célula.in Podcast
Accounting for the church

What is tax immunity for churches?

Before we start talking about taxes, we think about immunity. In the Federal Constitution, article 150 deals with this, it says:

Without prejudice to other guarantees guaranteed to the taxpayer, the Federal Government, the States, the Federal District and the Municipalities are prohibited from:

VI - institute taxes on:

• a) assets, income, or services, one from the other;
• b) temples of any cult;
• c) assets, income, or services of political parties, including their foundations, of workers' unions, of non-profit educational and social assistance institutions, in compliance with the requirements of the law;
• d) books, newspapers, periodicals and paper intended for printing.
• e) musical phonograms and videophonograms produced in Brazil containing musical or literomusical works by Brazilian authors and/or works generally performed by Brazilian artists, as well as the material supports or digital files containing them, except during the industrial replication phase of optical laser-reading media.

So, it means that the State cannot impose taxes on income or property that are linked to religious entities. This is what the Federal Constitution talks about today, it guarantees churches immunity, not being able to tax income and property, so that's where we have to start thinking about taxes in Brazil.

And when you say income and wealth, it means that the churches' primary form of income is through offerings, donations, and tithes. Can't that be taxed?

That's right. Not even the local property tax, after all, the church's place, if it is her property, is not taxed by the property tax.

So this tax exemption also applies to political parties, educational institutions, etc. That's not an exclusive privilege of a church, correct?

Exactly, then, they have tax immunity under the Federal Constitution, which is not specific to religious organizations.

The church's primary source of revenue is not taxed, but there are other gains from other activities, for example, the gain from a property sale.

This recipe is not linked to the final activity. How does it work in that area there?

Capital gain, in fact, was not a form brought about by the church. In fact she bought the property and it valued it, so she comes into the question of equity.

She has an asset gain, but since she already has this constitutional security of immunity, I believe that she will not be taxed, only if there is some interest on the part of the religious institution to have that illegal gain, but other than that, there is no taxation.

And if a church begins to publish books and sell, record, and sell CD's, in short, it has revenues other than tithes, gifts, and donations. Can she add a CNAE to her CNPJ?

This is a very controversial topic! The Federal Constitution says it's about income or wealth. Let's say that there is a snack bar inside the church, what is the church's intention, to use that income to use for the purpose of the activity itself, or will it use that for a specific project?

Those who may or may not oversee are the Public Prosecutor's Office and the Internal Revenue Service. Only these entities can understand if the church is ignoring the Federal Constitution, if that activity is going beyond the legal part. What I have seen is that if you have linked the religious institution to the objectives of the activity, you are not being taxed.

The church has a snack bar, if you don't want to make an excessive profit, because you end up making a profit, okay.

It is one thing for this profit to have the purpose of supplementing the cash for the maintenance of church activity. Another is to sell in an exorbitant way, so I think it draws the attention of the Public Prosecutor's Office and the Federal Revenue Service to verify that that activity is actually being carried out within the church.

It's very controversial because when we talk about Revenue, we say it's income, even though it doesn't come through tithes and offerings. In my opinion, that still has the issue of immunity.

In practice, will this depend on the interpretation of the supervisory body?

Correct.

Let's extrapolate the legal point of view, thinking more about the image of the church before society.

If the church had two CNPJ, the one from the church disassociated from the snack bar, for example, it would break the possibility of future misinterpretation by the competent tax authority.

When you open a company you make a statute, and there you hold a meeting, call the people who will participate in that meeting and who will be the director, president, etc. Within this statute you enter the activities that the company will carry out and then you open the CNPJ.

Within the CNPJ it may be that it places a commercial activity, so the church ends up buying the resources under its own name, sometimes without state registration, and ends up reselling, sometimes it has a small market, sometimes it has its own snack bar inside, but it does not have the characteristic of making a profit or of selling, it is even for maintenance.

So, everything will depend on this point: what is that activity for? The food supply is because there is no restaurant nearby, or in fact it is to bring an extra resource for the church to bear the maintenance of the activity.

You have to see what that final objective is, which is why accounting and the materiality of this are important.

If I demonstrate that my church has resources beyond what is necessary and is still carrying out these activities, the tax authorities cannot yet impose taxation, but it may, for some time, tax some activity that it believes is being illegal.

For legal and fiscal reasons, what does the church need to have in relation to this source of revenue?

The church has no need to carry out this nominal control of the people who are depositing their offer, their tithing there on the spot, that is, at the bank. What you should have is a control of this feature. Effective control of this resource, of the day, of the time, is what makes the church have control.

The church is somewhat equated to a for-profit company. The for-profit entity needs to nominally demonstrate who is receiving those amounts, who is depositing those amounts, because it has the issue of the event giving rise to the tax, which is income. It has to demonstrate whether that entry, those resources are about lending or are about paying customers.

Not in the church, the church lives on donations, it lives on tithes and offerings and some resource that is donated, so there is no need to demonstrate who actually made the deposit, who actually donated.

She must have control over the management issue, as much as it was on that date, it was at that service, because this brings greater transparency.

Perhaps for the sake of greater control, I would advise a donation at a different amount, I would do a more nominal control because we know that the origin of money is not proven, it is not possible for the church to know where it came from, how it came from. All she knows is that she appealed.

Then, it will be good practice, more to protect yourself. To have the name of the person, “those amounts were entered on that date” to protect yourself from any inspection. But there's usually no such need for proof.

What mistakes can't a church make so that it doesn't lose that tax benefit?

I will return an analogy to the for-profit company. A for-profit company does the accounting, first because it is required by the Civil Code. Second, for effective management and transparency, which I think is the most important thing.

The church must follow the same pattern, because that money is the money of all the people who are there, it's not money that I can manage the way I want.

Since sometimes money is received in an easier way, let's say so, without taxation, cleaner, then what will make a difference in this religious entity is to have that bookkeeping, the materiality of the bookkeeping.

You filed an appeal that month, I quantify how much you filed an appeal, what came out I had a valid document to prove why if an appeal was filed, you have to have proof, documentation, an invoice, a receipt, something really shows that that money was used in the activity itself.

That's the biggest mistake. Because sometimes some churches are not or able to have a bookkeeper, an accountant. The church may be small, but it is able to have an organization, to control money. Did the money come out? You have to have an invoice, you have to leave, you have to have a receipt.

And the greatest importance is when the money comes out and not when it comes in. The input is really meant to be quantified. However, the exit is important because in the document, in the bookkeeping, you will speak, you will demonstrate and you will bring greater transparency to the community.

Accounting is a management information system for making decisions, sometimes the church has no recourse for such a project. Then she takes past averages of tithes and offerings and manages to create some projects, whether expansion or community aid.

Both in terms of transparency and management, accounting is an important tool for leaders to make an effective decision, not just for reasons of faith alone, just of believing that it will happen, but also because of statistical data to indicate a future for the church.

Marco, can tax immunity be lost?

This is very complicated... you will only lose it if the misuse of purpose is actually proven, if in the case of corruption you find that that church, in fact, we call it a tax illusion, in fact, it used only that organization, that entity, as a façade or as a theater to avoid paying taxes, then it would lose tax immunity.

Apart from this issue of diversion, from using that entity for other purposes, it is very difficult to lose tax immunity, especially if it has transparency, has all the documentation, it is difficult to lose. However, it's not impossible.

If there is no documentation, there is no material to prove anything, so we return to this care of documentation and bookkeeping.