Despite the abolition of the inheritance tax and the gift taxation on donations to foundations, in the last two years the basic conditions for private foundations have changed for the worse also because the entrance tax with a general rate of 2.5% applicable both to donations to charitable and religious institutions and to donations between foundations has been maintained.
Furthermore the Supreme Court issued two restrictive sentences regarding the appointment of the bodies of the foundation. This situation could be a prelude to further restrictions if some of the proposals currently discussed should be implemented.
One of the options currently being discussed is the extension of the “intermediate tax” on interest earnings. Foundations could heavily suffer also from the introduction of a general property tax which is promoted by some experts. This tax would not only imply an increase in red tape but would also introduce a tax not connected to the income itself.
A further proposal with a negative impact on the financial situation of foundations is the introduction of a capital gains tax. Normally this term refers to the extension of tax liability to gains related to the sale of private property. Foundations are not subject to this tax if the gains are received after the expiration of a one year’s speculation period.
This circumstance is a consequence of the tax treatment of foundations that are not considered to be corporations but individuals. This means, on the other hand, that an extension of the capital gains tax to the increase of personal property, to be applied for example in the form of a prolongation of the speculation period, would also be applied to foundations.
Finally this could raise questions marks also on the fiscal advantage currently granted to foundations in the framework of profits received from the sale of major holdings. With this respect individuals are subject to a tax rate of 25% of income tax while foundations are liable to only 12.5% or, in the case of fresh investments, even to 0%.
This situation represents only a tax deferral because at the moment of the distribution of the gains realized with the sale to the founders or the beneficiaries the tax is due.