Non profit
Belgium: Facilitating Cross-border philanthropy
An overview of cross-border philanthropy within Europe (and beyond), by Ludwig Forrest, Philanthropy Advisor for the King Baudouin Foundation
di Redazione
Most EU countries do not provide incentives for donors who want to support a foreign beneficiary within (or outside of) Europe. Income tax deductibility does not apply to donations aimed at foreign beneficiaries, while cross-border donations and legacies are often taxed at the highest applicable gift and inheritance tax rates. The European Commission's recent launch of the www.givingineurope.org website and the promotion and extension of the Transnational Giving Europe (TGE) network are important initiatives that improve the environment of cross-border philanthropy in Europe (and beyond).
Current Situation
Philanthropy in Europe is not free yet. Concepts such as free trade and free movement are now widely accepted, yet free cross-border philanthropy in Europe is still not a reality: tax-efficient giving across all national borders doesn't exist. More and more European citizens are willing to make cross-border gifts, donations or legacies to help international causes and foreign charities. In the process, however, they often face a complicated legal and fiscal framework as well as national barriers. For example, a donor living in France who wants to support an English charity with assets in Spain will find it hard to find a feasable way of implementing their valuable intention because three different national legal and fiscal legislations must be taken into consideration. Even when the more common situation of having to transfer donations between two countries (donor and assets in country A – beneficiary in country B or donor and beneficiary in country A ? assets in country B) is likely to be very complicated and not tax-effective.
Most European countries do not grant income tax deductibility to donors who want to support a foreign beneficiary in another Member State and even tax such gifts, donations or legacies at the highest applicable rate with gift or inheritance taxes. This unequal treatment of national and cross-border philanthropy infringes upon the fundamental freedoms guaranteed by the European Community's treaty.
It can therefore be said that the environment for cross-border giving in Europe lags behind in this borderless 21st century. The problem lies in burdensome legislation and heavy tax regulations that inhibit and, in some cases, prevent philanthropy and cross-border giving. Some countries will find it easier to find an effective solution than others, the outcome depends on which country the donor resides in, where his assets are and where the beneficiary is. In any case, professional tax and legal advice that specifically suits the donor's situation should always be sought. With this in mind, it has to be stressed that cross-border giving is possible even if complicated and that cross-border giving in Europe needs to be improved and facilitated.
Initiatives from national and European authorities
National authorities have taken very small steps to amend this situation, mainly in the form of agreements between individual countries. As far tax-deductibility is concerned, there are, with a few exceptions, no real responses able to provide a real solution, such as mutual agreements, treaties between European countries or unilateral measures.
For gift and inheritance taxes, donors must always check whether or not a cross-border transaction can benefit from tax relief in accordance to charity-friendly provisions in a double income tax treaty, a declaration of reciprocity or in any other bilateral agreements concluded by the countries involved. In such cases, a cross-border donation would be taxed at the same rate as if it was made to a national beneficiary. Unfortunately, these provisions remain more the exception than the rule. Most of the double tax treaties do not have charity-friendly provisions and act to prevent tax being charged twice where there is the chance of overlap between national taxes. These double taxation agreements do not act to mitigate tax due abroad where there is an exemption or a reduced rate in one of the countries. Some European countries also give donors and beneficiaries the possibility of seeking relief under unilateral provisions by granting a credit for taxes charged by one country for assets situated in the other country.
At a European level, major steps were taken from 2002 onwards, eventhough these are mainly restricted to cross-border philanthropy within Europe. An individual claim motivated the European Commission to request Belgium to change its legislation on gift and inheritance tax, which is seen as discriminatory because it confines the preferential rates for philanthropic donations or legacies to entities established in Belgium. The Commission considers this legislation discriminatory and a breach of the freedom of establishment of comparable bodies established in other Member States. The commission's decision required the three Belgian regions responsible for administration of gift and inheritance taxes to amend their legislation to comply with the request. Donors resident in Belgium who want to support a charity in another EU country now have more possibilities to do so. As a response to other claims, the EC started to challenge the tax legislation of more EU countries and adopted a similar approach in the UK, Ireland and Poland. Moreover the EC has not limited the scope of its review to gift and inheritance taxes in these countries, but has included all kinds of tax relief for gifts or legacies to charities located in other members states. Income tax deduction has now also been clearly concerned. This new approach motivated the EC to send a new request to Belgium, since it restricts tax deduction to gifts to domestic charities.
The last EC requests are built on a wider legal basis, which includes Article 56 of the EC Treaty (free movement of capital). The validity of the EC statement has been confirmed by a ruling of the European Court of Justice on the so called ?Stauffer Case?. Some of the countries involved did change their legislation after the EC request (i.e Poland for income tax deduction). Now that the EC has a stronger position after the outcome of the abovementioned case, it should not be surprise to see other EU countries being challenged on this issue. These developments are major steps which could contribute on a longer run to the creation of a European common charitable area.
Even though European pace is sometimes slow, it is certain that one of the most appropriate ways of securing free philanthropy and tax-efficient charitable giving across all national borders within Europe is to continue the process started by the European Commission in 2002.
Help is needed in this endevour because the EC has no intention of taking spontaneous action against other member states who still do not comply with the Treaty of Rome. However it is willing to react each time it receives a complaint and to take action if this action appears to be legally founded. Charities that do still face tax discriminations from EU countries have an impoortant role to play: involving the EC by lodging a complaint.
It should be noted that suppression of the prohibited discriminations by the EU member States may not solve the problem entirely. A charity claiming equal treatment has to pass a comparison test: it should be considered as similar to one of the types of qualifying organisations in the source state. In some cases it might encounter difficulties due to disparities between the various laws that regulate non profit organisations. An initiative like the creation of a European legal tool for foundations (the ?European Foundation Statute?) could be an appropriate way to overcome these difficulties. The creation of such an instrument might however also take some time.
Private initiatives : Transnational Giving Europe and www.givingineurope.org
National and European solutions could take some time so private initiatives like the Transnational Giving Europe network are therefore important and provide efficient solutions and serious alternatives for the coming years. At European level, TGE is the only practical and secure solution for tax-effective cross-border cash donations.
The TGE network is a partnership between the Charities Aid Foundation, the King Baudouin Foundation, the Fondation de France, the Oranje Fonds, Maecenata International and, since early on in 2006, the Foundation for Poland and The Community Foundation for Ireland. It enables donors (corporations and individuals) that reside in one of the participating countries to financially support non-profit organisations in other Member States while benefiting directly from the tax advantages provided for in the legislation of their country of residence. A donor resident in one of the participating countries and wishing to make a gift to a public interest organisation in one of the other Member States can contact the foundation in the country of his/her residence. The home foundation establishes contact with the foundation in the recipient country for an assessment of the beneficiary (which is another non-profit organisation). If the evaluation is positive, the donor makes the gift to his home-country foundation which then provides the donor with a tax receipt and transfers the gift to the recipient country foundation in favour of the beneficiary organisation.
By providing such a secure and tax-effective cross-border giving framework, TGE is of course particularly interesting for national organisations with prospective donors abroad. Receiving tax-free contributions from foreign donors, appealing to expatriates, approaching global partners such as multinational corporations, benefiting from borderless interest in a specific cause or capitalising on global exposure offered by the internet is within arm?s reach. The TGE network enables organisations to extend fundraising to foreign countries, without having to set up branches or sister organisations for that sole purpose and without having to master different national laws. Two concrete examples of beneficiaries using TGE are museums having donors abroad and high schools or universities relying on donations from individuals and companies and having a significant number of alumni in other countries.
Some of the TGE partners extend this possibility to countries who are not part of the TGE agreement. This is interesting for US beneficiaries as they now have solutions in Germany, the UK, Belgium and in Ireland. They are offering the same kind of services that are provided to US donors who want to support foreign beneficiaries in Europe to organizations like the King Baudouin Foundation United States (www.kbfus.org) or CAF America.
The Giving in Europe website (www.givingineurope.org) was launched at the end of 2004 and represents a valuable (free) resource for donors, intermediaries, and beneficiaries that wish to give or receive a cross-border donation or legacy. Here they will find practical information and initial advice on how to deal with the legal and fiscal aspects involved in the cross-border philanthropic transaction (gift or inheritance taxes to be paid, possible relief or exemptions, bilateral tax treaties, alternative solutions, etc.), taking into account the country of residence of donor and beneficiary and the country where the assets are located. The website covers the 27 European Union countries as well as Switzerland and it already also includes a transatlantic giving section to help donors wanting to give from/to the USA to/from Europe. In this section, private donors will find practical information on how to support beneficiaries on the other side of the Atlantic ocean with all the tax advantages in their country, at least in some of them as far as Europe is concerned.
The future of cross-border philanthropy
Interesting European legal developments, like the Walloon case, the Stauffer case, proposals like the European Foundation Statute and private initiatives like TGE, really tend to create a more enabling environment for European cross-border philanthropy. Facilitating it and improving it by securing tax-efficient giving free of fiscal and legal constraints will finally allow donors to express their philanthropy all across Europe. It will not mean that donors will stop supporting national beneficiaries (cross-border philanthropy is still of marginal importance compared to national philanthropy) but it will ensure that the growing number of donors wanting to broaden their scope of action will be able to do so efficiently while allowing European cross-border philanthropy to fulfil its potential for dynamic change. Once accepted and implemented, these changes will certainly influence positively wider cross-border philanthropy beyond the European borders.
More Info:
- www.givingineurope.org
- www.kbs-frb.be (King Baudouin Foundation)
Cosa fa VITA?
Da 30 anni VITA è la testata di riferimento dell’innovazione sociale, dell’attivismo civico e del Terzo settore. Siamo un’impresa sociale senza scopo di lucro: raccontiamo storie, promuoviamo campagne, interpelliamo le imprese, la politica e le istituzioni per promuovere i valori dell’interesse generale e del bene comune. Se riusciamo a farlo è grazie a chi decide di sostenerci.