Secretary of State Snell made a rationalization proposal (or rather, even more than one) on accounting for charitable contributions from the population. This is important because charity can be deducted from taxes, which means that strict control is needed here. He believes that the existing system is not very effective and leaves room for fraud and simple errors.
Therefore, he finds it useful to introduce automatic data exchange between charities and tax authorities. This means that charitable organizations will have to submit information to the tax office. However, charities themselves are concerned about this initiative.
On the one hand, such data transfer will save generous taxpayers a lot of effort in filling out tax returns (after all, donations to charity will be immediately automatically entered into the tax return). It will also greatly simplify the tax audit of charity deductions.
However, on the other hand, charitable organizations fear that the desire to make a donation will diminish if this data is automatically transferred to the tax authorities. Therefore, it is important for them to ensure that donors remain anonymous if they choose not to use the tax deduction for charity. In addition, this systematic data transfer represents an additional administrative burden for the more than 40 registered charities.
Despite the ambiguity of this idea, a test period of automatic data transmission to the tax authorities is currently underway. This experiment involves 4-5 charities. Which ones are not disclosed. However, the participating organizations do not provide the tax authorities with the personal data of the donors.
The data sharing experiment was announced in a letter sent by Secretary of State Menno Snel to the Second Chamber. The letter contains more than a dozen suggestions for improvements to the income tax deduction of charitable donations and rules for ANBI (public charities). Regarding the proposed changes, the Ministry of Finance consulted with the SBF (Samenwerkende Brancheorganisaties Filantropie), an association of charitable organizations.
The IRS wants to use information from charities to verify the charity tax deduction. This is currently happening almost exclusively based on data provided by the donors themselves. According to Snell, this control is now quite difficult, since there is no information to check. In the opinion of the tax authorities, this exchange of data will help to make donations from individuals in their tax return in advance. A kind of pre-fill.
However, the Treasury Department and the charitable organization decided to wait for the results of the experiment before making the final decision on automatic data exchange.
Deductions of charity from income when filing tax returns are regularly questioned. In addition, adjusting this deduction costs the Treasury about € 350 million a year, but it is not clear to what extent its existence motivates people to engage in charity work.
Opponents of the idea of deductions for charity believe it is fundamentally wrong that money donated by individuals is partially deducted from the state treasury. Thus, it turns out that indirectly everyone donates for the goals that others choose.
The government nevertheless wants to preserve the deductions, but considers necessary adjustments, both for the tax authorities and for charitable organizations.
At the moment, there are often problems with declaring charitable donations. Taxpayers make donations to organizations that are not on the ANBI list or incorrectly enter the name of a registered charity. Incorrectly submitted returns require additional work from the tax. To simplify the declaration of charitable contributions, Snell promises to replace the current "free" filling with a "smart" input field, in which you will only need to select an ANBI registered organization.
Cash contributions
To reduce the risk of fraud, Snell proposes to eliminate the deduction of cash donations. When it comes to cash donations, donors must show receipts issued by the charitable organization. According to the secretary of state, in recent years, the IRS has faced a number of cases of major fraud with such receipts.
Another field for scams is for donations that donors can cancel. In many cases, there are legitimate reasons for canceling a donation, for example if the project for which the donation was intended has not been completed. It also happens that donors collect a substantial tax deduction gift within one year and cancel it the next year without notifying the tax authorities. It was decided that charitable organizations would report material gifts that were withdrawn without material reason to the tax authorities.
However, according to tax consultant Marika Kopinski of EY, Snell's plans lack concrete solutions to the problems she faces in practice. There are no clear guidelines for new forms of charity accounting, such as investment in social entrepreneurship, she said. This issue, however, requires further elaboration.
Publication Date: 15.04.2019
