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Today one can see and hear help plea everywhere. Newspapers, television, and Internet are full of screaming headlines on the subject of sick children who need immediate expensive operations abroad, about parents, selling everything up to their bottom dollar in order to save their child. Calls for help are accompanied by the information about bank accounts where compassionate Ukrainians can transfer money to and support those who got in trouble. Boys and girls look at us with a silent reproach from the posters in the underground and in the streets, these little adults who got to know too much grief and pain too early in their life.
The majority got used to this. It is difficult to surprise or move to pity an average Ukrainian; at least every other person in this country considers his life to be pretty tough. Others have doubts, whether money from the charitable accounts will be spent on children’s operations instead of being stolen by greedy relatives or swindlers. They wonder what will happen to the rest of the money after the treatment is over. But mercy cannot be eradicated, and there are always hundreds of anonymous people who respond on another person’s grief.
Hardly anyone noticed that there are very few stories with happy ends about cured and recovered children and their happy daddies and mums in comparison with the amount of requests for help. And it happens not because the help was unqualified or it was not possible to collect the necessary sum of money. There are a lot of pitfalls which average Ukrainians are not aware of, and it is not too often we speak about them.
Presently the state is not capable to provide financial support to patients who need rehabilitation, to families with seriously ill members, but the most serious situation is with people who have to go through urgent surgeries. Anyone who faces such medical problems has to solve them single-handedly. At this point people of modest means start to sell their property, and then appeal to our mercy and collect donations on open bank accounts.
Unfortunately, the majority of the population does not study Ukrainian taxation thoroughly, and does not know all norms of gathering of charitable means.
Let’s discuss a common situation: a person opens a bank account and considers it to be a charitable one, bank employees do not always explain their clients the details of the taxation of donations.
“People who come to open “a charitable account” for collecting donations to save a family member, probably, tell a bank clerk everything about their situation as well as all the circumstances which brought them to the bank. However, being oppressed with their trouble they seldom think whether this is the best way to collect necessary funds/ means. And it is very possible that a bank employee being busy with so many other clients simply cannot hear such a person, - says Sergey Mamedov, chairman of board of Ukrgazbank. - As a result, quite often people, who open a settlement or a card account to collect money for treatment of their relatives, are sure, that this account is suitable for gathering donations, and that it is a charitable one, and these people have no idea that the money received on such account is subject to the taxation”.
In the end, having withdrawn the money, the person has to pay the income tax in accordance with the current legislation. The story ends in court where the person is charged by the taxation authorities and has to pay compensation to the state for the not-paid taxes. Such stories don’t usually have happy endings but sometimes they can be much more sorrowful.
In Ivano-Frankovsk, for example, 300,000 euros was collected for a boy who needed a serious complex surgery urgently. The money was gathered with the help of journalists and all people who were not indifferent to his life. While money being collected, his relatives started to wonder whether the donations urgently transferred abroad on a parent’s account are subject to taxation (assessed with the tax), or whether they will have to pay any penalties or fines for untimely payment of natural person’s income taxes? While the parents and relatives were examining the laws and taxes and were sorting out this situation, the boy passed away. However, this is not the end of the story. According to our legislation, personal accounts are not considered to be charitable ones, and the money transferred to such accounts is liable to a tax.
In case it is not paid, in addition to the tax itself, it is required to pay all penalties and fines per each day of delay. Having already lost their son, parents had to sort out senseless financial issues.
Larissa Antoschuk, the partner of Fund of Tax Culture Development specifies, “Financial support of physical persons is always timely and urgent. The families collecting money for treatment as well as physical persons who transfer money to their accounts, are not always aware of tax consequences of such help. Physical persons must declare any incomes received from any sources, including the ones received from other physical persons as the financial help. The money received not from legal persons, is taxable income ranging 15 to 17 per cent depending on the received sum (if it is less than 10 minimal salaries, the rate is 15 per cent and if it exceeds, the tax is 17 per cent accordingly)”.
There is another unpleasant point here (the other side of the coin) - fraud. Announcements in mass media about gathering donations can simply mislead trustful and compassionate citizens. Thus, parents of Danila, a patient with leukemia, were very surprised having found out that someone using their name and story has already opened a charitable account and was collecting money into his own pocket. Journalists from ÒÑN channel gave a call to the bank to find out any information about people who had opened that account. The bank can disclose such info with the sanction of patient’s relatives (for this purpose they only have to provide the information about diagnosis and the place of treatment). Little Danila was lucky as he had been successfully operated on in Israel, but swindlers have not ever been found; information about them has remained a bank secret.
How to avoid tax pitfalls and not to fall into clutches of financial frauds? The people who look for supports and collect donations should be aware of many issues such as: how to use charitable accounts correctly, what risks and possible negative consequences they may face having had imaginary financial independence and opened private charitable accounts?
One of the best legal ways not to be deceived both for those who seek help and for those who are ready to help is to cooperate with charitable organizations. “Certainly, not all charitable foundations are ready to raise funds for medical treatment. In fact, most of these organizations have particular specialization, - says Anna Gulevskaja-Chernysh, director of the Ukrainian Forum of Philanthropists. – Nevertheless, there are some funds which can provide a professional help to citizens or even banks and mass-media. It is important to remember, that charitable funds demand five documents from applicants and they always check all given information, therefore the risk to be fooled is minimal”.
There are certain nuances in taxation. Tax specialists distinguish the target (special-purpose) and no-purpose charitable help to physical persons. The target (special-purpose) help is exempted from taxes completely if it is given not to physical persons but as indemnification of charges of the organizations and establishments (for example, clinics, rehabilitation and social establishments, etc.). Thus the welfare funds accepting the donations, can transfer them on accounts of clinics which are their beneficiaries, and these sums are not liable to taxation. Besides all amount of money and cost of property are also exempted from taxes completely if they are given to physical persons as the help for medical treatment or medical aid in case all corresponding documents are available. It means that charitable foundations can make amends for rehabilitation and sanatorium, prescribed drugs etc.
No-purpose charitable help is exempted from the taxation (physical person’s income tax) only if this income does not exceed the amount of a social benefit (equals 1,500 UAH (183 US dollars) in 2012). Interest-free loans of physical persons are not assessed either. The no-purpose charitable pecuniary aid exceeding these sums is assessed in accordance with general taxation.
Of course, when choosing a charity fund it is necessary to be circumspect as not all of them work in precise conformity with the declared purposes. “If donations on the personal account of a physical person do not impose any obligations of the reporting, transparency or publicity, you should become alerted. Funds do not just collect donations, they are also obliged to report to community, donors and sponsors about using the received means, - Alexander Maksimchuk, the president of Association of Philanthropists of Ukraine adds to everything above said. - If the community does not like the report, it undermines trust to the fund and to charity on the whole. If people have given money to a fund, it has to honour its commitments as their relations are public ones”. Therefore, the main distinctive feature of a good charitable fund is its maximal transparency and readiness to submit any information about its activity as well as its financial accountability.
In any case, charity (as any other activities) should be carried out in a civilized manner. Civilized charity cannot be costly, and if we want to save someone’s life and health, let’s do it correctly.