After the terrible fire of Notre-Dame de Paris, the great fortunes of the country (Bernard Arnault, François Pinault, the heirs L’Oreal) announced hundreds of millions of euros of donations. The Pinault family has waived the 60% tax deduction on donations. For La Tribune, the economist and professor at Paris Dauphine University – PSL, Gabrielle Fack, returns for La Tribune on the stakes and the limits of the taxation of donations in France.
The promises of donations to rebuild Notre-Dame de Paris, devastated Monday by the fire, rose Wednesday afternoon to 850 million euros (*). In a pamphlet entitled “Public goods, private charity: How can the state regulate charity business” published in 2018, economists Gabrielle Fack, Camille Landais and Alix Myczkowski, studied the different forms of philanthropy in developed countries .
Emmanuel Macron has launched a call for a national subscription to finance the reconstruction of Notre-Dame de Paris. How does donation taxation work for companies and individuals in France?
GABRIELLE FACK – Tax benefits are available for businesses and individuals who pay taxes. When they donate to organizations of general interest or public interest, businesses and individuals can deduct a portion of their donations from their taxes. The standard deduction for individuals is a deduction of 66% of the gift. This means that if the taxpayer gives 100 euros, he can deduct 66 euros from his tax. This deduction only works for people who pay taxes. Companies can benefit from a tax reduction of up to 60%, within a ceiling of 0.5% of their turnover. For individuals, the limit is 20% of taxable income, but it is possible to spread the carry forward of a donation made in a given year over the next five years, and thus benefit from the tax deduction for one-off donations a significant amount.
Among the other incentive mechanisms, there is the deduction of 75% of the donation of the tax on real estate wealth, up to a limit of 50,000 euros. The list of organizations eligible for this deduction is narrower than the list for donations reported under income tax. It excludes, for example, associations recognized as being of public utility but it includes, among others, foundations recognized as being of public utility. This provision already existed under the ISF and has been maintained for the IFI.
Is donation taxation an incentive?
In France, the tax system is extremely attractive in view of the deductions that exist in other countries, where they depend on the marginal tax rate. This means that a person who decides to donate can deduct the donation amount from his taxable income: a household that gives 100 euros to the United States will declare 100 euros less in its tax return when it is going to be taxed. The implicit reduction he will receive corresponds to his marginal tax rate.
As France is the only country to have a grant deduction rate of 66% regardless of the income of taxable households, which is a much higher rate than the top marginal tax rate of most countries, means that the reduction in France is greater than in most other countries. In particular, the proposed reduction via income tax is more important than in the United States or the United Kingdom. But it’s a tax cut and not a tax credit. It only benefits taxpayers. There is therefore an inequality in the face of this reduction. The poorest households, if they decided to donate, would not be able to benefit from this reduction, and the better-off households taxable to the IFI benefit from an even more incentive rate than the standard rate.
In my work with economist Camille Landais, we studied the impact of the reforms of 2003 and 2005, which increased the deduction rate of donations via income tax from 50% to 66%. %. The impact of these reforms on donations was quite small. These results suggest that it may not be a good idea to further increase the tax reduction.
The people who give the most are the most fortunate but in terms of their income, they do not necessarily give a lot. Compared to the United States, France is characterized by donations from the wealthiest households, which is not extremely high. In the United States, the 1% of the richest taxpayers in 2010 gave about 4% of their taxable income in donations each year and the 1% of the richest households in France gave a share lower than 1%.