Tax Exemption for Cooperatives: When and Why The Mercosur Experience

1
Tax Exemption for Co-operatives When and Why?
The Mercosur Experience

• Dante Cracogna
• ICA Legislative Forum
• Oslo, 1st September 2003

2
Topicality of the issue

• Increasing fiscal load on co-operatives
• Reasons
• Higher fiscal deficits
• Co-operatives considered merely as another form
  of business organizations

3
Todays Requirements

• Search for solutions that take into account
  co-operatives nature
• Be aware of the trend towards steady withdrawal
  of tax exemptions on co-operatives

4
Tax-related State Policies

• General Tendencies
• The more incipient the co-operative
• the more favorable the tax policy in
• order to foster its development
• The less developed the country
• the more favorable the tax policy in order to
  help social and economic development

5
The Situation in Latin America

• Up to the eighties
• Favorable tax policy in almost every country
• From the nineties onwards
• Gradual elimination of tax exemptions

6
Situations to be distinguished

• Exemptions granted in order to foster
  co-operative development
• Exemptions recognised because of non- existence
  of taxable event

7
Mercosur

• 1991 Asunción Treaty
• (Argentina, Brazil, Paraguay and Uruguay)
• 2001 Specialized Meeting of Co-operatives RECM
• (Formed by public entities related to
  co-operatives and apex national co-operative
  organizations of all member-States)

8
RECM Tasks on Legislation and Taxes

• To study the Co-operative Legislation in the four
  member-States
• To analyze co-operatives tax status
• In both cases aiming at the harmonisation of the
  legislation within the region

9
Approach to Taxation on Co-operatives

• Constitutional provisions related to taxation and
  to co-operatives
• Taxation at different levels (national and
  provincial)
• Taxes on property
• on income
• on transactions
• Critical assesment
• Prospective

10
Specific Problems Taxes on Property

• Non-distribution of reserves
• Share capital not for profit but as a condition
  to obtain services
• Capital only receives a limited interest

11
Specific ProblemsTaxes on Income

• Profits distributed according to patronage
• In principle, each member should pay on his
  returns
• If co-operatives pay taxes on gains and members
  too, there is double taxation
• Profits are adjustment of price
• Results arising from non-members transactions
  deserve a different treatment

12
Specific ProblemsTaxes on Transactions

• Operations between co-operatives and their
  members are of a singular nature
• There is no intermediation between co-operative
  and members but an internal act (co-operative act
  in Mercosur legislations)
• The same applies to operations between primary
  and second degree co-operatives

13
Conclusions

• Taxation serious problem for co-operatives in
  general
• In the case of Mercosur countries particularly
  relevant because of
• Integration process among co-operatives
• Competitiveness with other business
  organizations