OF CIVIL SOCIETY ORGANIZATIONS COLLECTION Highlights Economic Sustainability of Civil Society Organizations Highlights Economic Sustainability of Civil Society Organizations REALIZATION PARTNERSHIP SPONSORING ORGANIZATIONS ECONOMIC SUSTAINABILITY OF CIVIL SOCIETY ORGANIZATIONS COLLECTION Highlights Economic Sustainability of Civil Society Organizations SÃO PAULO, 2020 SUPERVISION José Marcelo Zacchi Oscar Vilhena Vieira ORGANIZERS Aline Gonçalves de Souza Aline Viotto Ana Claudia Andreotti Letícia de Oliveira ORIGINAL PUBLICATIONS ECONOMIC SUSTAINABILITY OF CIVIL SOCIETY ORGANIZATIONS COLLECTION FORTALECIMENTO DA SOCIEDADE CIVIL: REDUÇÃO DE BARREIRAS TRIBUTÁRIAS ÀS DOAÇÕES Author(s): Eduardo Pannunzio, Mariana Vilella, Pedro Andrade Costa de Carvalho, Rafael Oliva, Valéria Maria Trezza INCENTIVOS REGULATÓRIOS À FILANTROPIA INDIVIDUAL NO BRASIL Author(s): Ana Leticia Mafra Salla, Michelle Baldi Ballon Sanches, Natasha Schmitt Caccia Salinas FUNDOS PATRIMONIAIS E ORGANIZAÇÕES DA SOCIEDADE CIVIL Author(s): Augusto Jorge Hirata, Raquel Grazzioli, Thiago Donnini MARCO REGULATÓRIO DAS ORGANIZAÇÕES DA SOCIEDADE CIVIL: AVANÇOS E DESAFIOS Author(s): Alexandre Ribeiro Leichsenring, Aline Gonçalves de Souza, Letícia de Oliveira, Lucas Vilas Boas, Patricia Mendonça, Thiago Donnini translation: Luana Menegon graphic design and layout: Luciano Schinke CONTENTS Introduction…………………………………………………………………………………………………………………………..09 chapter 1 – Tax barriers to donations to CSOs (inheritance and donation tax – ITCMD). ……………………………………………..13 chapter 2 – Incentives for donations from individuals to CSOs in Brazil . …….25 chapter 3 – Endowments. …………………………………………………………………………………………………33 chapter 4 – Regulatory framework of civil society organizations (MROSC). …………………………………………………………………………….43 Resources……………………………………………………………………………………………………………………………..53 > 08 Introduction ABOUT THE PROJETO SUSTENTA OSC (THE ECONOMIC SUSTAINABILITY OF CIVIL SOCIETY ORGANIZATIONS PROJECT) The Economic Sustainability of Civil Society Organizations project aims to build a healthy legal environment for the performance of civil society organizations (CSOs). Also called as Sustenta OSC, this project aims to strengthen the institutional capacity of civil society through the production of knowledge, communication strategies, articulation and impact to generate normative and regulatory changes that expand the conditions for its political and economic sustainability. The project is carried out by GIFE and by the Coordination of Applied Legal Research (CPJA) of FGV Law School in São Paulo, in partnership with the Institute for Applied Research (IPEA). It received funding from the European Union, Lemann Foundation, Arapyaú Institute and Laudes Foundation. ABOUT GIFE GIFE (www.gife.org.br) is a platform for strengthening philanthropy and philanthropy in Brazil. It works by articulating an ecosystem with representatives from different sectors, promoting collaboration between organizations, producing knowledge from research, analysis, and debates, and seeking innovative references for the constant improvement and evolution of the sector. Currently the GIFE network is characterized by the diversity of its members and brings together more than 150 members. FGV LAW SCHOOL SP Founded in 2002, the São Paulo Law School of Getulio Vargas Foundation (FGV Law School SP) was thought and planned to offer an innovative and high quality legal education, capable of training professionals prepared to face the complex legal demands of contemporary society. It is a school committed to innovative practices both in > 10 teaching, by using participatory methods, and in research, conducting empirical and interdisciplinary studies with the aim of strengthening Brazilian institutions and improving the regulatory environment based on public interest and on the country’s development. ABOUT THE PUBLICATION This document briefly presents the main results of the research carried out within the scope of the Economic Sustainability of Civil Society Organizations project . The objective is to develop and make the systematized information transparent, sharing it with organizations and researchers interested in understanding the legal environment for civil society organizations in Brazil. Such research, carried out between 2017 and 2020, focused on investigating four sub-themes related to the economic sustainability of civil society organizations (CSOs) in Brazil: (i) tax barriers to donations to CSOs (inheritance and donation tax – ITCMD) (ii) tax incentives for donations by individuals to CSOs (iii) endowments (iv) the implementation of Law No. 13,019/2014 (Regulatory Framework of CSOs – MROSC) that deals with partnerships between the Public Power and CSOs In addition to these four themes, the project also contributed with other knowledge productions, which resulted in workings papers and articles, as will be presented. > 11 TO UNDERSTAND THE BRAZILIAN LEGAL CONTEXT Three basic characteristics about the Brazilian legal system must be explained. They are: a. although based on civil law, there is an interpretative power granted to the judiciary of great significance, approaching the characteristics of common law; b. it is structured based on the Federal Constitution of 1988 which provides the principle of freedom of association. What we call CSOs are, in legal terms, associations, foundations or religious organizations; c. the organization of public administration and the tax system has divisions of competence at three levels: c.1) Union; c.2) 26 states and the federal district; c.3) 5,571 municipalities. That is, depending on the scope, it is possible that certain public policies or rules of tax incidence are regulated by any of these spheres exclusively or concurrently with other levels of the federation. Therefore, there is an inherent complexity in the Brazilian legal system, which is even more evident in a country that has continental dimensions. > 12 CHAPTER 1 Tax barriers to donations to CSOs (inheritance and donation tax – ITCMD) Author (s): Eduardo Pannunzio Mariana Vilella Pedro Andrade Costa de Carvalho Rafael Oliva Valéria Maria Trezza In Brazil, donations are taxed by the same tax that is levied on the transfer of inheritance through the “Tax on Transmission of Property Causa Mortis and Donations” (ITCMD). It also reaches donations to prevent taxpayers from evading the tax authorities by donating the assets to their heirs while still alive. The problem is that the 1988 Constitution did not differentiate this type of donation, motivated by public interests, from that in which the donor is not in the donor’s line of success and acts in the public interest, as is the case with donations to CSOs. Thus, in general, a donation directed to a CSO that works with causes of public interest – such as museums or animal protection CSOs – will be taxed just like the transfer of an inheritance from parents to children. It is a disincentive to the transfer of private wealth to causes of public interest. This is especially problematic in Brazil, where the culture of giving is still relatively incipient. INTERNATIONAL EXPERIENCE IN TAXING DONATIONS TO CSOS A database was developed and made available with information on the taxation of inheritances and donations from 75 countries, backed by secondary sources. Countries were selected according to the availability of data, covering all continents. It was found that, of these 75 countries, 30 (40%) tax inheritance and donations. This taxation is usually quite costly. Regarding donations, the average minimum rate is 6.9%, while the average maximum rate reaches 28.6%, with countries where the maximum rate can reach 50% (Germany), 55% (Japan) or even 60% (France). In this context, it is impressive to note that, in Brazil, the maximum rate of the ITCMD is only 8%, with states in which it does not exceed 2%. One of the reasons for the low taxation on patrimony transfers.in Brazil is its “political cost”, as it is easily perceived by taxpayers, as Marcos Aurélio Pereira Valadão explains. Brazil, however, does not differ from the international experience only with regard to the ITCMD rates. The research shows that, among the 30 countries that tax donations, almost all of them > 14 establish different treatment when it comes to donations to CSOs, either in the form of exemptions (24 countries) or in the form of rate reduction (two countries). In fact, within the scope of the sample considered, it was possible to verify that Brazil has the company of only two countries when it comes to taxing donations to CSOs: South Korea and Croatia. Even when the analysis focuses on our South American neighbors, the result does not change. Of the nine South American countries with a population of more than 1 million, excluding Brazil, only four tax donations: Argentina, Bolivia, Chile and Venezuela. At least the last three, however, provide for exemption when donations go to CSOs. The international experience suggests, therefore, a double mistake in the Brazilian system of taxation of inheritances and donations: we tax little who should be taxed (taxpayers with greater purchasing power, in the case of inheritances and donations of private interest) and a lot who simply should not suffer taxation (CSOs, in the case of donations). CHART 1 – TAX TREATMENT OF DONATIONS TO CSO’S IN 30 COUNTRIES 2 | C ountries where it was not possible to confirm the uniform existence of RTD 2 | C ountries that tax donations to CSOs without distinction 2 | C ountries that reduce the donation rate for CSOs 24 | C ountries that exempt donations to CSOs Source: Author’s elaboration. > 15 IMAGE 1 – ITCMD RATES IN THE STATES AND FEDERAL DISTRICT FIXED AND PROGRESSIVE RATE PA | D onation rate Inheritance rate: 4% AP | D onation rate: 3% Inheritance rate: 4% RR | D onation rate and Inheritance rate: 4% AM | D onation rate and Inheritance rate: 2% RO | Donation rate and Inheritance rate: 2% up to 1,250 UPFs-RO 3% b etween 1,250 and 6,170 UPFs-RO 4% above 6,170 UPFs-RO AC | D onation rate: 2% Inheritance rate: 4% DF | Donation rate and Inheritance rate: 4% up to R$ 1,073,900.00 5% b etween R$ 1,073,900.00 and R$ 2,147,800.00 6% a bove R$ 2,147,800.00 GO | Donation rate and Inheritance rate: 2% up to R$ 25,000.00 4% b etween R$ 25,000.00 and R$ 200,000.00 6% b etween R$ 200,000.00 and R$ 600,000.00 8% a bove R$ 600,000.00 TO | D onation rate and Inheritance rate: 2% between R$ 25,000.00 and R$ 100,000.00 4% between R$ 100,000.00 and R$ 500,000.00 6% between R$ 500,000.00 and R$ 2 millions 8% above R$ 2 millions > 16 MT | Donation rate: 2% between 500 and 1,000 UPFs-MT 4% between 1,000 and 4,000 UPFs-MT 6% between 4,000 and 10,000 UPFs-MT 8% above 10,000 UPFs-MT Inheritance rate: 2% between 1,500 and 4,000 UPFs-MT 4% between 4,000 and 8,000 UPFs-MT 6% between 8,000 and 16,000 UPFs-MT 8% above 16,000 UPFs-MT MS | D onation rate: 3% Inheritance rate: 6% MA | Donation rate: 1% up to R$ 100,000.00 1,5% between R$ 100,000.00 and R$ 300,000.00 2% above R$ 300,000.00 Inheritance rate: 3% up to R$ 300,000.00 4% between R$ 300,000.00 and R$ 600,000.00 5% between R$ 600,000.00 and R$ 900,000.00 6% between R$ 900,000.00 and R$ 1,200,000.00 7% above R$ 1,200,000.00 CE | Donation rate: 2% up to 25,000 UFIRCEs 4% b etween 25,000 and 150,000 UFIRCEs 6% b etween 150,000 and 250,000 UFIRCEs 8% a bove 250,000 UFIRCEs Inheritance rate: 2% up to 10,000 UFIRCEs 4% b etween 10,000 and 20,000 UFIRCEs 6% b etween 20,000 and 40,000 UFIRCEs 8% a bove 40,000 UFIRCEs PI | D onation rate: 4% Inheritance rate: 2% up to 20,000 UFRs-PI 4% between 20,000 and 500,000 UFRs-PI 6% above 500,000 UFRs-PI RN | Donation rate and Inheritance rate: 3% up to R$ 500,000.00 4% between R$ 500,000.00 and R$ 1 million 5% between R$ 1 million and R$ 3 millions 6% above R$ 3 millions PB | D onation rate: 2% up to R$ 60,000.00 4% between R$ 60,000.00 and R$ 500,000.00 6% between R$ 500,000.00 and R$ 1 million 8% aboveR$ 1 million Inheritance rate: 2% up to R$ 60,000.00 4% between R$ 60,000.00 and R$ 120,000.00 6% between R$ 120,000.00 and R$ 240,000.00 8% above R$ 240,000.00 PE | D onation rate and Inheritance rate: 2% up to R$ 200,000.00 4% between R$ 200,000.00 and R$ 300,000.00 6% between R$ 300,000.00 and R$ 400,000.00 8% above R$ 400,000.00 AL | D onation rate: 2% Inheritance rate: 4% MG | D onation rate and Inheritance rate: 5% ES | D onation rate and Inheritance rate: 4% SP | D onation rate and Inheritance rate: 4% PR | D onation rate and Inheritance rate: 4% RS | D onation rate: 3% up to 10,000 UPFs-RS 4% above 10,000 UPFs-RS Inheritance rate: 3% between 2,000 and 10,000 UPFs-RS 4% between 10,000 and 30,000 UPFs-RS 5% between 30,000 and 50,000 UPFs-R 6% above 50,000 UPFs-RS SE | D onation rate: 4% Inheritance rate: 2% between 1,000 and 3,500 UPFs-SE 4% between 3,500 and 7,000 UPFs-SE 6% between 7,000 and 14,000 UPFs-SE 8% above 14,000 UPFs-SE BA | D onation rate: 3,5% Inheritance rate: 4% between R$ 100,000.00 and R$ 200,000.00 6% between R$ 200,000.00 and R$ 300,000.00 8% above R$ 300,000.00 RJ | D onation rate and Inheritance rate: 4% up to 70,000 UFIRs-RJ 4,5% between 70,000 and 100,000 UFIRs-RJ 5% between 100,000 and 200,000 UFIRs-RJ 6% between 200,000 and 300,000 UFIRs-RJ 7% between 300,000 and 400,000 UFIRs-RJ 8% above 400,000 UFIRs-RJ SC | Donation rate and Inheritance rate: 1% up to R$ 20,000.00 3% between R$ 20,000.00 and R$ 50,000.00 5% between R$ 50,000.00 and R$ 150,000.00 7% above R$ 150,000.00 8% w hen: a) the successor is: 1 – a collateral relative or 2 – a testamentary or legatee heir, who is not related to the person in question; b) the grantee or assignee is: 1- collateral relative or 2- is not related to the donor or the transferor. A BARRIER WITH DIFFERENT RULES To make it even more difficult, the ITCMD is a state tax, its rules being very different in each of the 27 federative entities – 26 states and the Federal District – with regard to percentage rates, definition of taxpayers, exemption hypotheses and procedures for their recognition. In addition, the survey carried out by researchers at FGV Law School SP indicates that, of the 27 entities of the federation, 12 differentiate the rates applicable to donation and inheritance. When this separation occurs, in most cases it is because the donation is less taxed than the inheritance. Another important data is related to the progressiveness of the rates. Currently, 16 states adopt a progressive rate. In 13 of them, progressivity also applies to donations. In the others (Bahia, Piauí and Sergipe), progressivity is only for successive transmissions. Among the 14 states that have a fixed rate for donations, it varies between 2% and 5%. In ten states the maximum rate reaches 8%, always according to the progression ranges. In eight of them, the maximum rate is applicable, even, for donations. In addition to not encouraging the transfer of assets to support initiatives of public interest, the rule creates an environment of relative complexity. For each donation received, the CSO must review state legislation to see how much, how and who should collect the tax. If the country wants to change this reality, in order to promote the culture of donation and the engagement of society with causes of public interest, taxation of donation is one of the obstacles – if not the biggest one – that need to be removed. INTERNATIONAL DONATIONS The issue of the incidence of ITCMD on donations from abroad is still controversial in Brazil. The Federal Constitution of 1988 provides that this topic would be dealt with by a complementary law. The Constitution also establishes that, in the case of dona> 18 tions of financial resources, the ITCMD is due to the state where the donor is domiciled. Therefore, in the case of donations from abroad, it is reasonable to assume that taxation cannot occur until the complementary federal law on the matter has passed, given the express constitutional provision in this regard. In the absence of the law, the scenario remains unevenly treated by the states and the Federal District. Some states reportedly await the publication of the complementary law on the subject; others disciplined the rule themselves, by state law; there are also those whose ITCMD legislation does not even mention the topic of foreign donations. COLLECTION OF STATES WITH ITCMD ON DONATION The research sought to broaden the understanding of aspects that are still little explored in the strictly economic literature on the ITCMD, in particular those related to the profile and composition of the tax collection, considering its different generating facts. As will be seen, the information gathered allows assessing the relevance of the collection specifically linked to donations to legal entities (which includes civil society organizations) in several federative units (UF), among other aspects. The funds raised with ITCMD – considering both inheritances and donations – correspond to a very small portion of the revenue of the states: in most cases, less than 1% of the current net revenue. Only 10 of the 27 states provided the amount of ITCMD collected from donations from legal entities in 2016 and only 6 states did the same in relation to 2017. Based on these data, it was found that the participation of this component in the ITCMD global collection is, in all cases, insignificant. Pernambuco and Rio Grande do Norte are the states in which the highest percentage is observed, but even so, it does not reach 4% of the respective state revenues with the ITCMD. > 19 TABLE 1 – ITCMD COLLECTION WITH INHERITANCE, DONATIONS AND DONATIONS TO LEGAL ENTITIES 2016 3. ITCMD donations (R$) ITCMD donations/ ITCMD inheritances 4. ITCMD donations PJ (R$) ITCMD donations PJ / Total ITCMD (LAI) ITCMD donations PJ/ Total ITCMD (FINBRA) 1. Total ITCMD (FINBRA) (R$) 1B. Total ITCMD (LAI) (R$) Divergence 2. ITCMD inheritances (R$) 1 Paraná 396,608,046 420,300,000 6.0% 235,700,000 184,600,000 44% 2,600,000 0.6% 0.7% 2 Santa Catarina Grande 3 Rio do Sul 4 Espírito Santo 248,856,151 429,000,000 2.0% 273,000,000 156,000,000 36% 2,700,000 0.6% 0.6% 5 Minas Gerais 760,163,956 de 6 Rio Janeiro 1,390,659,964 2,169,710,507 56.0% 1,035,420,982 1,134,289,525 52% 6,140,050 0.3% 0.4% 7 São Paulo 2,317,488,130 2,305,800,000 -0.5% 1,090,300,000 1,215,500,000 53% 23,600,000 1.0% 1.0% 8 Distrito Federal 109,201,183 100,538,343 -7.9% 48,551,451 51,986,892 52% 1,345,855 1.3% 1.2% 9 Goiás 239,571,726 166,409,597 0.6% 112,397,365 54,012,232 32% 407,537 0.2% 0.2% 8,805,137 2,505,169 28% 130,792 1.5% 1.1% 420,555,524 55,054,190 10 Mato Grosso 103,192,231 Grosso 11 Mato do Sul 165,388,623 12 Tocantins 14,992,879 13 Alagoas 11,390,701 20,631,806 81.1% 134,952,680 3.5% 11,310,306 -7.3% 14 Bahia 130,326,180 15 Ceará 651,637,145 16 Maranhão 12,204,559 17 Paraíba 29,995,780 30,148,774 0.5% 18 Pernambuco 117,273,348 120,725,609 2.9% 48,181,637 72,543,971 60% 4,061,971 3.4% 3.5% 27,370,815 15.0% 11,872,646 15,498,169 57% 921,629 3.4% 3.9% 12,558,403 1,950,917 13% 25,440 0.2% 0.2% 19 Piauí 14,414,345 Grande 20 Rio do Norte 23,809,287 21 Sergipe 29,037,625 22 Acre 3,279,040 23 Amapá 785,640 24 Amazonas 8,078,701 25 Pará 26,998,266 28,161,105 4.3% 26 Rondônia 15,813,487 14,509,320 -8.2% 27 Roraima 1,696,425 1,695,690 0.0% 2016 total average average average 7,298,473,133 42.8% 1.3% 1.3% > 20 2017 3. ITCMD donations (R$) ITCMD donations/ ITCMD inheritances 4. ITCMD donations PJ (R$) ITCMD donations PJ / Total ITCMD (LAI) ITCMD donations PJ/ Total ITCMD (FINBRA) 1. Total ITCMD (FINBRA) (R$) 1B. Total ITCMD (LAI) (R$) Divergence 2. ITCMD inheritances (R$) 389,856,000 408,200,000 4.7% 239,800,000 168,400,000 41% 2,100,000 0.5% 0.5% 495,000,000 29.7% 333,000,000 162,000,000 33% 1,800,000 0.4% 0.5% 923,740,000 1,318,057,096 42.7% 548,916,068 769,141,029 58% 7,136,009 0.5% 0.8% 2,714,275,160 2,682,200,000 -1.2% 1,403,900,000 1,278,300,000 48% 291,816,940 -19.6% 123,002,051 -35.5% 88,190,430 34,811,621 28% 358,777 0.3% 0.2% 10,529,000 9,336,264 -11.3% 100,000,000 127,942,392 27.9% 11,414,971 -36.3% 9,665,043 1,749,928 15% 133,982 1.2% 0.7% 124,514,736 -29.2% 66,673,681 57,841,055 46% 4,247,086 3.4% 2.4% 3,048,098 11,029,327 261.8% 457,702 801,408 75.1% 7,560,666 1,838,749 20% 490,534 5.2% 3.0% 226,245,497 381,700,556 63,339,354 796,297,363 107,499,206 362,752,000 91,114,511 190,747,800 27,162,739 242,336,099 17,907,496 28,461,535 175,979,800 17,178,125 16,116,952 21,000,000 8,000,000 23,649,641 26,761,548 13.2% 16,315,913 9,399,416 -42.4% 1,041,939 2017 total average average average 6,956,752,486 36.2% 1.6% 1.2% Source: Author’s elaboration, from state responses to the request by Access to Information Law > 21 The distribution of ITCMD collection between causa mortis transmission and donation is not made publicly available. The same happens with the distribution of the collection resulting from inheritances or donations directed to individuals or legal entities. There is no public information that discriminates the amount collected according to the type of beneficiary by any of the federative entities analyzed. The information about the amount collected from donations to legal entities is especially important for this research, since CSOs are precisely included in this group. When comparing the amount of ITCMD collected with donations to legal entities to the net current revenue of the states, it is even clearer how the contribution of this specific subitem in the composition of resources available to the state government is in fact very small. This is relevant information, which offers a first approximation to the order of magnitude of the ITCMD collected as a result of donations to CSOs. It should be stressed that this is a first approach, as it is necessary to consider that CSOs are not the only possible recipient of donations to legal entities, and it is appropriate to take into account the hypothesis that private or state-owned companies may also have been recipients of donations subject to taxation by the ITCMD. In any case, it can be affirmed, without risk of deception, that the collection of ITCMD linked to CSOs by Brazilian states in the biennium 2016-2017 is certainly minimal. In summary, the taxation of donations to CSOs in Brazil is a challenge to international practices, creates an environment of legal uncertainty for organizations and does not generate relevant revenues in the composition of the public budget. It is, frankly, an anachronism of the Brazilian tax system. > 22 TABLE 2 – ITCMD PARTICIPATION COLLECTED WITH DONATIONS TO LEGAL ENTITIES IN UFS NET CURRENT REVENUE 2016 A. Net Current Revenue B. ITCMD Donations PJ (B/A) Paraná R$ 34,135,477,821.98 R$ 2,600,000.00 0.007617% Rio Grande do Sul R$ 34,654,897,410.30 R$ 2,700,000.00 0.007791% Rio de Janeiro R$ 46,228,984,464.73 R$ 6,140,050.46 0.013282% São Paulo R$ 140,443,287,171.02 R$ 23,600,000.00 0.016804% Distrito Federal R$ 19,881,229,932.90 R$ 1,345,854.87 0.006769% Mato Grosso do Sul R$ 9,347,981,709.90 R$ 407,537.00 0.004360% Maranhão R$ 12,480,062,588.49 R$ 130,792.49 0.001048% Pernambuco R$ 20,853,041,088.71 R$ 4,061,971.31 0.019479% Rio Grande do Norte R$ 8,611,240,172.02 R$ 921,629.42 0.010703% Rondônia R$ 6,502,106,330.05 R$ 25,439.73 0.000391% 2017 A. Net Current Revenue B. ITCMD Donations PJ (B/A) Paraná R$ 38,651,430,205.00 R$ 2,100,000.00 0.005433% Rio Grande do Sul R$ 38,348,743,013.24 R$ 1,800,000.00 0.004694% Rio de Janeiro R$ 49,682,517,693.00 R$ 7,136,009.37 0.014363% São Paulo R$ 150,259,943,875.17 Distrito Federal R$ 22,332,621,538.00 Mato Grosso do Sul R$ 11,357,971,216.99 R$ 358,777.00 0.003159% Maranhão R$ 12,817,257,352.15 R$ 133,982.45 0.001045% Pernambuco R$ 20,651,814,416.93 R$ 4,247,085.79 0.020565% Rio Grande do Norte R$ 9,111,716,218.50 Rondônia R$ 6,903,137,525.43 R$ 490,533.60 0.007106% Source: Author’s elaboration. > 23 > 24 CHAPTER 2 Regulatory incentives for individual philanthropy in Brazil Author (s): Ana Leticia Mafra Salla Michelle Baldi Ballon Sanches Natasha Schmitt Caccia Salinas In a scenario in which international and national government and corporate investments are insufficient to meet the sustainability demands of Brazilian CSOs, less usual financing mechanisms of the third sector, such as donations of resources from individuals, for example, gain centrality. However, the sustainability of CSOs is not the only factor by which tax incentives acquire relevance. The very strengthening of civil society and the maintenance of a healthy and democratic society are also at stake when it comes to tax incentives to CSOs. In Brazil, it can be said that the legal environment of tax incentives to individual donations is characterized by a double restriction: not only of the encouraged themes but also of the forms of use of the resources obtained by CSOs. This represents a significant limitation of the tax incentives currently in force in the country. 106​F irst, despite the breadth of activities of interest or social impact performed by CSOs, only a few themes can access individual incentive donations, for instance: culture, sport, social assistance to children, adolescents and the elderly, health, support for people with disabilities and oncological care. Second, in addition to the restriction of themes, the use of the resource from an individual incentive donation is also limited, as it is linked to the achievement of projects under government programs or funds. Thus, the encouraged donations on these topics can only occur within the scope of the National Program to Support Culture (PRONAC), the Sports Incentive Law (Incentivo ao Esporte), the Childhood and Adolescence Funds (FIA), the elderly protection funds (Fundo do Idoso), the National Program to Support Oncological Care (PRONON) and the National Program to Support Health Care for People with Disabilities (PRONAS/PCD). In summary, the resources resulting from individual incentive donation cannot be freely used by CSOs, and must necessarily be applied in the development of projects previously approved by the government This design of tax incentives has received criticism, as it conditions a certain model of “projecting CSOs”, which are obliged to organize themselves around projects to obtain financing through incentive donations. An argument against the current incentive architecture in Brazil is that donations from individuals, when linked > 26 to projects and services, do not contribute to the institutional strengthening of CSOs. In this way, the opportunity to use tax incentives as a mechanism to strengthen a plural and democratic civil society is lost. THE TAX INCENTIVE MODEL FOR INDIVIDUAL DONATION IN BRAZIL The tax incentive for donations from individuals in Brazil, at the federal level, is carried out by discounting the assessed income tax of taxpayers who declare it in full form. Under current legislation, a donor who declares income tax in full form may have a discount of up to 8% on the amount payable. To do so, it is enough that the taxpayer proves that he donated to a CSO – in the calendar year preceding the declaration – an amount of cash or goods equivalent to up to 8% of the calculated IR. The maximum value of the incentive donation is calculated as follows: TABLE 01 – STEPS FOR COMPUTING THE MAXIMUM FISCAL INCENTIVE VALUE FOR INDIVIDUAL DONATION 1 Taxable Incomes – Legal Deductions = Calculation basis 2 Calculation basis x Applicable rate = Calculated Individual Income Tax (IRPF) 3 Calculated Individual Income Tax (IRPF) x Applicable limit for donations made until the end of the fiscal year = Maximum donation amount subject to tax incentive 4 Calculated Individual Income Tax (IRPF) – Total Incentive Donation = Due Individual Income Tax Source: Author’s elaboration. > 27 In addition to the restriction on specific themes and CSOs that develop projects with state approval, tax incentives are also subject to individual and global percentage limitations, depending on the chosen modality. For the areas of culture, sports, childhood and adolescence and the elderly, there are individual and global limits of 6% of the tax assessed. TABLE 02 – LIMITS OF TAX INCENTIVES BY MODALITY Fiscal incentive mode upon discount National Culture Support Program (PRONAC) Individual limit Global limit 6% of the calculated Individual Income Tax (IRPF) Sports Incentive 6% of the calculated Individual Income Tax (IRPF) Childhood and Adolescence Fund (FIA) 6% of the calculated Individual Income Tax (IRPF) 6% of the calculated Individual Income Tax (IRPF) 8% of the calculated Individual Income Tax (IRPF) 6% of the Elderly Fund calculated Individual Income Tax (IRPF) National Oncology Care Support Program (PRONON) 1% of the calculated Individual Income Tax (IRPF) 1% of the National Assistance Program for People with Disabilities (PRONAS/PCD) 1% of the calculated Individual Income Tax (IRPF) 1% of the calculated Individual Income Tax (IRPF) calculated Individual Income Tax (IRPF) Source: Author’s elaboration. TAX INCENTIVES IN BRAZIL In order to verify whether the tax incentives are, in fact, accessed by their potential beneficiaries, the following information was collected, relating to the period from 2012 to 2016: (i) estimates of tax expenditures or tax waivers by incentive modality; (ii) estimates of tax expenditures or limits on tax waivers set by incentive modality for individuals; (iii) number of individuals who make incentive donations and amounts donated by systematic; (iv) total number of taxpayers; (v) number of taxpayers who opted for the full individual income tax return (IRPF) model; (vii) total IRPF due by such taxpayers. Below, we present the main inferences of this survey > 28 RESTRICTION ON THE SCOPE OF FISCAL INCENTIVE FOR INDIVIDUAL DONATIONS As seen, people who declare income tax (IR) in full form are eligible for this resource. The absolute number of contributors who opt for this modality varies each year. In 2012, for example, out of a total of 25.8 million taxpayers, 10.8 million chose the full IRPF declaration form. In 2015, the number of taxpayers in this same situation was 11.3 million people, out of a total of 27.5 million taxpayers. LOW TAX WAIVER FOR DONATIONS FROM INDIVIDUALS Another relevant point is the low tax waiver for donations from individuals. When comparing the estimate of tax waiver referring to incentives for individuals with that of legal entities, it appears that there is a clear prioritization of the allocation of incentives to legal entities over physical ones. TABLE 03 – PERCENTAGE REPRESENTATIVENESS OF THE TAX WAIVER OF INDIVIDUAL DONATIONS BY MODALITY (2012-2016) Percentage representativeness of the tax waiver of individual donations within the scope of the global waiver by modality Modality 2016 2015 2014 2013 2012 PRONAC 2% 2% 1.5% 1.8% 1.7% FIA 30% 29% 26% 24% 25% Elderly Fund 5% 2.9% 5% 4.5% 15% Sports Incentive 2.4% 2.7% 2.6% 2.5% 2% PRONAS/PCD 3.8% 3.4% 27% 24% N/A PRONON 4.9% 3.4% 6.7% 10% N/A Source: Author’s elaboration. > 29 UNDER-IMPLEMENTATION OF INCENTIVES In the chart below, it is possible to assess how far the number of effective donors using the tax incentive model is from its full potential CHART 5 – FISCAL INCENTIVE FOR INDIVIDUALS: ACTUAL DONORS X POTENTIAL DONORS (IN ABSOLUTE NUMBERS AND PERCENTAGE) 17,832 (0.16% of potential donors) 10,821,787 2012 25,873,856 36,281 (0.32% of potential donors) 11,063,859 2013 26,494,416 49,297 (0.45% of potential donors) 11,374,405 2014 27,581,083 51,763 (0.45% of potential donors) 11,399,694 2015 27,518,844 Total effective donors Potential donors (opting contributors to the full model) Total contributors Source: Author’s elaboration. LOW INDEX OF OSCS BENEFICIARY FROM DONATIONS INCENTIVES The number of CSOs benefited by the current incentive modalities is insignificant if we compare the volume of projects contemplated by incentive resources with the number of approximately 820 thousand CSOs currently existing in the country. > 30 TABLE 04 – PROJECTS BENEFITED BY TAX INCENTIVES SEPARATED BY MODALITY (2012-2015) Projects benefited by fiscal incentive Incentive mode 2012 2013 2014 2015 Total 8,394 PRONAC 8,394 FIA (National) 32 70 10 21 133 Elderly Fund (National) 0 4 3 5 12 Sports Incentive 377 422 336 301 1,436 PRONAS/PCD N/A 164 0 164 PRONON N/A 130 0 164 TOTAL NUMBER OF PROJECTS 10,303 Source: Author’s elaboration. In summary, the diagnosis presented here reveals that the system of tax incentives for individual donations currently in force in the country has a very modest role in the sustainability of CSOs. This is because: (i) it mobilizes few resources; (ii) benefits a limited number of entities; (iii) it does not seem to strengthen the donation culture in the country. > 31 > 32 CHAPTER 3 Endowments and civil society organizations Author (s): Augusto Jorge Hirata Raquel Grazzioli Thiago Donnini The scenarios of the global economic crisis that originated in the United States in 2008, the fiscal crisis of the Brazilian State and the current coronavirus pandemic, make up a negative scenario for raising public and private resources by CSOs. The drastic reduction in fundraising has been causing harmful effects on entities and projects that depend on financing, sometimes making its continuity unfeasible. The resulting social impact is difficult to measure, but the loss is certain and relevant. After all, no longterm project, like that of CSOs, can be adequately developed with intermittent funding. CSOs can access various sources of funds, such as their own revenue from services, public financing, direct donation funding, among others, in addition to equity funds. However, considering the prism of stability, patrimonial funds would be the best financing alternative in terms of security and certainty, since they are independent of the will of third parties, the fiscal situation of the State or even the economic situation, despite the general situation of the economy impacting the income of other funds. A key element for successful fundraising is donor confidence in the proper application of donated resources. Thus, the increase in legal certainty is essential to encourage new funding. The regulation of endowments has been on the agenda of CSOs for years, and it is even possible to identify five legislative proposals related to the theme in progress at the National Congress since 2012. Although each intended to give its own legal treatment to heritage funds, some aimed at specific thematic segments, such as education and culture, there was evidence of common perception regarding the need to regulate equity funds. Even so, it was necessary to investigate whether the legal system depended on specific regulation for the topic and, more than that, what would be the best parameters in light of the experience of other countries. It is in this broader context that the research was initially conceived. However, right at the beginning of its development, the MPV 851/2018 was published, which finally regulates the equity funds in Brazil. It was an abrupt response by the Federal Government to the fire that occurred at the National Museum, based in the state > 34 of Rio de Janeiro. The theme revealed the need to mobilize public and private resources for causes of public interest. Thus, the development of research work had to be adapted to accompany the process of MPV, to contribute with preliminary analyzes throughout the process of presenting amendments in the National Congress. In the end, the analysis was updated to consider the text of Law no. 13,800, resulting from the conversion of MPV sanctioned by the President of the Republic in 2019, quite different from the text of MPV and incorporating suggestions from the research, as well as the Coalition for Philanthropic Funds, which was the meeting of several entities around the theme. In this sense, an attempt was made to contribute to a critical analysis of the topic, through data collection and production of analyzes that could assist in the public debate around the creation, implementation and maintenance of endowments. LEGAL NATURE OF ENDOWMENTS In order to address legal aspects of endowments, a bibliographic review was first carried out. The objective was to identify a theoretical framework that could guide the understanding of the premises and concepts used throughout the research. Themes such as governance, rescue policy and legal type of foundation gained prominence in the analysis Specifically regarding these themes, it is worth saying that the study of governance was motivated by the perception that improving management and governance of endowments s was a problem to be solved – possibly by regulation – as pointed out, for example, by Ricardo Levisky (2017). The perception is confirmed by the original text of MPV 851/2018, which was mainly dedicated to the regulation of governance of equity funds. The redemption policy is an important element because the fund’s ability to perpetuate depends on its efficient functioning. Due to the absence of more accurate data on Brazilian funds, the 2015 National Association of College and University Business Officers (NACUBO) Commonfund Study of Endowments (NCSE) was used, a survey conducted since 2009 with main endowments coming from > 35 North American educational institutions, answered by 812 institutions with a total equity of US$ 529 billion in 2015. And yet: in the study of the central elements of the heritage funds, their similarity with foundations was identified. NATIONAL AND INTERNATIONAL EXPERIENCES The Brazilian situation regarding equity funds was investigated in depth, to then bring an international perspective on the subject. These analyzes aimed to collect concrete subsidies for the evaluation of the legislation. In view of the limited resources and information – since they are private institutions – for the national analysis, a set of 22 entities was chosen in view of two criteria: the availability of published data and the relevance in the universe of heritage funds. For the analysis of comparative law, three foreign legal orders were evaluated in which the experience with endowments is more developed: United States, United Kingdom and France. The first two have a tradition of using heritage funds in various fields of social interest, with an emphasis on education. France, for its part, was chosen by the recent law to modernize the economy that expressly disciplined equity funds in the country. In addition, in comparison with the previous ones, France has a legal system of Roman-German origin, with a structure more similar to the Brazilian system. STANDARD STRUCTURE AND SCOPE OF INCIDENCE Law No. 13,800/2019 describes the purposes of public interest in equity funds, disciplines the governance of its management entities, lists the sources of funds that can be exploited in its operation, characterizes the legal relationships to be established with the supported institutions – public or private – and, furthermore, it defines the general criteria for the application of resources and the eligibility of expenses to be performed. In summary, the structure of this standard is as shown in the table below > 36 TABLE 3 – MAIN TOPICS COVERED BY LAW 13,800/2019 Subject Devices Summary Article 1 It attributes to the funds the objective of collecting, managing and allocating donations for programs, projects and other purposes of public interest related by law. “Ecosystem” of heritage funds Articles 2 to 5, 10, 19 and 20 They present definitions and general attributes of the institutions that make up the system of operation of the funds: the “patrimonial fund”, the “patrimonial fund management organization”, the “supported institution” and the “executing organization”. They also indicate bodies whose regulatory performance must be observed Securities Commission, National Monetary Council and Central Bank. Equity fund management organization Articles 5 to 8, 12, 17 e 26 They define essential attributes of the constitutive act of the management organization; establish general duties related to bookkeeping, transparency and integrity; define the governance structure. Endowment fund income Articles 13 to 17 List the legal sources of funds; classify the modalities of donation for funds and related rights and obligations; define the system of donations of non-monetary goods; authorize donations encouraged under Law 8,313; define limits for the application of resources and prohibit the donation of public resources to funds. Partnership instrument and term of execution of programs, projects and other public interest purposes Articles 2, 18 to 21, 24, 26 and 27 They characterize the two types of partnership; define essential clauses for each of the instruments; admit arbitration of disputes before the Federal Attorney General’s Chamber. Hedge fund resources and expenditure execution Articles 20 to 23 They define guidelines on the financial application of resources and criteria for the eligibility of expenditures. Purpose of endowment funds Source: Author’s elaboration. > 37 ENDOWMENTS PROVIDED FOR IN LAW NO. 13,800 APPLIED TO CSOS Despite the probable non-adherence and inapplication of Law no. 13,800/2019 to CSOs, items on various aspects of the norm were analyzed, considering the hypothetical application of equity funds for the financing of CSOs. The non-adherence is likely in the sense that there is a low incentive to follow the rule, either due to the resulting transaction costs or the absence of sanctions in case of non-compliance. The non-application refers to the ambiguity regarding the necessary impact of the norm on all funds or only those intended for the financing of public entities. FORM OF CONSTITUTION Under the new law no. 13,800/2019, endowment fund is defined as a set of assets and rights managed by a fund manager in favor of a supported institution. The same law adopts “management organization” as a synonym for the entity that exclusively manages an equity fund, and “supported institution” is referred to as the entity that benefits from the resources. Law No. 13,800/2019 provides for the creation of management organizations as a foundation or association. It is insisted, however, that Law no. 13,800/2019 missed the opportunity to simplify the use of foundations – the most appropriate legal model in the current system for the constitution of “funds” before the law existed – or to create its own legal type, as did the French law which, according to French government, sought to combine the best of the association and foundation models, without the drawbacks of the foundation. MINIMUM GOVERNANCE STRUCTURE Great emphasis was given to the discussion of the governance structure precisely because governance is seen as the main response to increase legal certainty to encourage equity funds. The certainty > 38