Amendments to the tax provisions of the Code of the third sector

Law no. 122 dated 4 August 2022 (published in the Official Gazette no. 193 dated 19 August 2022), converting the so-called “Simplification” decree (Law Decree no. 73 dated 21 June 2022) introduced important modifications to the Code of the third sector under Legislative Decree no. 117/2017 (hereinafter, CTS).

The modifications concern some aspects regulated by the CTS, such as the regulation of social enterprises, the fulfilments preceding the submission of the registration request with the National register of the third sector, control procedures for voluntary work organizations (OdV) and social promotion associations (APS), and the postponement of the term for the adjustment of organizations’ by-laws to 31.12.2022.

The most important modification, which has been awaited for a long time by not-for-profit organizations, concerned the tax regulation. Specifically, tax amendments concerned the following articles:

• Art. 79 CTS on the qualification as business or non-business organization;
• Art. 82 CTS on direct and indirect taxes and local taxes;
• Art. 83 CTS on deductions of voluntary donations;
• Art. 84 -85 CTS on the tax regime of voluntary work organizations (OdV) and social promotion associations (APS);
• Art. 87 CTS on bookkeeping obligations.
  

Amendments to art. 79 CTS (income taxes)

The CTS defines TSOs as non-business entities provided that activities carried out are included among those free-of-charge general interest activities listed under art. 5 of the CTS. On the other hand, business TSOs are those whose revenues from general interest activities exceed, in the same fiscal year, revenues from non-business activities.

Specifically, an entity is qualified as non-business if the ratio between the considerations paid by users for the services provided by the organization added to the PA contributions (numerator) and effective costs (denominator) is lower than or equal to 1. In other words, if the considerations paid by users/associates/third parties added to public contributions (deriving from conventions and certifications) do not exceed the organization’s effective costs.

Art. 26, para. 1, letter a), number 1) of the “Simplification” Decree defines “effective costs”, providing that they must be determined by including direct costs and all those costs pertaining to general interest activities and, among these, indirect and general costs, including financial and tax costs.

The legislator has further amended art. 79 by modifying the percentages relevant to the tolerance threshold set to verify the maintenance of the qualification as a non-business organization. General interest activities are considered as non-business if revenues do not exceed by over 6% (previously, 5%) the relevant costs for each tax period for more than 3 consecutive tax periods (previously, 2). Therefore, for example, general interest activities carried out by a TSO continue being considered as non-business if the revenues from the same activities do not exceed by more than 6% the relevant costs for three consecutive fiscal years provided that such revenues are lower than or equal to the relevant costs in the fourth fiscal year. In the fourth fiscal year, revenues from general interest activities can again exceed by less than 6% the relevant costs and this does not imply a different nature of such activities, provided that this happens for no more than three consecutive fiscal years. In order to support organizations in the first application phase of the new regulation, it is also provided that the change from non-business TSO to business TSO in the first two fiscal years from the European authorization will have effects starting from the tax period following that in which such change occurs. Generally, in fact, the change of qualification has immediate effects. It must be specified that article 79 will come into force starting from the fiscal year following that in which the EU authorization is obtained.

Amendments to art. 82 (indirect and local tax)

Art. 82 of CTS regulates some concessions on indirect and local tax applicable to TSOs. It provides that flat-rate registration taxes and cadastral tax are applicable to memorandums of association and amendments to the by-laws. The scope of the regulation has been extended, as it provides – for all TSOs – for the application of the flat-rate registration tax also to acts, contracts, conventions, and any other document relevant to the general interest activities carried out based on certifications, contracts or conventions with the Public Administration, the European Union, with foreign public administrations, or with other international public bodies.

Lastly, the regulation provides, by adding para. 5-bis to article 82, for the exemption from the tax on the value of foreign financial investments (IVAFE) for financial products, current accounts and savings passbooks held abroad by TSOs, including social cooperatives, but excluding social enterprises incorporated as companies.

Amendments to art. 83 CTS (Deductions of voluntary donations)

Art.83 of the CTS regulates some facilities recognized as tax deductions following the provision of voluntary donations by individuals or legal persons in favour of TSOs.

As concerns individuals, para. 1 of art. 83 provides for an IRPEF deduction equal to 30% of the amounts donated – either in cash or in kind – to TSOs, for a total amount not exceeding 30,000 € in each tax period. Such deduction is increased to 35% when the donation in cash is addressed to voluntary work organizations (OdV). With regard to legal persons, donations in cash or in kind can be deducted within 10% of the total stated income.

Before such amendments, deductions were applicable only to non-business TSOs as under art. 79, while after the amendments introduced by the “Simplifications” Decree, they are applicable to all TSOs (including social cooperatives and excluding social enterprises incorporated as companies) and to business TSOs. Para. 3 of article 83 specifies that deductions are applicable to the donor, provided that donations received are used by TSOs to carry out their activity exclusively aimed at civic, solidaristic and social utility purposes – while they were previously applicable provided that TSOs stated their non-business nature pursuant to article 79, para. 5 when registering with the National register of the third sector; this provision has been abolished.

Amendments to art. 84 (Tax regime for OdV and philanthropic organizations)

Article 84 provides some “decommercialization” cases, such as: the sale of goods acquired free of charge from third parties for financing purposes; the sale of goods manufactured by recipients and volunteers (provided that the sale is managed directly by the OdV); the occasional provision of food and beverage during meetings, shows and celebrations. Paragraphs 2 and 2-bis provide for an IRES exemption for income deriving from real estate used exclusively for the performance of non-business activities by voluntary work organizations. The scope of this last provision has been extended also to philanthropic organizations (the previous version provided for the application of the regulation also to voluntary work organizations that, after their transformation into philanthropic organizations, registered with the specific section of the national register of the third sector).

Amendments to art. 85 (tax regime of social promotion associations and mutual aid organizations)

Art. 85 was amended starting from its heading, specifying that the tax regime under analysis is addressed not only to social promotion associations, but also to mutual aid organizations. Para. 1 provides that non-business activities are those carried out to pursue the institutional aim and against the payment of specific considerations. Art. 26, para. 1 letter e) number 2) specifies that the above activities are considered as non-business if they are performed in favour of associates and their cohabiting family members, and to other social promotion associations (previously not included) which carry out the same activities and that are part of a single local or national organization – pursuant to law provisions, regulation, memorandum or articles of association –, as well as their associates and members.

Amendments to art. 87 CTS (Bookkeeping and storage of accounts of TSOs)

Art. 87 of the CTS regulates bookkeeping obligations for TSOs, which are relevant to specific activities. Non-business third sector organizations, which do not apply the regime provided under art. 86 for voluntary work organizations and social promotion associations must keep analytic accounts relevant to the activities performed and, in particular, accounts specifically pertaining to the activities carried out through business procedures. Accounts must include the journal and the inventories book, to be kept in compliance with the provisions under art. 2216 and 2217 of the Italian Civil Code. In general, depending on the specific activity carried out, TSOs must keep chronological and systematic accounts that fully and analytically represent the entity’s operations at any time and distinguish general interest activities from other activities. Moreover, they must store such accounts and the relevant documentation, at least up to the conclusion of the assessments relevant to the corresponding tax period.

The amended regulation has extended the obligations also to fund raising activities, when these are carried out through business procedures. Amendments also regarded paragraph 5, concerning the exemption from the obligation to certify received considerations through relevant receipts. Such exemption was extended also to the electronic transmission of data relevant to considerations. It is specified that failure to comply with bookkeeping obligations implies the lapse of the tax benefits provided for TSOs.