PwC and Charity Foundation Foodbank Rus’ Joint Initiative Has Entered a New Phase
The State Duma Has Passed a Law Under which Businesses May Donate Up to 1% of Their Revenues to Charity Tax Exempt
The State Duma passed a law that allows companies to donate goods or cash amounting up to 1% of their revenues and receive an exemption from corporate income tax. This is a significant support for charity organisations, major manufacturers and retailers will now be able to increase the volume of food donated to charity. However, the taxation of charitable donations has not been finally settled, as there is a need to remove barriers for VAT refunds, as well.
Being a member of the Expert Council for Food Charity, PwC jointly with Charity Foundation Foodbank Rus launched a legislative initiative designed to remove fiscal barriers related to assets and cash donated to charity.
Maxim Kolpakov, Senior Tax Manager, PwC Russia: “Companies will be able to exercise this right only if the recipient of the donation meets certain criteria (the beneficiary must be listed in the Register of Socially-Oriented Non-Profit Organizations that have received grants since 2017). Therefore, the tax benefit may be finally launched when the Russian Government adopts new regulations that specifically apply to this category of non-profit. However, corporate income tax is just the first step. We expect that tax legislation concerning charitable donations will be further improved, including the matter of VAT losses to be recovered when providing such donations. The changes are likely to increase the amount of charitable donations which is crucial for people in need all over the country.”
Julia Nazarova, President, Charity Foundation Foodbank Rus: “We believe that the removal of fiscal barriers could significantly increase the amount of goods and cash donated by companies. However, we should understand that the law under discussion is just part of a larger set of measures. After it is passed, it is necessary to adopt new regulations on the Register of Socially-Oriented Non-Profit Organizations in order to facilitate businesses in receiving the approved tax relief.”
Back in 2017, inspired by French experience, PwC Russia and Charity Foundation Foodbank Rus signed an agreement on strategic partnership and launched a new food waste management project announced at the 21st St Petersburg International Economic Forum. The initiative was supported by leading retailers, food manufacturers and food service companies. In September 2017, the Expert Council for Food Charity, which included key representatives of such companies as PepsiCo, X5 Retail Group, P&G, Unilever, Mondelēz, Dixi, Bonduelle-Kuban, Prodo Group and Coca Cola, held its first meeting.
Olga Kaverina, Corporate Social Responsibility Manager, PepsiCo Russia, Belarus, Ukraine, Caucasus and Central Asia: “For many years, PepsiCo has provided charitable assistance on a regular basis. We are very pleased that measures reducing the tax burden on business have been adopted as an incentive to continue and expand the company’s social projects.”
Irina Bakhtina, Vice President, Unilever Russia: “Currently, the law is so structured that taxation, in fact, discriminates any charity in the form of food products. Under this system, it has been more beneficial for businesses to literally bury or send unsold products to the dump. And given that stores have been prohibited from selling goods not qualified as “essential” for the past two months, there is currently a large stock of such products. Therefore, it is crucial that a first, though cautious, step has been made to move us towards fairer, wiser and more environmentally friendly outcomes.”
Maria Kelembet, Senior Government Relations Manager, Coca-Cola HBC Russia: “A partial reduction of corporate income tax is an important step in developing charity in our country, though there is still more work to do. Apart from corporate income tax, there is VAT, which may reach 20% of the cost of goods. In recent months, the number of people who need social assistance, has increased due to the COVID-19 crisis, and business can do a lot in this area. For instance, Coca-Cola Russia is already donating drinks to retired people and to people from the least protected group via Charity Foundation Foodbank Rus, the Russian Red Cross and the volunteer movement #МыВместе (#AllTogether). Thanks to reduced taxes, the amount of aid can be increased significantly.”
Anna Meleshina, Director, Corporate Relations and Sustainable Development, Magnit: “Magnit supports initiatives aimed at reducing food waste. The amendments on improving tax regulations on charitable donations will have a positive effect on the amount of food assistance provided to charitable foundations.”
Vasily Fokin, Sustainability Manager, Danone: “Today, donating food is more expensive than dumping it—especially for perishable products. This long-awaited regulation will make us more efficient in fulfilling the social mission of our company.”
Based on the proposals made by the Expert Council on Food Charity, PwC Russia tax specialists proposed amendments to the Russian Tax Code related to accounting for goods donated to charity. The Tax Code needs to be updated, because current legislation places an additional tax burden on companies that donate goods to charity. In the future, the new amendments will make it possible for major manufacturers and retailers to increase the amount of goods donated to charity by up to 20%.
Subsequently, the Russian Government and several companies developed similar proposals related to corporate income tax exemption and recovery of VAT on goods donated by companies to charity. This February, PwC experts and Charity Foundation Foodbank Rus representatives participated in a discussion of a draft law initiated by Nikolay Valuev, the First Deputy Chairman of the State Duma Committee for Ecology and Environmental Safety, and Sergey Vostretsov, member of the State Duma Committee on Labour, Social Policy and Veterans Affairs.
Following a meeting that the Russian President held with representatives of the business community held on 26 March 2020, where Julia Nazarova, the President of Charity Foundation Foodbank Rus, articulated our joint proposal, the amendments were included in the draft law.