Fortalece ∗ Mexico

Fortalece
Fortalece Legal

Consultancy and empowerment for the non-profit sector

Mexico City, Mexico

Website
Photo: Emilia Szekely

FORTALECE is dedicated to giving legal and fiscal advice to civil society organizations to become legally constituted and obtain the tax-exempt status, in order to consolidate and make it easier to gain more support.

Context

In Mexico, the authorized tax-exemption regime helps development initiatives or civil organizations obtain financial support because it is tax-deductible for donors.

Proposal

Fortalece emerged from a course taught for students of the Ibero-American University in Mexico City called “Legal and fiscal framework of philanthropy”. It aimed to fill two gaps quickly and cheaply: to help “satisfy the hunger for advice from the world of civil society organizations” and contribute to training tax lawyers by allowing them to provide free advice to various initiatives for a whole semester.

Since 2014, Fortalece has offered consultancy services to tax authorities to raise their awareness about the needs of the most vulnerable development initiatives. From the perspective of Fortalece, those in charge of designing tax legislation know little about the reality outside the urban centres and as such have privileged rather standardized mechanisms to certify and distribute support. Thus, the limited number of provisions for their differentiated and therefore equitable treatment has reproduced the conditions of inequality among development initiatives.

Because of this, very few organizations are awarded tax-exempt status. Of the 60 organizations they advised and followed-up, fewer than 10 completed the process. The process is complex and costly, and organizations often lack persistence because the procedure is expensive or slow. Notary costs cannot be avoided. Moreover, the standardization of regulations favors initiatives with a greater degree of:

  • Structuring and solidity — discouraging innovation;
  • Bonding with donors — for many that world is unreachable;
  • Intellectual capital to learn and compete successfully in calls for funds, especially international ones — the capacity in language, training, access to media, etc. is unequal among initiatives;
  • Economic capacity to cover expenses of a legal constitution — most initiatives don’t have the resources to pay for advisers in the process, notaries, transportation to administrative offices in the cities, mainly the capital.

Therefore, from the perspective of Fortalece, the status of authorized grantee is not for everyone, and will not solve the financial needs of an organization because donations are few and difficult to acquire. Even so, the initiative considers it a useful tool. And as such gives legal and tax advice to different civil society organizations— now, with very few exceptions, for a fee.

Fortalece, cannot survive without charging a fee. Also, the legal constitution as an authorized grantee is only the first step in a series of obstacles. If initiatives do not have the capacity to finance the first step, they are unlikely to survive the rest of the process.

Fortalece is sustainable because there are very few experts on the matter and the process of the tax authorities is not sufficiently transparent. This differentiation has made it several customers who have recommended it from voice to voice: “It is a noble business because it is always needed”, says its founder. In addition to achieving financial sustainability by advising civil society organizations, the project today seeks to contribute to the literature on the subject through the production of teaching materials.

Fortalece is constituted as a civil association (A.C. in Spanish) and as civil society (S.C. in Spanish) because this scheme allows it to make profits without compromising its goals. Fortalece chooses to be a civil society organization instead of a social enterprise because social enterprises do not want to live on donations but to solve social problems through a business scheme (donations, especially in Mexico, are limited). The problem is that for the business to work they must privilege profit, like any other business, and this compromises their social objectives.

When asked if measures could be taken to solve the problem of inequality in civil society organizations, Fortalece’s founder said that there are no magical recipes, but that improvements should come in terms of:

    • Trust — Lack of this limits donations and prevents innovations that give a real turn to the current system.
    • Change in “philanthropic beliefs from top to bottom“.
    • Looking for a change in addition to reforms to the Tax Administration System, which is only a part of the problem. That is, comprehensive reform. She considers the tax system one of the most flexible in the country and has had more reforms than any other public sector because there has been an unusual continuation of its personnel despite changes in government (due in part to the high degree of specialization of its members). However, she also thinks that it has not managed to change the root of the structure that reproduces inequality in the sector.
  • Understanding ourselves as civil society.
  • Making the tool more accessible —expanding the number of options to become an authorized grantee and using electronic systems to expedite the process (progress has already been made in this).