Tax policies can be used to increase the impact of social economy entities by incentivising them to engage in activities with a social and/or environmental purpose. They include tax measures aimed at social economy entities and incentives for giving and investing. This chapter provides an overview of some tax measures available to social economy organisations in EU Member States, outlines some challenges associated with tax policies for the social economy and proposes some policy orientations to leverage taxation for the social economy.
Social Economy in Europe
Contributing to Competitiveness and Prosperity
Abstract
What is taxation for the social economy?
Taxation for the social economy refers to how governments design and implement tax policies for organisations within the social economy, in particular, co-operatives, mutual societies, associations, foundations and social enterprises. These entities are generally motivated by social goals such as community development, social inclusion and/or sustainability, while also creating jobs and providing goods and services. Their governance and activities require them to reinvest surpluses or profits in their purpose, often also locking assets. Since they operate differently from traditional businesses and enterprises, taxation often needs to be adapted to reflect those differences and support societal missions.
Tax measures for the social economy typically include preferential treatment of public benefit entities and/or social enterprises and incentives for financial support directed towards them. They can take several forms that are summarised in Table 5.1. In the context of this chapter and the taxation section of the country notes, ‘preferential tax treatment’ refers to a wide range of differentiated tax measures available to social economy entities (aimed either at the entities themselves or products and services provided by them) that constitute a more advantageous tax treatment compared to the generally applicable tax rules in the rest of the economy. The term “preferential tax treatment” is used synonymously with the terms “tax benefit” and “tax advantage”.
Why is taxation for the social economy important?
Leveraging taxation for the social economy can support it in many ways. By offering tax measures, governments can recognise the unique social and economic role of the social economy, encourage donations and investment, and level the playing field with other businesses. At the same time, well-designed taxation policies can help these organisations contribute to broader strategic policy goals such as job creation, social cohesion, provision of services in rural/remote areas, care and housing, while ensuring fairness and preventing misuse.
Can encourage activities with positive externalities
Preferential tax treatment of social economy entities or incentives for financial support to them may be considered because of their positive externalities. The main features of social economy entities, such as prioritisation of impact and democratic governance, make these organisations likely to have positive social and sometimes environmental impacts that go beyond their members and shareholders (Rousselière, Bouchard and Rousselière, 2024[1]; Iodice and Bifulco, 2025[2]; Potluka, 2021[3]). Tax policies for the social economy can encourage social economy entities to engage in more activities with positive impacts on society.
Can consider the unique operational model
Social economy entities have a unique operational model that prioritises impact and reinvests surplus/profits, if any, into their mission. As a result, some countries may consider their income to be different to that of other organisation types and may consider it to be exempt from tax. For example, donations or membership payments are different in nature to income derived from selling goods or services. If social economy entities engage in economic activities, the profits from their activities are usually reinvested into their social mission and therefore might not be comparable to profits distributed to shareholders. Deductible costs might also differ for social economy entities. For instance, non-regular post-disaster relief spending by a charity is not the same as ordinary and regular business expenses (OECD, 2020[4]).
Can encourage private support
Tax incentives can encourage private support from individuals and corporations to social economy entities. Tax incentives for individual and corporate giving and investment can increase private support to targeted organisations by lowering the cost of giving (Almunia et al., 2020[5]; OECD, 2020[4]).
Can show commitment to support the social economy
Implementing tax policies can show commitment to support the social economy. The importance of enabling taxation frameworks is highlighted in the EU Council Recommendation on developing social economy framework conditions and the EU Social Economy Action Plan (Council of the European Union, 2023[6]; European Commission, 2021[7]). All Member States have preferential taxation measures for at least some social economy entities. However, not many have introduced taxation measures targeted at the social economy (European Commission, 2023[8]).
Challenges associated with taxation for the social economy
Despite the potential of taxation to increase the impact of the social economy, a number of challenges are associated with tax measures for the social economy. Challenges for social economy entities include: (i) tax measures excluding some social economy organisations; (ii) lack of awareness and complexity; and (iii) inability to recover input VAT. Challenges for policymakers include: (i) identifying social economy entities; (ii) balancing the need for government revenue generation with maximising the impact of social economy entities; (iii) limited flexibility; (iv) unequal impact of tax incentives for giving; (v) competition challenges; and (vi) potential for tax abuse.
This chapter provides an overview of some taxation measures available to social economy entities in EU Member States, analyses their challenges and provides policy orientations. It is based on extensive research that was complemented by a survey distributed to the Commission Expert Group on the Social Economy and Social Enterprises (GECES) and a network of legal experts from November 2024 to March 2025.1
All EU Member States have introduced preferential tax measures available to at least some entities in the social economy. These measures are usually aimed at entities with a public benefit status that engage in some worthy purposes and/or organisations with a social enterprise status. The preferential tax treatment available to social economy entities can be broadly classified into two categories: (i) measures for entities (including income tax exemptions, VAT exemptions or reduced rates and other measures) and (ii) measures for individual and corporate giving and investing (including tax allowances, tax credits, allocation and matching schemes, and incentives for investing into social enterprises).
Eligibility for tax measures
Worthy purpose and public benefit requirements
Most EU Member States have introduced preferential tax treatment for entities engaging in activities with a worthy purpose and/or benefitting the public, not just their members. In almost all EU Member States, a public benefit status is available to a range of legal forms (exception: in France and Luxembourg, only associations qualify). Such a status can be used to identify entities that engage in sectors such as welfare, healthcare, education and culture, limit and/or reinvest profits, if any, into their purpose and have an impact that extends beyond their members. Some countries do not formally define a public benefit status or a public benefit purpose. For instance, in Estonia, there is no formal public benefit organisation status, but the concept of public interest is interpreted in administrative practice to apply to non-profit associations, foundations and religious organisations that pursue charitable goals. In Denmark, there is no statutory definition of public benefit purpose in civil or tax law; instead, legislation provides indicative examples of which purposes may qualify as public benefit (European Commission, 2023[8]). As explained in Box 5.1, there is some overlap between public benefit organisations (PBOs) and the social economy, but a PBO status might not be available to all social economy entities.
The concept of the social economy is distinct from a public benefit organisation (PBO) status; however, a PBO status is used in EU Member States to channel tax policies to some social economy entities. The EU Council Recommendation on developing social economy framework conditions and the EU Social Economy Action Plan recognise that taxation policies can be aimed at public-benefit social economy entities.
The social economy usually includes a group of legal forms or statuses, such as co-operatives, mutual societies, associations, foundations and social enterprises that are generally motivated by social goals and reinvest profits, if any, in their purpose. Countries usually do not restrict the impact areas or social purposes of social economy entities. On the contrary, a PBO status usually focuses on the purpose(s) pursued by eligible entities, rather than their legal form and can sometimes exclude social economy entities that do not pursue some purposes or engage in sizeable economic activities.
Social enterprise status
Some countries have introduced legal statuses for social enterprises that make them eligible for preferential tax measures. These statuses usually require entities to pursue a social and/or environmental purpose, reinvest their profits into their mission and compile periodic reports, among other criteria (OECD/European Union, 2025[10]). For example, in France, as of January 2025, investors in enterprises with the Entreprise Solidaire d’Utilité Sociale (ESUS) accreditation benefit from a 25% deduction from taxable income of the invested amount (with a ceiling of EUR 50 000 per investor) (Bercy Info, 2025[11]). In Luxembourg, Societal Impact Companies (Sociétés d’Impact Sociétal) whose share capital fully consists of impact shares that do not grant any dividend rights are exempt from corporate income tax and communal business tax (Grand Duchy of Luxembourg, 2016[12]). In Bulgaria, donations of up to 10% of accounting profit can be deducted if a corporate taxpayer makes donations to registered specialised enterprises and co-operatives for persons with disabilities, non-profit legal entities for public benefit and social enterprises (Lex.bg, 2007[13]). In Latvia, social enterprises do not need to include expenses related to work and social integration of their employees who are at risk of social exclusion, purchase of assets related to the purpose of the social enterprise and donations to public benefit organisations in their taxable base (Republic of Latvia, 2017[14]).
Economic activities
In most EU Member States, public benefit organisations are allowed to engage in economic activities that are related to their purpose (Table 5.2). Economic activities can be defined as “trade or business activity involving the sale of goods and services” (European Commission, 2023[8]). In countries where public benefit organisations are allowed to engage in economic activities unrelated to their purpose, these activities are usually limited in size or occasional (e.g. Belgium, Finland, Germany, Malta, the Netherlands), the income from them is taxable (e.g. Czechia, Lithuania, Poland, Portugal), must be reinvested into the organisation’s purpose (e.g. Denmark, Lithuania, the Netherlands, Slovak Republic) or does not generate any material gain for the entity’s members (e.g. Luxembourg).
Source: Taxation section of the country notes
Tax measures for entities
Income tax
All EU Member States exempt non-commercial income of public benefit organisations, such as donations and grants, from corporate income tax and most countries exempt commercial income related to the entity’s purpose2 (Table 5.3). Belgium, Germany, Hungary, Ireland, Malta, the Netherlands and Poland exempt both related and unrelated income of public benefit organisations from corporate income tax. In most cases, only incidental or low unrelated activities are exempt from corporate income tax. In some countries, public benefit organisations can reduce taxable income through reinvestments to their worthy purpose. For instance, in Czechia, public benefit entities may reduce their corporate tax base by 30%, up to CZK 300 000 (approximately EUR 12 040) annually, provided the retained earnings are allocated to their main public benefit activities (Czech Republic, 1992[15]). In the Slovak Republic, registered social economy entities are entitled to corporate tax relief proportional to the percentage (at least 50%) of post-tax profit committed to achieving their primary social objectives (Slovak Republic, 2003[16]).
Source: Taxation section of the country notes
Value Added Tax (VAT)
As shown in Table 5.4, social economy entities, among other organisation types, in all EU Member States are exempt from VAT or may benefit from reduced rates if they provide some necessities and/or social goods and services, among others. Exemptions are applied in line with the requirements of the EU VAT Directive (Council Directive 2006/112), which obliges Member States to exempt certain public interest activities from VAT. This measure is usually applicable to all organisations supplying the public benefit good or service, regardless of their organisational form. Several exemptions are conditional on entities not aiming to make a profit or not distributing any earned profit, involvement of volunteers, lower prices than those of commercial entities and not distorting competition (Hemels, 2025[17]; Council of the European Union, 2006[18]). Italy has a VAT rate specific to an organisational form with a reduced rate (5%) applied to A-Type social co-operatives that provide social, health and education services.
Note: The measures are indicative and may not be exhaustive
Source: Taxation section of the country notes
Other tax measures
A number of other tax measures are available to social economy entities in EU Member States. These include exemptions from or reductions in social security contributions for hiring disadvantaged workers (Table 5.5) and exemptions from gift and inheritance taxes (Table 5.6), where they exist, among others. Gift and inheritance taxes can be levied either at the level of the recipient of the bequest (PBO) and/or the living donor or heir (European Commission, 2023[8]).
Source: Taxation section of the country notes
Note: N/A indicates that the country does not have gift and inheritance taxes in place
Source: Taxation section of the country notes
Tax and other incentives for giving and investing
All EU Member States have some incentives for individual and/or corporate giving to qualifying public benefit organisations. These can be in the form of (i) tax allowances, which subtract the donation or part of it from the taxable income base, (ii) tax credits, which subtract the donation or part of it from the tax that needs to be paid, (iii) allocation schemes, which allow taxpayers to designate a fixed percentage or amount of their income tax to eligible organisations through their tax return,3 and (iv) matching (only for individual giving), which involves public authorities topping up donations, with the beneficiary of the donation claiming the tax relief (OECD, 2020[4]).
Individual giving
The most common tax incentive for individual giving to public benefit organisations in EU Member States is a tax allowance (Table 5.7). Belgium, France, Portugal and Sweden offer tax credits for donations to eligible organisations. Hungary, Italy, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia and Spain have allocation schemes, while Ireland allows public authorities to match the donation.
Source: Taxation section of the country notes
Corporate giving
Similar to individual giving, tax allowance is the most common tax incentive in EU Member States for corporate giving (Table 5.8). France and Latvia offer tax credits for corporate donations, Slovak Republic allows corporate entities to allocate a portion of their tax to eligible entities while Sweden does not have any incentives for corporate giving. Most EU Member States have similar incentives for donations made by individuals and firms.
Source: Taxation section of the country notes
Investing
Croatia, France, Hungary and Italy have incentives available to investors in social enterprises, public benefit organisations or co-operatives. In Croatia, under the Investment Promotion Act 63/22, 136/24, tax incentives may be granted for investments in social enterprises, especially those creating jobs for vulnerable groups or pursuing socially and environmentally beneficial projects (Republic of Croatia, 2024[19]). France allows investors in ESUS enterprises to benefit from a 25% deduction from taxable income of the invested amount (with a ceiling of EUR 50 000 per investor) (Bercy Info, 2025[11]). In Hungary, donated assets that generate capital gains may be exempt from capital gains tax under specific conditions if transferred to public benefit entities. Moreover, dividends distributed by co-operatives may be exempt from tax if reinvested in the co-operative’s social or mutual purposes, which can encourage financial participation (Philea, 2024[20]). In Italy, investors in social enterprises are eligible for a 30% deduction from taxable income of the invested amount for investments of up to EUR 1 million for individuals and EUR 1.8 million for companies if the investment is held for at least three years (Italian Republic, 2017[21]).
Taxation across borders
Although EU Member States have exclusive jurisdiction over their fiscal policies, EU principles of free movement of capital and non-discrimination on the grounds of nationality apply to the levying of, and exemptions from, tax. Different rulings by the European Court of Justice (ECJ) have established that these principles also apply to philanthropic capital (Breen and Cordery, 2022[22]), namely the ECJ’s decisions in the Stauffer Foundation case (Case C-386/04, 2006), in the Hein Persche case (Case C-318/07, 2009), and the Missionswerk case (Case C-25/10, 2010).
Cross-border operations
Based on EU case law, countries within the EU/EEA are required to treat comparable philanthropic entities from the EU/EEA in the same way as domestic entities, in line with the EU principle of non-discrimination. If an entity has a philanthropic status in its own Member State and complies with the requirements of a philanthropic status in another Member State, the latter cannot deny this entity the right to equal tax treatment only on the grounds that it is not a resident in its territory. The ECJ requires Member States to apply a comparability test before they decline to grant tax exemptions to European entities not established in the Member State (OECD, 2020[4]). The European Commission has reiterated this requirement by publishing guiding principles on non-discriminatory taxation of charitable organisations and their donors (European Commission, 2023[23]).
Besides this obligation to treat comparable public benefit organisations from the EU/EEA in the same way as domestic ones, some Member States present specificities for foreign public benefit organisations to operate and receive equal tax treatment in their jurisdictions. For example, the Netherlands and Ireland require foreign public benefit organisations to register with the Dutch tax authority and the Irish Charities Regulatory Authority (Breen and Cordery, 2022[22]). In the case of Cyprus, only those entities with registered offices in the country are eligible for tax measures that apply to philanthropic entities. Italy requires foreign public benefit organisations (PBOs) to be registered in the national register of third-sector organisations, and this registration requires foreign PBOs to relocate their registered seats to Italy (Fici, 2025[24]).
Cross-border giving
EU case law has confirmed that the fundamental right of free movement of capital within the EU also applies to philanthropic capital. The European Court of Justice has determined that donations to foreign public benefit organisations must be granted the same tax treatment as the one granted to national PBOs, provided that they are comparable (Fici, 2025[24]).
Almost all EU Member States have amended their legislation and/or procedures in line with EU case law (OECD, 2020[4]). However, in most countries, comparability is determined on a case-by-case basis, except for countries like Luxembourg and the Netherlands, where formal comparability procedures have been established. The burden of proof is on the public benefit bodies and their donors, often entailing administrative requirements such as the translation and notarisation of relevant documents (Müllerwith and Fernandes, 2021[25]).
Social economy entities and public authorities face a number of challenges that prevent them from fully leveraging taxation to increase the impact of the social economy.
Challenges for social economy entities include:
tax measures excluding specific types of social economy organisations;
lack of awareness and complexity;
inability to recover input VAT.
Public authorities face the following obstacles:
identifying social economy entities;
balancing the need for government revenue generation with maximising the impact of social economy entities;
limited flexibility;
unequal impact of tax incentives for giving;
competition challenges;
potential for tax abuse.
For social economy entities
Exclusion of specific types of social economy entities from tax measures
In most EU Member States, tax frameworks do not have targeted measures for specific types of social economy entities, in particular social enterprises. They sometimes do not take into account their hybrid models that combine economic activities and pursuing social impact. For example, social enterprises that take the form of a limited liability company do not always have access to tax advantages that are available to non-profit organisations. In some Member States, social enterprise legal statuses do not grant access to preferential tax treatment (European Commission, 2023[8]; OECD/European Union, 2025[10]). Exclusion of some social economy entities, mainly social enterprises, from preferential tax measures was identified as a shortcoming by half (50%) of respondents to the OECD/EC survey on taxation for the social economy. Other research also shows that some social enterprises struggle to choose the organisational form that addresses both their own requirements (e.g. a limited liability company for accountability to shareholders) and those of tax authorities (e.g. a charity or a foundation form) to get access to preferential tax measures and as a result need to set up and manage entities with different legal forms (Killian and O’Regan, 2018[26]; Durand, Lemaistre and de Nervaux, 2021[27]).
Lack of awareness and complexity
Social economy entities might not always be aware of tax measures available to them. They also face major difficulties with the administrative procedures required to access them. Complexity and bureaucracy associated with tax advantages available to social economy entities were identified as a shortcoming by over a third (36%) of respondents to the OECD/EC survey on taxation for the social economy. The European Commission’s Social Economy Action Plan also highlights that in Member States with targeted tax measures for the social economy, access to them can be complex (European Commission, 2021[7]). In interviews conducted with social entrepreneurs in Ireland, the lack of tax knowledge was a commonly identified barrier to accessing preferential tax measures (Killian and O’Regan, 2018[26]). The interviewees further noted the complexity of the language used by public authorities in publications on tax matters. Some social entrepreneurs also expressed concerns over burdensome reporting requirements for entities without a charity status. In the Slovak Republic, the criteria for accessing preferential tax measures are different for every type of tax, which can create confusion for eligible entities. In Germany, a public benefit organisation needs to notify the fiscal authorities if it wants to modify its worthy purpose, adding administrative burden, particularly for smaller organisations (OECD, 2020[4]).
Social economy entities that engage in cross-border activities and donors who give across borders face high transaction costs when seeking tax relief. Establishing comparability between domestic and foreign social economy entities for the purpose of awarding them the same tax treatment is typically done on a case-by-case basis and often requires the provision of translated and notarised supporting documents. Furthermore, Member States have varying approaches to tax measures for social economy entities, which can be difficult for foreign organisations and individuals to navigate. These obstacles often act as a disincentive for cross-border philanthropy (Müllerwith and Fernandes, 2021[25]).
Inability to recover input VAT
Social economy entities that are exempt from VAT cannot recover input VAT related to exempt activities, which might put them at a competitive disadvantage compared to non-exempt organisations. For entities that do not have supplies with large costs, the advantage of not having to comply with administrative VAT requirements might outweigh the inability to recover input VAT. However, recovering input VAT might be relevant for social economy organisations with high costs for supplies and services such as equipment (Hemels, 2025[17]).
For policymakers
Identifying social economy entities
Policymakers can find it difficult to determine eligible social economy entities for tax measures. The social economy includes different legal forms, which can prevent the development of a coherent social economy fiscal framework. To overcome this, many Member States have introduced the notion of “public benefit” or “worthy purpose” available to different legal forms to determine eligibility for tax measures. However, these statuses are not specific to the social economy and can exclude social economy organisations that do not engage in worthy purpose activities defined in the law and/or act in the interests of their members instead of the general public. For example, some activities, such as consumer protection, civil protection, animal protection, amateur sports and religion were less commonly considered a worthy purpose to be eligible for tax exemptions than others, such as welfare, healthcare and education, among the 40 countries participating in the 2019 OECD Tax and Philanthropy questionnaire (OECD, 2020[4]). The public benefit requirements can exclude organisations that target exclusively their members or specific groups. For instance, in Austria, France and Slovenia, public benefit organisations have to benefit the public and the beneficiaries cannot be restricted based on individual characteristics such as gender, sex, religion or origin (OECD, 2020[4]).
The hybrid nature of social enterprises can make it difficult to target tax measures towards them. All EU Member States exempt non-commercial income of social economy entities such as donations and grants from income tax. However, approaches to commercial income vary. Most EU Member States exempt the commercial income related to a public benefit entity’s purpose from income tax. However, some social enterprises, even if they generate social benefits, might not meet the criteria of a public benefit organisation and difficulties can arise when determining which income is related to an entity’s purpose.
Balancing the need for government revenue generation with maximising the impact of social economy entities
Tax measures for the social economy have a cost to the public budget in the form of forgone tax revenue. This revenue might be compensated through reduced spending on social and environmental programmes if the impact of targeted social economy entities is increased. The cost of tax measures to the public budget can be determined by a tax expenditure analysis. However, this analysis can be difficult to carry out in the case of tax measures for the social economy because the relevant tax measures may not be considered as a tax expenditure. Tax expenditures can be defined as “a transfer of public resources that is achieved by reducing tax obligations with respect to a benchmark tax rather than by a direct expenditure” (OECD, 2004[28]). Grants and donations, which form a large part of the funding of social economy entities, are usually not considered income, which complicates the definition of a benchmark income tax and the calculation of the forgone tax revenue. Moreover, few countries collect the necessary information to estimate the tax expenditure on tax measures for the social economy. Of the 40 countries that responded to the 2019 OECD Tax and Philanthropy Questionnaire, less than half were able to provide forgone revenue estimates for tax measures for donations or other tax exemptions (OECD, 2020[4]). The lack of tax expenditure data hinders monitoring and evaluation initiatives to determine whether the benefits outweigh the costs and makes tax measures less transparent (Lideikyte-Huber, 2020[29]).
Limited flexibility
Unlike direct public spending that can be targeted at specific projects, tax measures are broader in scope and are more difficult to amend. Tax expenditures are usually written into permanent law, whereas spending programmes are subject to periodic reviews, evaluations and changes (OECD, 2010[30]; OECD, 2020[4]; Lideikyte-Huber, 2020[29]). This can make it more difficult for policymakers to use taxation to support emerging or changing policy priorities. Moreover, compared to spending programmes, it is more challenging to estimate the impact of tax expenditures on public budgets as the incentives that taxpayers receive are usually not capped. If needed, it is more difficult to place a cap on existing tax measures without changes to tax law.
Unequal impact of tax incentives for giving
Tax incentives for giving can disproportionately benefit higher-income earners and social economy entities with certain purposes. Some studies on charitable giving show that taxpayers with higher incomes and those giving larger donations are more responsive to tax incentives (Lideikyte-Huber, 2020[29]; Bönke, Massarrat-Mashhadi and Sielaff, 2010[31]). In addition, some research shows that tax incentives disproportionately affect donations to organisations with a certain purpose (Lideikyte-Huber, 2020[29]). For instance, recent research from France shows that increases in the price of charitable giving following the 2017 wealth tax reform resulted in a larger drop of support to charities with political objectives than others (Cage and Guillot, 2025[32]). Research from the United States shows that donations to charities operating in health care and home care are more sensitive to increases in the cost of giving (e.g. through lower tax incentives) than to those operating in higher education and the arts (Duquette, 2016[33]).
Competition challenges
In the EU, preferential tax treatment of social economy entities is not always aligned with EU and national State aid rules. The European Commission defines State aid as “an advantage in any form whatsoever conferred by national public authorities to undertakings on a selective basis” (European Commission, n.d.[34]). State aid rules aim to ensure fair competition and prevent distortions in the EU single market or national economies by mandating Member States to notify the European Commission of granted State aid measures. They apply if the beneficiary of the state measure is an enterprise and the aid is selective, which favours some enterprises over others that are in a similar situation. The established case law of the European Court of Justice stipulates that any organisation with an economic activity can be considered as an enterprise, no matter its legal form, financing sources or profit objectives.4 Economic activity is any activity that offers goods or services on the market. The market exists for a product or service in a given Member State if it is provided by a number of economic actors, the state does not have a responsibility to provide it to all citizens, payment is required for it and it is not purely social in nature (Sepio, 2023[35]). Some social economy entities, especially social enterprises, might engage in similar economic activities to other market participants, the support for which can create unfair competition.
Nevertheless, State aid, including in the form of preferential tax treatment, can in some cases be used for social economy entities if it complies with provisions under the General Block Exemption Regulation (GBER) and the Services of General Economic Interest (SGEI) framework or does not exceed the de minimis threshold, which as of August 2025 is set at EUR 300 000 over three years to a single enterprise that received the aid and linked enterprises (Piernas López, J., 2023[36]; European Commission, 2023[37]).
Many EU Member States limit the scope of preferential tax measures to non-market entities of the social economy, which excludes some social enterprises, or limit the aid granted to the social economy to the de minimis threshold and do not fully use the opportunities offered by GBER and SGEI frameworks (Sepio, 2023[35]). This represents a missed opportunity to strengthen aid for social economy entities, considering that under the SGEI Decision, Member States can offer compensation for the provision of services of general economic interest up to EUR 15 million per service per year without notifying the European Commission (Piernas Lopez, J., 2023[38]). The underutilisation of State aid opportunities can be explained by limited awareness about the frameworks, their misinterpretation or perceived legal risks (Piernas López, J., 2023[36]).
Potential for tax abuse
Without strict reporting and monitoring practices, social economy entities might be used to evade or avoid taxes by organisations or individuals that do not fully meet the criteria to benefit from preferential fiscal treatment. Although an OECD report from 2009 identified that tax abuse practices involving charities are not widespread in selected EU Member States (e.g. Czechia, France, Ireland, Italy, the Netherlands, Portugal and Sweden), the risk of tax abuse exists and is becoming more common (OECD, 2009[39]). Risk of misuse of tax measures was identified as a challenge by 14% of respondents to the OECD/EC survey on taxation for the social economy. Tax abuse for tax measures aimed at social economy entities can take the form of disproportionately high salaries for staff or board members of entities, using resources to serve personal interests instead of the organisation’s social and/or private purpose, running a for-profit business disguised as a social economy entity, dissolving the entity and distributing its assets as a way to avoid paying tax, treating regular employees as volunteers to not report their wages and engaging in taxable business activities without being registered as a taxpayer. Tax abuse practices with incentives for giving include falsification of donation receipts, the treatment of payment of goods or services as donations, among others (OECD, 2020[4]).
Public authorities can leverage taxation for the social economy by making it inclusive, understandable, transparent, fair and relevant. This can be done through:
setting clear eligibility criteria through a comprehensive legal framework;
creating a publicly available register of eligible entities;
introducing periodic reporting requirements;
facilitating access to clear tax information;
using State aid opportunities in line with competition laws;
evaluating the effectiveness of tax expenditures.
Set clear eligibility criteria through a comprehensive legal framework
Setting clear eligibility criteria for accessing preferential tax measures can help to avoid misuse of the incentives and ensure that they do not conflict with competition laws. While all EU Member States have introduced preferential tax treatment for entities engaging in activities with a worthy purpose and/or benefitting the public in their tax laws or laws on specific social economy entities such as associations, foundations and social enterprises (Table 5.9), they have varying approaches to the breadth of eligibility criteria (OECD, 2020[4]). Some EU Member States have introduced public benefit or social enterprise legal statuses to determine the eligibility for tax measures (OECD/European Union, 2025[10]). These statuses usually require an entity to pursue a social/environmental or a public benefit purpose, limit the size of the economic activities it can engage in, and in some cases, require the reinvestment of at least a share of profits, if any, into its purpose (OECD, 2020[4]; OECD/European Union, 2025[10]).
Source: Taxation section of the country notes
Clarifying worthy purposes through a statutory definition or providing examples of activities can help target taxation measures towards social economy entities. Some EU Member States do not provide a statutory definition of worthy purposes and instead include some examples of such activities in the relevant laws, while others restrict possible worthy purposes to several impact areas. For example, under the Finnish Income Tax Act, an organisation is considered as a public benefit organisation and is therefore eligible for tax-exempt status if it acts exclusively and directly for public benefit in a material, intellectual, ethical or social sense, if it does not limit its activities to a restricted number of persons and if it does not distribute economic benefit to members or related persons such as dividends or unreasonable remuneration (Republic of Finland, 1992[40]). The Act lists some examples of what can be deemed as a public benefit purpose (European Commission, 2023[8]). On the other hand, some countries restrict the scope of possible public benefit activities. For instance, in Cyprus, charitable institutions that qualify for tax exemptions can be incorporated solely for the promotion of arts, sciences or sports (Republic of Cyprus, 2002[41]). While such an approach can support organisations engaging in these purposes and limit the scope for tax abuse, it prevents social economy entities not engaged in pre-defined impact areas from accessing tax support, despite them aiming to have social/environmental impact and reinvesting their profits into their purpose.
Create a publicly available register of eligible entities
Public registers can help to improve transparency regarding the eligibility of organisations for measures and increase trust in these entities. They can also provide donors with the certainty that the entities they donate to are legitimate and that their donations are eligible for tax allowances or credits, whilst improving the anticipation of abuses and detection of potentially fraudulent entities (OECD, 2020[4]). Policymakers may consider the possibility of allowing or even requiring social economy entities to upload financial and mission statements on these public registers in order to further strengthen transparency. For example, Latvia has made the attribution of PBO status contingent on the entity’s registration on the Register of Public Benefit Organisations, which is run by the State Revenue Service (Fici, A., 2023[9]). The register is publicly available, allowing users to search PBOs by name, registration number and scope of activity and to view their yearly activity reports and future activity plans (Valsts ieņēmumu dienests, n.d[42]). In Italy, the Register of Co-operatives allows users to filter registered co-operatives that can access several tax benefits based on their name, social status, tax code and region, among other parameters (Ministero delle Imprese e del Made in Italy, n.d.[43]).
Introduce periodic reporting requirements
Annual or regular reporting requirements are used by some EU Member States to assess whether a social economy entity continues to meet the necessary criteria to be eligible for a preferential tax status in the period after obtaining it (OECD, 2020[4]). For example, in Portugal, foundations and philanthropic entities must publish financial reports, supervisory opinions, activity reports and external audit reports concerning the past three years on their websites (Philea, 2024[44]). In the case of the Netherlands, entities with a public benefit status (which are generally tax exempt) are required to annually publish an activity report and a financial report on their websites within six months after the end of the financial year (European Commission, 2023[8]). In general, required documents for reporting may include income tax returns, activity reports, financial statements and/or external audit reports.
Reporting requirements should be designed in ways that do not result in a heavy administrative burden for social economy entities and public authorities. Establishing a de minimis amount of revenue under which some reporting requirements would not be applicable can be a way to prevent additional costs for smaller entities (OECD, 2020[4]). For example, Ireland has set a de minimis amount of turnover (EUR 100 000) above which charities must submit audited financial statements and under which they are only required to submit an annual report, including a statement of accounts or a statement of assets and liabilities (European Commission, 2023[8]). Public authorities could also exempt entities from submitting a tax return if they are not liable to a particular type of tax. For instance, in Czechia, public benefit entities, such as foundations, endowment funds, public benefit corporations and social co-operatives do not need to submit a corporate income tax return if they have no taxable income or if all income is either tax-exempt or subject to final withholding tax (Czech Republic, 1992[15]).
Facilitate access to clear tax information
Accessible tax information can make it easier for eligible entities and individuals to navigate the requirements and facilitate tax compliance. To do this, public authorities could, alongside publishing clear interpretation of and guidance on tax measures, allow social economy entities to enquire about tax matters, either through dedicated departments or more general customer support channels. For instance, in Ireland, the tax authority has a dedicated unit to which charities can direct their questions or concerns (Revenue, 2022[45]). In Estonia, non-profit associations can contact the Estonian Tax and Customs Board by phone, email or online via the e-services platform (Estonian Tax and Customs Board, n.d.[46]).
Use State aid opportunities in line with competition laws
Policymakers in the EU need to ensure that any preferential taxation scheme available to social economy entities is in line with EU State aid rules. This can be done by limiting the preferential treatment to only non-commercial activities carried out by social economy entities, as shown by the example from Italy presented in Box 5.2.
In 1992, Italy introduced a municipal property tax (Imposta Comunale sugli Immobili (ICI)) with an exemption for properties used by non-commercial entities exclusively for activities related to welfare, social security, health, education, accommodation, culture, recreation, sports, religion and worship. The European Commission launched an investigation of the tax exemption in 2006 as the measure seemed to qualify as State aid. This was prompted by the fact that, under EU State aid rules, the key difference between an economic and a non-economic activity is whether there is a market in which the entity in question can offer its goods and services, which was the case for the sectors covered by the Italian municipal property tax.
Six years after the launch of the investigation, the Italian lawmakers replaced the ICI property tax with a new property tax (Imposta Municipale Urbana (IMU)). The new law restricted the property tax exemption to a list of specific activities carried out in a non-commercial manner. It was accompanied by a new regulation (Decree of 19/11/2012 n. 200), which narrowed down the scope for what activities could be deemed as being carried out in a non-commercial manner, requiring, for example, healthcare activities to be accredited and have agreements with public authorities or to be performed free of charge or against payment of a token amount. With the introduction of the new property tax and the regulation, the European Commission closed its formal investigation, considering the IMU tax to be outside the scope of State aid rules.
Source: Sepio (2023[35])
Policymakers could fully leverage State aid possibilities, especially those offered by the GBER and SGEI frameworks. The GBER exempts public authorities from notifying the European Commission if the State aid is granted to support activities in certain fields. GBER exemptions that might be relevant to the social economy include (i) regional aid; (ii) support for small and medium enterprises (SMEs); (iii) aid for the protection of the environment; (iv) support for innovation and research and development; (v) aid for training; (vi) support for recruitment and employment of disadvantaged workers and workers with disabilities; (vii) aid for transport for inhabitants of remote regions; (viii) support for culture and heritage conservation; (ix) aid for sport and multifunctional recreational infrastructure; and (x) support for local infrastructure (Hemels, S., 2025[47]). The SGEI framework allows Member States to grant State aid to compensate for the provision of services of general economic interest, which are defined as “economic activities which deliver outcomes in the overall public good that would not be supplied (or would be supplied under different conditions in terms of quality, safety, affordability, equal treatment or universal access) by the market without public intervention” (European Commission, 2011[48]).
Member States may consider investing in training, capacity-building and awareness-raising for public authorities on EU State aid rules. For instance, the EU Social Economy Gateway provides guidance materials and examples of how State aid rules can support the social economy (European Commission, n.d.[49]). Member States may also consider proactively engaging in structured dialogue or public consultations with EU policymakers to provide input on these challenges and feed into potential revisions of EU State aid rules. For example, the European Commission launched a public consultation between June and July 2025 for the revision of State aid rules on SGEI, mainly aimed at tackling the housing crisis but also at simplifying and clarifying some concepts in the SGEI framework (European Commission, n.d[50]).
Evaluate the effectiveness of tax expenditures
Evaluating the effectiveness of tax expenditures for social economy entities can help to ensure that they meet their intended goals while maintaining the financial sustainability of public budgets. The main aim of taxation for the social economy is to encourage activities of eligible entities that have a positive benefit on society. Although thorough evaluations for tax expenditures are not common, some EU Member States, such as France and the Netherlands, publish reports on the size, cost and recommendations for tax expenditures that include measures available to social economy entities (OECD, 2020[4]; Cour des comptes, 2025[51]; Ministry of Finance, 2023[52]). A non-exhaustive list of possible questions for such evaluations is presented in Box 5.3.
Effectiveness
What is the rationale behind the tax measures?
What are the objectives of the preferential tax treatment?
What is the uptake of the tax measures? What are the barriers to accessing them?
What is the distributional impact of the tax measures?
Could the goals be achieved through other policy measures?
Cost
Are the size and the costs of the tax measures accurately estimated?
Does the preferential tax treatment distort competition?
Is compliance with the eligibility criteria monitored effectively?
How burdensome is it for eligible entities to access the tax measures?
Potential for improvement
Could the compliance burden be reduced?
Could the administration be made more efficient?
Could the eligibility criteria be modified to achieve the goals?
Do the tax measures overlap with other initiatives?
Source: Based on Beer et al. (2022[53]) and OECD (2010[54])
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← 1. The survey received 15 responses, 11 of which were submitted by legal experts, 2 by public officials and 2 by social economy representatives.
← 2. The income of unincorporated social enterprises is taxed under personal income tax. This chapter focuses on incorporated social enterprises and therefore mainly considers corporate income tax measures.
← 3. Allocation scheme is neither a tax incentive nor an act of giving (OECD, 2020[4]).
← 4. CJEU,12 September 2000, Pavlov and Others, Joined Cases C-180/98 to C-184/98; 10 January 2006, Cassa di Risparmio di Firenze SpA and Others, C-222/04; 27 June 2017, Congregación de Escuelas Pías Provincia Betania, C-74/16.