ANAF intensifies controls at NGOs. What should they pay attention to? The case of an After School
ANAF and the Ministry of Finance intensified their inspections of NGOs, the institutions focusing on the way in which they spend the money from sponsorships and from the redirection from the state budget of a part of the income tax, respectively from the profit tax.
“Although the object of the analysis is the same, the consequences of the inspections are different. In the ANAF controls, the “sanctioned” is the legal person sponsor, by the fact that the fiscal facilitation of the sponsorship is not recognized. The consequence is that he is subject to the payment of an additional profit tax, to which interest and penalties are added”, claims lawyer Luisiana Dobrinescu, Partner, Dobrinescu Dobrev SCA.
At the same time, she says, following the inspections carried out by the Ministry of Finance, the conclusion may be that the association or foundation did not properly use the funds obtained, with the consequence of its obligation to return the amounts redirected to the state budget (plus late interest).
Three problems to be addressed by inspection bodies
Luisiana Dobrinescu noted three major problems in the approach of the inspection bodies.
- Inspection bodies misapply the concept of related persons to NGOs that have common founders or board members with sponsoring corporate representatives.
For example, during an inspection, since the financial director of the sponsoring entity was a member of the NGO's board of directors, ANAF canceled the fiscal benefit of the sponsorship.
- Inspectors wrongly believe that it would be possible to prove the traceability of money received from a particular sponsorship. Or, the money, having no individuality, leads to the formation of a global financial available of the NGO, which is spent later, without being able to make a correlation between a certain sponsorship and its use.
In every inspection, without exception, we encounter the request to indicate the destination of the sums of money received by an association/foundation from a particular sponsor.
- The most unexpected problem is the denial of the tax relief of the sponsorship on the grounds that the foundation has not spent all the money it has available.
How should associations and foundations prepare for these inspections
“First of all, he must be able to present supporting documents for each case to which he has allocated funds: from the financial support contract, to documents certifying the funded cause (studies, medical treatment, etc.) and, most importantly, proof of payment. Cash payments raise additional question marks from the start”, says Luisiana Dobrinescu.
Of all these documents, financial support contracts are particularly important, inspection bodies often citing that they are not clear enough.
Secondly, according to the representative of Dobrinescu Dobrev SCA, an assessment must be made on the risk that the authorities consider that there is direct control between the sponsor and the association/foundation (through administrators, the board of directors, employees in management positions) or consider that the sponsor has the ability to direct through the association/foundation its financial availability.
Following these inspections, ANAF can reclassify the nature of income received as sponsorship into taxable income. An example in this sense is an After School constituted as an association, to which ANAF calculated profit tax for the amounts received monthly from parents, opining that these amounts actually represent the price of some services and not true sponsorships.
