NGOs and their Tax Exemptions
The tax treatment of non-profit entities – usually known under the (vague) name of “non-governmental organizations” (“NGOs”) – is one of those issues that have given rise to a jurisprudence as lush as it is zigzagging on the part of our Administrative Court (“the TCA”).
The starting point is given by the Constitution, which establishes that “private educational institutions and cultural institutions of the same nature will be exempt from taxes.” The rule seems to be quite clear. However, there have been multiple discussions: what “institutions” means; what “cultural” means; that “taxes” should be understood within the framework of this constitutional norm; etc.
Some of these issues were discussed by the Court in the case that summons us today, on the occasion of resolving an action for nullity filed by a sole proprietorship company that operated under the heading “driving school”. The BPS had denied the taxpayer’s request for exemption from employer contributions, in response to which the taxpayer filed the corresponding nullity action.
In particular, the crux of the dispute revolved around the concept of “educational institution”: that is, whether or not the taxpayer should be understood to be an educational institution.
The TCA rejected the lawsuit and, with good sense, ended up agreeing with the BPS. The Court recalled in its judgment that in the course of the administrative procedure the BPS had requested the taxpayer to submit various documents: worksheet, description of building infrastructure, list of students and teachers, etc. To meet the request, the sole proprietorship had limited itself to submitting a worksheet (from which no employee emerged), a list of the students, and instructor’s certificates.
The TCA understood that this documentation was insufficient. The TCA stressed that the documentation presented did not include any educational proposal. Nor did it show what type of training was offered, what its organizational structure was, its teaching method or its curricula.
All of which led the TCA to conclude that the taxpayer did not fit into the notion of educational institution, since it had not been able to prove the existence of a proposal and an organized structure for the fulfillment of educational purposes. Nor had it been able to demonstrate – in the opinion of the TCA – that we were dealing with an institution, that is, with an organization with material and human means for the fulfillment of its purposes, with an organizational structure, and with methodical bases.
In short, a forceful and crystalline pronouncement of the TCA that, we trust, will contribute to consolidating clear guidelines in a matter where our jurisprudence has had – we believe – ups and downs.
For any questions regarding this material, please contact Dr. Jonás Bergstein (jbergstein@bergsteinlaw.com) and/or Dr. Ignacio Torres Negreira (itorresnegreira@bergsteinlaw.com).
