Tax deduction restrictions between EC countries could be lifted
December 2008
European Court of Justice Advocate General Paolo Mengozzi has recommended that donations made by individuals resident in one member state to organisations based in another member state are tax deductible within the meaning of Article 56 of the EC Treaty.
The opinion was published on 14 October 2008 in a German tax case which is before the European Court of Justice, Hein Persche v Finanzamt Lüdenscheid (C318/07), where Mr Persche had made a gift to a Portuguese charity and unsuccessfully sought a German tax deduction. The opinion makes the point that saying ‘the charity is not German’ is not good enough to prevent a tax deduction and that it is up to the taxpayer to establish that a foreign charity is ‘equivalent’ to a domestic charity.
The issue is hardly new – back in 2002 Belgium got into trouble with taking this approach with gifts to non-Belgian charities based elsewhere in the EU (such as the UK) and in 2006, Centro di Musicologia Walter Stauffer v Finanzamt München für Körperschaften (C386/04) held that Germany should not have taxed an Italian charity on its income when it would have done so, had the charity been Italian.
Clive Cutbill of Withers Worldwide told Caritas: ‘We will have to see if the whole court follows the Advocate General – his opinion is usually a good barometer of the outcome – and if so, it will be interesting to see how governments react.’ He went on to make the point: ‘It may be, however, that charities will be able to fundraise efficiently in other member states. If they do, they will no doubt wish to help their donors establish their ‘equivalence. They will also have to think about the consequences of competition at home from other EC charities.’
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