The practical application of Pro-rata and how it applies to Nonprofit Organizations
Until recently, most of the Nonprofit Organizations were exempt from tax, as the most likely did not operate an activity that was subject to it.
In recent years the pressure to ensure sustainability has led several organizations to carry out revenue-generating activities, however for the tax authority they are considered to be economic activities subject to tax.
On the subject we are about to analyze, we consider that the UNPC is subject to tax as it has activated relevant codes in the competent tax office and issues relevant notices / invoices.
Most of the revenues of an UNPC are donations, sponsorships and all kinds of money that serve their statutory purpose. This kind of revenue is not of course subject to tax and we call them exempt transactions. In the case where the UNPC, in addition to exempt transactions, also has revenue which is subject to tax, part of the tax of the organization’s expenditure may be “deducted”. This can be achieved if the relative allocation is made.
In most cases, organizations use goods and services to carry out transactions, some of which do not give them the right to deduct tax as they fall into the category of exempt transactions. So, how can an organization “claim” part of its tax costs?
In fact, the deductible tax is defined as a percentage of the total amount of the tax on costs.
This deductible percentage which will be applied to the input tax is based on a fraction (Pro-rata) which includes:
Α) As numerator: Taxable income (outflows) within and outside Greece as well as those which create a right to deduction.
Β) A denominator: what has been included in the numerator and the revenue that does not give rise to a deduction such as subsidies, compensations and financial aids.
They are not taken into account, neither in the numerator nor in the denominator amounts that derive from:
– Deliveries (sale, etc) of goods that are used by the subject for a fixed asset.
– Self-deliveries or self-use
– Intra-Community acquisitions (e.g. markets from Europe)
– Recipient’s transactions and tax refunds (recipient’s transactions are purchases from third countries)
– Outflows due to the purchase of investment goods (e.g. purchases of assets for the organizations)
The percentage occurs based on the following fraction:
Taxable income + Nontaxable with a right to deduction
Taxable income + Nontaxable with or without a right to deduction Χ 100
The Pro-rata is calculated on the basis of the submission of the periodic tax return every quarter (for books) or January (for double-sided books) and the calculation is based on the data for the previous year.
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