According to reports in the Russian press this week, the Russian branch of financier George Soros' charitable foundation has frozen US$1.5m in grants until tax officials clarify the rules on charitable funding. Soros's Open Society Institute is anxious that the grants might be subject to the hefty 35.9 per cent social contributions tax that came into effect on 1 January this year as part of Russia's overhaul of its tax system.
The consensus is that the Tax Code guidelines are badly-worded. Natalya Burtseva, director of the legal department at the Moscow branch of Charities Aid Foundation, commented in the Moscow Times: 'The tax authorities worded the text in such a way that the accents are in the wrong place.' So the guidelines make it sound like some types of payments exempt from the social contributions tax are in fact not, and charitable organisations say the guidelines could benefit from a good deal of amending. Burtseva said: 'Charity is an expression of good will. … Nobody wants to run a charity expecting this will include legal suits against tax authorities.'
But worse than the Tax Code being badly-worded, say charitable organisations, is the fact that if any funds are subject to the tax it will mean a big shortfall in the total cash given out annually in Russia to good causes, hence Soros's suspension of the US$1.5m in grants.
An unnamed Tax Ministry official quoted by Interfax said that, under the new code, charitable grants from Russia-based organizations were not tax-exempt, but added that the Ministry has appealed to the State Duma and the Finance Ministry to amend the law.
The Moscow Times said Russia's Deputy Prime Minister,Valentina Matviyenko, has attempted to calm fears about the tax on charitable funds, telling local radio: 'We will try to make sure charitable aid coming to Russia is not taxed. It is ideologically wrong – people are helping us and we try to tax them.'
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