In July 2011 grants received by a Russian non-profit organization from a foreign organization were acknowledged as donations by the Presidium of the Supreme Arbitration Court of the Russian Federation.
What consequences does this resolution have for the Russian non-profit sector and international donors?
Back in 2008 the list of international donors whose grants were not subject to income tax in Russia shortened considerably. Today this list includes only 13 donors, and the procedure for inclusion has not been developed yet. As a result, many international organizations are simply unable to get on the list. Donations from international donors have never been subject to income tax; however, many international organizations cannot make donations. At the same time, receiving a grant may become back-breaking for a Russian non-profit due to the taxation consequences, which complicates the relations between Russian non-profits and international donors.
The positive effect of the resolution of the Supreme Arbitration Court of the Russian Federation is that the court made advances for the non-profit organization by cancelling the resolutions of three inferior courts and acknowledging grants as donations. In this case the court analysed the essence of legal relations and resolved that the fact that the donor was not on the list of international organizations whose grants are not subject to income tax does eliminate the opportunity for the funds in question to be considered grants but does not exclude the opportunity to view them as donations. The resolution of the court was based on the fact that the funds were given for public-benefit purposes and therefore could be acknowledged as donations that are not subject to income tax as long as they are made for public-benefit purposes.
This gives us hope that other courts as well as tax authorities will follow this positive practice and consider the interests of non-profit organizations. Besides, this is evidence of increased trust in international donors, which, we hope, will make them more interested in supporting Russian non-profit organizations.
Inna Motorina is CAF Russia’s legal director.