Cross border giving opens new frontiers...
The European Court of Justice followed the opinion of the Advocate General...
...(see news review in Caritas Issue 13, December 2008) and ruled in the case of Hein Persche v Finanzamt Lüdenscheid that tax relief must be provided by member state governments on charitable donations made across national borders. In brief, the decision means that:
- Donations by individuals resident in one member state to organisations based in and recognised as charitable by another members state concern a movement of capital within the meaning of Art.56 of the EC Treaty.
- Member states (such as the UK) which give tax relief on donations to organisations recognised as charitable and located in their own member states must, following this ruling, allow a taxpayer the opportunity to prove that charities based in other members states also fulfil the requirements for tax relief.
- Fiscal authorities should not have to liaise directly with the authorities in the recipient body’s member state to determine whether the criteria for tax relief exist.
Third Sector magazine reported on 10 February 2008 that tax experts have predicted the UK government will fight this ruling, Bill Lewis at Bates Wells and Braithwaite commented he thought the government would have to accept the decision, but only if a major donor went to court.
Clive Cutbill of Withers told Caritas: ‘If the government tries to ignore the case, I don't think it is going to be able to. The European Commission issued directions to the UK (and other jurisdictions) after the Advocate General gave his opinion in the Stauffer case (in the summer of 2006); the government may have been ignoring those until now but given the judgment in Persche, I think there is a good chance that the Commission will proceed with its threatened infraction proceedings.
‘That said, broadly, I share Bill Lewis' view. Until the Commission issues its threatened proceedings, no one is likely actually to get a UK tax deduction for a gift to a non-UK, EU, charity. Meanwhile, I think a donor would need to take proceedings against HMRC here and then plead the ECJ decision on the basis that a UK court should apply overriding European law and order a deduction to be allowed.
‘The question is what plans the UK will make or implement now. Some have said (based on comments allegedly made in the Stauffer case) that the UK will abolish all tax reliefs for all charities (including those which are indigenous) or introduce a “local benefit” test to replace the existing rules based on 'territoriality' (which, it is rumoured, may be an approach the Germans are considering). Personally, I do not believe the former and would be surprised if they did the latter. One of the difficulties with 'local benefit' rules, where you have a history of charities working overseas, is that you need to frame them widely to allow a wide concept of 'benefit' to the home state - and that can mean they may have limited effect.’
Author: Clarissa Dann
Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.
She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.
Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from
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