News

Understanding Global Philanthropy insert in the Financial Times in association with the King Baudouin Foundation

We are pleased to inform you about the publication on Tuesday 11 December 2007 of the Understanding Global Philanthropy report of 16 pages in the Financial Times (European Edition). This publication is realised by the FT in association with the King Baudouin Foundation' Centre for Philanthropy.

The King Baudouin Foundation's Centre for Philanthropy provides information, guidance and tailor-made assistance to private donors, families, companies and professional advisers wishing to engage in philanthropy in Europe and internationally. Besides these core activities, the Centre accepted this partnership to explain and strengthen the importance of philanthropy in general to the European FT readers so to motivate them to take a more active role in it.

Topics include of course the cross-border giving issue (there is a very good overview of the problematic) but cover also the rise of corporate philanthropy, the important role of intermediaries, the emergence of new support mechanisms, the new generation of donors and more.

For those of you who didn't get the FT of that day, please note that the articles are also available by clicking here or that we will be pleased to send you a paper copy. You just have to send an e-mail with your address details to forrest.l@kbs-frb.be

International Philanthropy: Creating the Right Climate conference, 14 & 15 September, Brussels

The two-day conference entitled International Philanthropy: Creating the Right Climate focused on the wider issues surrounding cross-border philanthropy. Its purpose was to draw the attention of legislators, officials, donors, foundations, NGOs and charities to the barriers to cross-border giving in Europe and to allow all interested parties to promote the agenda further.

The conclusions of the conference will be available soon. In the meanwhile, you can already find the presentations of the speakers by using this link

Background to the conference

The potential for cross-border philanthropy in Europe is growing. However, European citizens wanting to give assets located in their country to a foreign beneficiary or wanting to give assets located in a foreign country to a national charitable organisation face huge fiscal and legal barriers that generally impede them in carrying out their philanthropic intention.

Donors, advisors and fundraisers have to deal with complicated rules and unequal treatment of national and cross-border philanthropy. Almost all EU member states do not provide incentives for donors wanting to support foreign beneficiaries. Tax-deductibility for the donor is mostly only granted for donations to domestic charitable organisations and cross-border giving does not generally benefit from reduced gift and inheritance tax. It is even often taxed at the highest applicable rate. This is of course incompatible with EU law.


The second issue is the VAT, which has been a problem for charities for many years. ECCVAT has been working to address the problem since its creation in 1992, but now that a new Commission and a new European Parliament are in place and the EU has gained an additional ten member states, there is a need for an exchange of information across Europe on the VAT position of charities, so that informed decisions can be made based on the actual needs of the sector.

The Stauffer Case

On 14 September, 2006 the ECJ released its judgement in the so called « Stauffer Case » (C386/04).

Centro di Musicologia Walter Stauffer is an Italian resident foundation. It derived rental income from German real estate in 1997, which was subject to German corporate tax. Since the German law stipulates that exemption from corporate tax only applies to resident entities, i.e. entities that have their registered office and/or governance structure in Germany, Stauffer decided to bring the case to the Justice and invoked an infringement of the European legislation, namely the freedom of establishment and free movement of capital.

The ECJ ruled that that the differential treatment of resident and non-resident charitable foundations constitutes an unjustified breach on the free movement of capital (article 56 of the Treaty) but only where Germany recognises the charitable status of the Stauffer foundation according to the German Law. Since the referring Court had already recognised the charitable status of Stauffer, the ECJ considered Stauffer to be comparable with a German charitable foundation. Consequently it decided that the foundation should be exempted from real estate tax in Germany.

The ruling of the ECJ is a significant step for the income tax treatment of non-profit organisations operating in other European countries, since many national legislations do not grant exemptions to foreign organisations operating on their territory.

This judgement could also have a favourable impact on inheritance or gift taxes on cross-border giving to charities located in other Member States. The court referred to Annex I of the Council Directive 88/361/EEC, of June 24, 1988, which provides for a community definition of “capital movements”. It should be stressed that cross-border gifts or legacies are also explicitly described as capital movements in the Annex I of the abovementioned Directive. This means that legislations which restrict privileges on inheritance or gift taxes on cross- border gifts to charities located in another Member State are in conflict with article 56 of the Treaty of Rome.

This ruling of the ECJ will certainly influence future and present (UK request, Walloon Case) actions of the Commission towards Member States and will probably also motivate national autorities to take pro-active action to modify current legal and fiscal discriminations. It could also be said that it shows that if there is no other issue, donors or charitable organisations with cross-border activities or receiving gifts or legacies from donors located in another EU Member State could consider lodging complaints or bringing the case to the Justice if they are excluded from the privileged regime which is foreseen by the legislation of that Member State.

The Transnational Giving Europe extends to Luxembourg

Good news for cross-border giving.

After recent extensions to Italy, Hungary, Bulgaria, Romania and Slovakia earlier this year, the TGE network extends to Luxembourg. 14 countries are now covered by TGE. The Fondation de Luxembourg has joined the network on June 18 2009.

This provides on the one hand a solution for donors from Luxembourg wanting to help beneficiaries abroad (even though since 20 July there is a serious alternative for donors living in Luxembourg with the circulaire - see other news on this website) and gives on the other hand the opportunity to national beneficiaries to fundraise tax effectively in all the other TGE countries.

The Transnational Giving Europe (TGE) network is an important private initiative that, at European level, is the only practical and secure solution for tax-effective cross-border cash donations. The TGE network, a partnership between the Charities Aid Foundation, the King Baudouin Foundation, the Fondation de France, Oranjefonds, Maecenata International, the Foundation for Poland, the Community Foundation for Ireland, the Swiss Philanthropy Foundation, the Carpathian Foundation International, the Bulgarian Charities Aid Foundation, Vita Giving Europe Onlus and now the Fondation de Luxembourg enables donors, both corporations and individuals, resident in one of the participating countries, to financially support non-profit organisations in other member countries, 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, wishing to make a gift to a public interest organisation in one of the other member countries 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 provides the donor with a tax receipt and pays the gift to the recipient country foundation in favour of the beneficiary organisation.

By providing such a secured 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 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 that rely on donations from individuals and companies and having a significant number of alumni in other countries.

Figures for the Transnational Giving Europe network are in a steady progression. Figures will grow again in 2008 over 3,2 million € transferred with the help of TGE (versus 900.000 € in 2006 and 2 Million € in 2007). This trend will certainly continue with a growing number of beneficiaries and donors across Europe being informed by the TGE possibility. Secondly, TGE will only show its full potential when extended to most of the EU member countries. Current extensions are therefore very welcome.

To contact the network : www.transnationalgiving.eu

CONFERENCE ON GIVING MORE FOR RESEARCH IN EUROPE. STRENGTHENING THE ROLE OF PHILANTHROPY IN THE FINANCING OF RESEARCH


The European Commission organised a conference on the role of foundations and private philanthropy in the field of research (March 27th - 28th 2006) in Brussels. The purpose of this conference was to discuss how philanthropy (foundations, trusts, charities, etc) can fund knowledge generation, in particular research activities and explore strategies and initiatives to strengthen the potential of philanthropy as a source of funding for research in Europe.

One of the topics was to discuss the role and potential of cross-border philanthropy to achieve this aim. How actuel barriers impede this role.

Please find with this link to the European Foundation Centre website a first report on the key issues and results achieved during the conference.

New developments in the Netherlands: total exemption for donations and legacies to Dutch charities and tax deduction for gifts to charities located in EU countries


Donations for philanthropic purposes (schenkingen voor goede doelen)

Donations and legacies to charities, which were subject to a reduced rate of 8%, are as from January 1, 2006 totally exempted. This charity friendly legislative modification is the result of a very efficient lobbying by Johan Cruyff, the famous football player.

It should be noted that the exemption is only applicable for charities which have been agreed as qualifying charities. The qualifying criteria are not yet determined.
The Secretary of Finance might impose stricter conditions than in the past for being accepted as qualifying institution.

The modification of the inheritance and gift tax however contains a loophole. The death transfer taxes were not integrated in the exemption scheme. This means that in case death transfer taxes are applicable (i.e. in case a foreign testator would legate a building located in Holland to a Dutch qualifying charity) the exemption would not be granted, but the full rate would be applicable (68%).

Since such provision does not coincide with the intention of the legislator, the law will probably be changed on this issue. In the meantime legacies of assets in the Netherlands by non-residents of that country should be postponed and alternatives should be envisaged until the loophole has been filled.



Income tax deductions for cross border gifts to EU located charities


In most of the countries, income tax deduction is only granted for gifts made to domestic qualifying organisations. This restriction can result from the obligation for the charity to have its registered office in the country itself or from some other formal requirements, which a foreign entity could per definition not fulfil.

Very recently the Dutch legislation has been amended on this point. The tax deduction which can be granted if the scope of activity of the foreign entity also covers the Netherlands or, if the activities of the charity have a universal character such as protection of environment or nature, will now be extended any charity located in any of the EU countries, provided that certain conditions are met. A decree specifying these minimal conditions will be issued later on.

This legislative amendment makes from the Netherlands one of the most advanced country of Europe as far as income tax deduction on cross-border gifts is concerned.

Updates on the formal request against the UK and on the Walloon Case


The United Kingdom: tax privileges for charities under review by the EC

On 10 July 2006 the European Commission sent the United Kingdom a formal request to end discrimination of foreign charities. The press release – a summarized version of the notification - mentions that the United Kingdom allows tax relief for gifts to charities, but only if they are established in the UK. Charities in other Member States are excluded from the relief foreseen by the UK. This restriction constitutes a discrimination contrary to the Treaty of Rome in the eyes of the Commission.

The infringement procedure was activated further to a complaint concerning income tax incentive on gifts to charities.

The press release does not mention which section of the law should be amended, but the text of the notification itself - which is not communicated to third parties - states apparently that the UK should suppress discriminations in every kind of taxes where a privileged regime is granted to charities or to their donors, including income tax deduction for donors, tax incentives for charities receiving gifts, capital gains tax, inheritance tax, and income tax levied on the charity itself.

It is the very first time that the Commission focuses on income tax incentive for lifetime gifts to foreign charities in an infringement procedure and requests the extension of the privileged regime to gift to charities located in other EU Member States.

It should also be noted that the argumentation of the EC is build on a wider basis than for the request it had send on October 2002 to Belgium, where the claim was based on violation of the freedom of establishment and free movement of persons. The Commission mentions as principal argument a breach of another fundamental freedom, namely the free movement of capital, dealt with by article 56 of the EC Treaty. This article reads as follows: “Within the framework of the provisions set out in this chapter, all restrictions on the movement of capital between member states and between member states and third countries shall be prohibited.”

In the context of taxation on charities, this argument was used for the first time by the claimant and by the Advocate General in the “Stauffer Case”. The favourable ruling issued by the ECJ on September 14, 2006 on this issue (please check the specific news on the Stauffer case) puts the Commission in a very strong position in its infringement procedure against the UK as well as against Belgium.

This is very good news for the cross-border philanthropy but it once again still should be stressed that the problem isn't specific to the UK but that nearly all Member States discriminate foreign beneficiaries by providing unequal tax treatment between national philanthropy and cross-border philanthropy. This by taxing the second at higher rates (gift and inheritance taxes) and by not providing tax advantages for donors supporting foreign beneficiaries as they generally receive when they support a national beneficiary.

Walloon case: decision to refer Belgium to the ECJ temporarily suspended


In July 2005 the European Commission decided to refer Belgium to the European Court of Justice because in its view the Walloon inheritance and gift tax laws discriminate against foreign charities.

It should be reminded that the legislation of the three Belgian regions was recently modified further to a notification from the EC to Belgium in October 2002. According to the modified legislation of these regions, the application of reduced inheritance and gift tax rates is extended to charities located in other EU Member States. However, the Walloon legislation submits the application of privileged regime to very strict conditions, to such extend that the legislation of this region is still considered as conflicting the Treaty of Rome. The reduced rate on gifts or inheritance tax is not applied when Walloon residents who never worked or lived in (a) particular member state(s) make legacies or gifts to charities in this (those) Member State(s). The reduced rate is also not applied if a person who moved from another member state to Belgium makes a gift or a legacy to a charity in a third Member State.

This is the reason why the EC decided to bring the case to the Justice

In July 2006, one year after the EC’s decision, the Commission mentioned, quite surprisingly, that it had decided to suspend temporarily the starting of the procedure before the ECJ.

It has been unofficially stated that the Commission still considers that the infringement exists and that it did not renounce to bring the case to the justice. However, it envisages to taking additional infringements in consideration before introducing the claim to the Court.
The EC is seeking consistency and will probably take the same approach for Belgium than the one it took towards the UK to which it has sent a notification in July 2006 (see article above). The infringement procedure in the latter case was activated further to a complaint concerning income tax incentive on gifts to charities, but the claim is not limited to this topic. UK is requested to amend each part of its tax legislation which would restrict the benefit of tax privileges to the charities located in the UK. (income tax incentive on gifts, inheritance and gift taxes, capital gains tax…)

As far as the Belgian case is concerned, the EC seems now to consider that the income tax deduction as foreseen by articles 104 and following of the Belgian income tax code does not comply with the Treaty of Rome, since the deduction can only be granted to non-profit organisations recognised by the Belgian State. Organisations that are not located in Belgium are not in a position to meet the criteria to be recognized as eligible to receive tax deductible gifts.

The Commission had probably a second reason to wait before starting the procedure before the ECJ: the outcome of the Stauffer Case (please check the specific news on the Stauffer case). Although the Stauffer case does not concern inheritance taxes, the arguments of the claimant could be used in other situations where a privileged tax regime on charities is concerned. The favourable outcome of the Stauffer case puts now the Commission in a much stronger position towards Belgium.

No doubt that Giving in Europe will come back on this issue in a near future if new developments occur on this issue.

Commission requests Ireland and Poland to end discrimination of foreign charities

The European Commission has sent Ireland and Poland formal requests to end discrimination of foreign charities. Both Member States allow tax relief for gifts to charities, but only if they are established in their own territory. Charities in other Member States are excluded from the relief and the Commission considers that this discrimination is contrary to the EC Treaty. The request is in the form of a ‘reasoned opinion’ under Article 226 of the EC Treaty. If Ireland and Poland do not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

"As I said when the Commission sent a reasoned opinion to the United Kingdom (more info here) for the same issue, the rules of the Internal Market forbid discrimination of charities in other Member States." said EU Taxation and Customs Commissioner László Kovács. "Gifts to bona fide charities in other Member States should get the same tax treatment as gifts made to domestic charities."

Ireland and Poland offer tax relief for gifts to charities. However, this favourable tax treatment is only granted if the charity is established in their own territory.

The difference in treatment between gifts made to charities in their Member State and charities in other Member States is contrary to the EC Treaty. This was confirmed by the European Court of Justice in its ruling on Stauffer, Case C-386/04 of 14 September 2006.

Further information about the Commission's formal request is available in the European Commission's press release.

After Belgium (gift and inheritance taxes) and the UK (income taxes), Ireland and Poland are the third and fourth country that are 'requested' by the Commission to end discrimination of foreign charities.

This is again very good news for European cross-border philanthropy because it confirms that the treatment of cross-border gifts and donations should respect the EC treaty.

The judgement of the Stauffer Case as well as those two new infringement procedures create more than ever a momentum for improved cross-border philanthropy.

Still, it should always be reminded that nearly all Member States discriminate foreign beneficiaries by providing unequal tax treatment between national philanthropy and cross-border philanthropy. This by taxing the second at higher rates (gift and inheritance taxes) and by not providing tax advantages for donors supporting foreign beneficiaries as they generally receive when they support a national beneficiary. You can easily observe this by trying out some cases on this website.

European Commission requests the UK to end discrimination of foreign charities


The European Commission has sent the UK a formal request to end discrimination of foreign charities. The discrimination arises from the fact that the UK allows tax relief for gifts to charities, but only if they are established in the UK. Charities in other EU member states are excluded from the relief and the Commission considers that this discrimination is contrary to EU law.

If the UK Government does not reply satisfactorily to the Commission's request within two months the Commission may refer the matter to the European Court of Justice.

The Taxation & Customs Commissioner, László Kovács, said:
"The rules of the Internal Market forbid discrimination of charities in other Member States. Gifts to bona fide charities in other Member States should get the same tax treatment as gifts made to domestic charities."

The Commission is arguing that the difference in treatment between gifts made to charities in the UK and charities in other member states:

• constitutes an obstacle to the free movement of capital
• is contrary to the free movement of persons (since workers and self-employed persons moving to the UK might wish to make gifts to charities established in the member state where they came from);
• is contrary to the freedom of establishment (since foreign charities are forced to set up branches in the UK in order to benefit from the favourable tax treatment).

Further information about the Commission's formal request is available in the European Commission press release.

This is of course very important news. This formal request to a member state is the second that clearly deals with cross-border philanthropy after the Walloon case currently under review of the European Court of justice. Whatever the outcome of this procedure will be, it once more confirms that the treatment of cross-border gifts and donations should respect the fundamental freedoms ( free movement of capital, free movement of persons and freedom of establishment) guaranteed in the EC treaty.

Even though this request concerns the UK, it should also be stressed that nearly all Member States discriminate foreign beneficiaries by providing unequal tax treatment between national philanthropy and cross-border philanthropy. This by taxing the second at higher rates (gift and inheritance taxes) and by not providing tax advantages for donors supporting foreign beneficiaries as they generally receive when they support a national beneficiary.

Luxembourg adopts a very progressive position for cross-border gifts.

On July 20th the Luxembourg Government issued a circulaire, which extends tax incentives for Luxembourg resident tax payers if they give to recognised public benefit organisations based in other EU countries, Iceland, Liechtenstein, Norway or Switzerland. The Luxembourg changes fit well into the overall European trend and can even be qualified as the most progressive step to facilitate cross-border gifts.

Over the past years, several EU countries have introduced tax effective giving to public benefit organisations also across-border: Netherlands, Poland, Slovenia, Finland, Denmark and Bulgaria . Cyprus, Greece, Ireland, Italy and Portugal also allow the deduction of cross-border donations in some cases.

But Luxembourg keeps the procedures very simple.

The donor has to describe the donation (date of donation as well as size) and the foreign beneficiary organisation in his/her tax declaration.
In case the fiscal authority has doubts about the public benefit character of the organization it may require further information from the donor such as a bank statement or a statement of the receiving public benefit organization. In order to ease the process for the Luxembourg fiscal authorities to determine whether the foreign based public benefit organization is equivalent to a Luxembourg tax exempt organisation, a model certificate is attached as an annex to the circulaire. In this model certificate, the representative of the organization has to certify that:
• The organization is a legal entity established in accordance with the respective local laws. In addition the date and location of establishment must be mentioned.
• The organization directly and exclusively pursues one or more of nine listed non-luctrative aims.
• These aims are recognized as being of general interest and fiscally favoured according to the laws of the state of establishment.
• The organization is exempt from taxes on income and wealth in its country of establishment for the year of the received donation and that such donations are fiscally deductible by donors residing in its country of establishment.


The circulaire stipulates that Luxembourg tax authorities shall as of now in principle deduct cash donations made to recognised public benefit organisations based in another EU member State or Iceland, Liechstenstein, Norway and Switzerland. In-kind donations are only deductible if foreign organisations pursues a purpose which is identical with the Luxembourg Cultural Fonds or the National Fonds.

The circulaire establishes that Luxembourg authorities may check whether the foreign based public benefit organizations fulfills the Luxembourg requirements for a tax exempt status. In addition, the authorities reserve the right to ask for assistance of the respective fiscal authorities in the state where the organization is established according to the Directive 77/799 of December 19th 1977 or by conventions, which exist to avoid double-taxation.

Please find hereunder the Circulaire for further information.

New Giving Alliance Gives U.S. Philanthropy a Global Network.


On May 23, 2007, three leaders in international grantmaking announced the Alliance for International Giving, created to help donors easily connect with local, reputable, high-impact charitable groups on multiple continents. The Alliance offers U.S. donors a one-stop-shop for trusted, quality philanthropic services spanning the globe. It brings together three premium providers of donor-advised international giving services: Give2Asia (for gifts to Asia), the King Baudouin Foundation United States (for gifts to Europe and Africa), and the Resource Foundation (for gifts to Latin America). Download the Alliance’s presentation brochure

Direct Taxation: European Commission asks Estonia to stop discriminating foreign-based foundations and charities

On 27th November 2008 the European Commission sent a formal request to Estonia, asking it to stop the discriminatory tax treatment of donations to foreign non-profit organisations and foundations (charities) based in other EU Member States.

According to Estonian tax law, Estonia offers various forms of tax relief for donations to charities by resident individuals and resident companies. However, this favourable tax treatment is only granted if the charity is established in Estonia and is included in a special list. The beneficial treatment of donations is also extended to certain bodies established by Estonian governmental institutions and to religious organisations registered in Estonia. No relief is granted in respect of donations to similar foreign bodies and organisations.

Therefore both individual and corporate donations to charities are tax deductible to the donor, but only if the recipient organisation is based in Estonia and registered as a public-benefit organisation in Estonia. The European Commission believes that this may be against the EC Treaty. The Commission’s letter takes the form of a reasoned opinion, the second step in the infringement procedure as outlined under Article 226 of the EC Treaty. If Estonia does not reply satisfactorily within two months, the Commission may take it to the European Court of Justice.

The European Commission states that difference in treatment between donations made to charities in Estonia and charities in other Member States constitutes an obstacle to the free movement of capital. Cross-border donations are explicitly mentioned in Council Directive 88/361/EEC, which provides for a Community
definition of capital movements.

The Commission also considers the Estonian tax rules are contrary to the freedom of establishment, as foreign charities are forced to set up branches in Estonia in order to enable Estonian residents making donations to such charities to benefit from the favourable tax treatment. The Commission also highlights that Estonia may use the Mutual Assistance Directive (77/799/EEC) to ensure that charities established in other Member States use their assets and income only for charitable purposes.

The Estonian case is the latest in a series of infringement procedures against EU Member States regarding the tax treatment of donations to foreign-based public-benefit charities and foundations.

Please consult the press release from the Commission

(Source European Foundation Centre)

Gifts to cultural institutions: a (very) small step in the good direction

The Belgian law on income tax deduction for gifts (article 104, 3 d of the Belgian Income tax code – I.T.C.) has been modified on December 22, 2008. Cultural institutions located in any of the EEA countries are now eligible to receive tax deductible gifts from Belgian donors, provided that these institutions comply with the conditions of the Belgian legislation. This provision is retroactively applicable as from January 1, 2008.
However, donors to such organizations will still have to wait for obtaining tax relief, because the Royal Decree of execution of this modified article has not yet been adapted until now. In this decree it will be necessary to suppress the limitation of the eligibility to Belgian bodies and to foresee the conditions and the procedure to be followed by the foreign entity to obtain the recognition in Belgium.

Quite curiously, it should be noted that institutions or non-profit organizations active in other sectors than culture are not concerned by this new regime. Philanthropic institutions and other organizations listed by art 104 I.T.C. have been ignored. In order to be eligible for receiving tax deductible gifts from Belgian donors, these last still need to be located in Belgium.

For that part, the Belgian legislation is obviously still in conflict with the Treaty of Rome.
The Central Administration, which was contacted shortly after the publication of the law in the Belgian Gazette, mentioned informally that the modification of the law results from an individual claim that has probably been introduced by a cultural institution.
It should however be kept in mind that the European Commission sent to Belgium on December 21, 2006 a notification requesting Belgium to end discrimination against foreign charities, because the Belgian law restricts the tax deduction of art 104 of the I.T.C. to entities located in Belgium. This notification concerns charities in general and not only cultural institutions.

Hein Persche case

There are also some reasons to consider that even the newly modified part of article 104 is still not in line with the Treaty of Rome. It stipulates indeed that foreign institutions located in an EEA country should be recognized by the King.
Donors giving to a foreign institution, recognized as eligible by its own country and which fulfils all the conditions required by the Belgian law, would be penalized if the institution had not undertaken the necessary steps for its recognition in Belgium by a Royal Decree (which represents – even for Belgian institutions - a long and cumbersome procedure).
One could have some doubts on the conformity with the E.U. rules of such a prerequisite, since in the Heine Persche case (January 27, 2009)* the European Court of Justice seems to consider that the evidence that the conditions set out by the donor’s country are fulfilled can be delivered a posteriori by the donor himself, by the foreign recipient, or through the procedure of mutual assistance.

Most probably, the Belgian legislator will have to come back on these issues in a near future.



Inheritance and gift taxes

Since a few years the gift and inheritance tax legislation of the three Belgian Regions, which had been modified upon request of the E.C., foresees an equal treatment for the charities located in one of the EU/EEA countries and receiving donations or legacies from Belgian donors. However, the Administration considered until recently that the successions which opened before the modification by the three Regions are still governed by the old legislation. Consequently it refused to apply the reduced rate to unsettled estates in case the testator's decease took place before the new legislation.
After new case law in favour of the charities ("De Jager case" – Court of Appeal Brussels February 28, 2008) the Administration seems to take a more realistic approach. For charities in such a situation, there is now some hope to obtain tax relief without the need to start a long and cumbersome procedure before the Court. It is thus advisable for them first to try to negotiate with the Receiver, possibly through the "Médiateur Fédéral" – "Federale Ombudsman".

Direct Taxation: Commission requests Belgium to end discrimination against foreign charities

After the first formal request from the Commission towards Belgium in 2002 that led to the Walloon case and concerned unequal gift and inheritance taxes, the Commission has sent to Belgium a new request to end unequal tax relief treatment of donors wanting to support a foreign beneficiary. It is true that a Belgian donor benefits from income tax deductibility if he supports a qualifying Belgian beneficiary but this is never the case if he wants to support a foreign beneficiary.

This new formal request is again an important milestone towards free European cross-border philanthropy. Even though, it still is important to mention that not only Belgium and the other countries that received a formal request treat national and cross-border philanthropy in an unequal way but that most of the European Member States do.

Please find hereunder the press release of the Commission


------------------
The European Commission has sent Belgium a formal request to end discrimination against foreign charities. Belgium allows tax relief for gifts to charities, on condition that they are established in Belgium. Charities in other Member States are excluded from the relief. The Commission considers that this discrimination is contrary to the free movement of capital guaranteed by Article 56 of the EC Treaty. The request is in the form of a 'reasoned opinion' under Article 226 of the EC Treaty. If Belgium does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

The Belgian income tax law provides that donations to charities are tax deductible, on condition that the charities are established in Belgium. Donations are capital movements, on the basis of the nomenclature of Council Directive 88/361/EEC. The condition that the charities are established in Belgium is contrary to the free movement of capital, guaranteed by Article 56 of the EC Treaty. This was confirmed by the European Court of Justice in its ruling on Stauffer, Case C-386/04 of 14 September 2006.

In reply to the letter of formal notice that the Commission sent earlier Belgium acknowledged the infringement, but it did not indicate when and how it would eliminate it, nor how it would apply EU law in the period before the new rules would enter into force. The Commission has therefore decided to move to the second stage of the infringement procedure.

The Commission has taken up similar cases against Ireland and Poland (see IP/06/1408) and the United Kingdom (see IP/06/964).

The Commission's reference number of this case is 2005/5062.

Finland encourages support to arts & science also across border

The Finnish parliament has recently adopted a legislative proposal to increase tax incentives for Finnish corporate donors supporting the arts and sciences. This proposal also covers donations to universities and public benefit organisations, active in the arts and science, that are based in other European Union countries. The new law would see an increase in the limit of tax deductible donations to universities for corporate donors to €250.000. Donations to public benefit organisations in the field of arts and science would be deductible to €50,000.

As a result, donations to state supported universities based within the EU, which are found to be equivalent to Finish universities, would be tax deductible for Finish corporate donors up to € 250.000 (up from €25.000). Similarly donations to public benefit organisations, based in other EU countries, supporting arts, science would be tax deductible up to €50.000 (up from €25.000).

This proposal follows the trend of encouraging cross border giving within the EU. The Netherlands, Poland and Slovenia already provide the similar possibilities of tax deductions for donations to other EU member states.

Note that a foreign public benefit organisation (not applicable for a university) will have to, likewise a Finnish public benefit organisation, to be approved and listed as public-benefit organisations eligible for tax benefits by the tax authorities in order to qualify for tax deductible donations.

Texts concerning Finland will be adapted accordingly in a near future.

EAPG's Cross-border directory is now on-line

May we highlight this very useful initiative from the European Association of Planned Giving for cross-border giving in Europe and beyond. For those facing a cross-border donation, you will find experts in your countries. There is also valuable general information on cross-border philanthropy and interesting national profiles.

The Cross-Border Directory comprises:

- A country by country contact list of professional advisers specialising in areas of relevance to charitable fundraising, international philanthropy, and planned giving.
- Concise summaries of the diverse tax and legal frameworks impacting charitable giving in a variety of national jurisdictions across Europe and North America.
- A diverse range of additional resources including links to relevant publications and websites.
The opportunity to contribute your own contacts and associates to our growing network of professional firms and charitable organisations seeking to advance international philanthropy.

For more information, please consult the http://www.crossborderdirectory.org/ website

Coordinated approach in the field of direct taxation

Member States have requested the European Commission for more coordination in the field of direct taxation because, even though the European Institutions do not have legislative competence in this field, they can shape domestic tax schemes for example through the European Court of Justice. A coordinated approach is therefore preferred rather than individual solutions based on individual complaints, successive infringement procedures and formal requests.

It was fortunately decided to extend the tax coordination approach to the field of charities. A technical subgroup on charities met in November in London with a focus on cross-border donations by individuals.

Possible conclusions will be send to the European Council that keeps the decision-making power.

This initiative is of course warmly welcomed and will hopefully lead to more equivalent treatment of national and cross-border philanthropy.

In the meanwhile, some countries moved already to comply with EU law. After Slovenia, the Netherlands, Poland and some provision in the Italian law, it is now the turn to Finland to facilitate cross-border philanthropy.

Please do not forget that while waiting for EU and national initiatives, Transnational Giving Europe already facilitates today cross-border giving in Europe.

For more information on the coordinated approach, please consult the presentation on the topic presented during the Launch conference of the Forum on Philanthropy and Research Funding, in December 2007.

The importance of improved cross-border philanthropy

May we highlight three major conferences that will show why existing barriers to cross-border philanthropy still impede effective philanthropy within the European Union and why those barriers should in fact have been removed already since a long time.


1. Removing obstacles for INTERNATIONAL PHILANTHROPY - Utrecht - Monday 12 November

The Institute for National and International Estate Planning, part of the Discipline Group Tax Law of the University of Utrecht organises the seminar "Removing obstacles for international philanthropy". Non profit organizations are increasingly subjected to the forces of globalization. However, international philanthropy is hindered by substantial legal and tax obstacles for international flows of philanthropic money. Qualified speakers from various countries and disciplines will give their view on this process.

The speakers will cover areas varying from international tax issues, European political and legal issues, issues around anti terrorism financing that influence international philanthropy, and the new Dutch rules that open the borders for foreign philanthropic organizations as of 2008.

All these developments create new risks and opportunities for international philanthropy. For further information on the seminar, you can check the document hereunder and register here.

Families and Cross-border philanthropy

Wealthy families and family offices are increasingly exploring the many ways how to engage with philanthropy in the 21st century – whether it be through the family business, the family office and its investment strategy or via a separate foundation.

Due to growing dispersion of assets and of course also of family members, the cross-border giving issue is important to allow them to direct in an effective way their donations to foreign projects.

May we therefore highlight two major conferences where this topic and many others will certainly be raised and discussed.

1. The post conference day family offices of the Private Banking Summit 2007 (Zurich, 4th-6th September 2007). Please click here for the website and for the full program.

Foundations' Legal and Fiscal Country Profiles


One of the best solutions if the tax burden is too high for a cross-border donation or legacy is to create a foundation in the country of residence of the donor or in the country of the assets or the beneficiary.

It looked therefore important to alert you about the publication "Foundations' Legal and Fiscal Country Profiles – Mapping the European Union of 27 (2007) " issued by the European Foundation Centre.

The publication aims to provide an overview of foundations' operating environments across the 27 EU Member States. Standard sections across all profiles enable an easy comparison of specific legal and tax issues across the EU Member States.

For more information or to download or for a hard copy of the publication, please click here.

How bedclothes will influence cross-border giving in Europe

The European Court of Justice (ECJ) has delivered on 27th January its long-awaited judgment in the Persche case.

The ECJ has ruled that tax laws which discriminate against donations to public-benefit organisations based in other EU Member States are against the EC Treaty, as long as the recipient organisations based in other Member States are to be considered "equivalent" to resident public benefit organisations.

You will find the details on how and why Mr Hein Persche went to the ECJ in the Court's press release. The Persche case concerns a German donor, Hein Persche, making an in-kind donation of bedclothes and other equipment to a Portuguese care home. As donations to charities, including in-kind donations, are tax deductible for individual donations in Germany, Mr Persche deducted the donation on his income tax return in Germany in 2003. However, his deduction was rejected on the grounds that only donations to German resident public benefit organisations may benefit from tax incentives. A donation to a German public benefit organisation with similar activities as the Portuguese one would have been tax deductible. A referral from the German Federal Court of Finances Bundesfinanzhof was lodged on 11th July 2007 asking for a preliminary ruling by the ECJ in this regard according to Article 234 EC Treaty.

In the judgment, the Court first notes that donations to public-benefit organisations based in other EU Member States come within the free movement of capital guaranteed by the EC Treaty, even when they are made in the form of everyday consumer goods. The Court also notes that as the possibility of obtaining a tax deduction can have a significant influence on the donors' attitude to giving, the inability of German donors to deduct donations made to public-benefit organisations in other Member States is likely to reduce such cross-border gifts. Therefore such legislation constitutes a restriction on the free movement of capital and is against Article 56 of the EC Treaty.

According to the Court, the restriction in German tax law is not justified. A Member State may apply a different tax treatment of donations between national organisations with recognised public-benefit causes in their home country, and public-benefit organisations based in other EU countries, which pursue purposes not recognised as public benefit purposes in the country of the donor. However, when the public-benefit organisation based in the other Member State pursues objectives which would be recognised as public-benefit causes in the country of the donor, there is no justification for a different tax treatment for the donor. Furthermore, the ECJ notes that the German legislation is not justified in order to safeguard the effectiveness of fiscal supervision. The taxpayer making the cross-border donation should be given the opportunity to present proof that the public-benefit organisation based in the other Member State has purposes which would also qualify as public-benefit causes in the country of the donor.

The ruling in the Persche case forms an important precedent for cross-border giving in Europe, and Germany will now have to amend its tax laws to bring them in line with the judgment. As most national tax laws do not treat donations to resident and foreign public benefit organisations on an equal footing, they could therefore be in conflict with the EC Treaty and the European Commission may now ask other EU countries to review their legislation in this respect.

It is thus a very important step to free cross-border giving in Europe. We will closely follow and encourage the next steps of this important judgement.

Please note that The Academy of European Law Foundation (ERA) organised a briefing on the Persche ruling of the European Court of Justice (ECJ) in cooperation with the European Foundation Centre on March 10. You will find the conclusions of this briefing through this link

Important (legislative) evolutions in The United Kingdom, The Netherlands, Belgium and France

United Kingdom : Charitable donations to EU organizations eligible for tax relief

We welcome the announcement that under the Finance Act 2010 it is proposed that UK charitable tax reliefs will be extended to certain organizations in the EU, Norway and Iceland that are deemed to be equivalent to UK charities or Community Amateur Sports Clubs.

To be eligible, European Charities will have to:

- be able to demonstrate that were they based in the UK they would be regarded as a charity under the law of England & Wales – in other words they must have exclusively charitable purposes within the definition set out in the Charities Act 2006
- be registered with the equivalent of the Charity Commission in their home country
be managed by a "fit and proper persons"

Please click here for more information.


The Netherlands : New infringement procedure against The Netherlands (March 2010)


The Commission has formally requested the Netherlands to change its rule that gifts (see press release), donations and inheritances to Dutch and foreign charities can only qualify for tax relief if the charities have registered themselves with the Dutch tax authorities. The Commission considers that this is unnecessarily restrictive, since it does not allow for the possibility of tax relief in case the foreign charity has not registered itself in the Netherlands. Nothing prevents the Dutch tax authorities from requiring the taxpayer to prove that the conditions for tax relief have been met. The Commission therefore considers the Dutch rule to be contrary to the free movement of capital.


Belgium : New law on tax deduction for cross border gifts and jurisprudence on legacies to a UK charitable trust (January 2010)


New law

After a small and very insufficient modification of the tax law in favour of cultural organizations in December 2008, Belgium has now extended the income tax deductions for cross border gifts to nearly all the categories of non profit organizations listed in its domestic law.
The tax deduction is applicable if the beneficiary is located in one of the states of the EEA (European Economic Area), if it can be considered as similar to one the abovementioned types of organizations and if the organization is recognized in its own country under conditions that are comparable to those which are set out by the law, which in fact means "being recognized by the public authorities of the concerned country".

Now that the principle of equal treatment has been consecrated by the law, specific criteria have to be foreseen in order to organise a reasonable "comparability test".
Belgium has abandoned the principle of the law of 22 December 2008 on cultural organisations, which consisted in imposing to foreign entities a procedure of governmental recognition in order to be eligible for receiving tax deductible gifts. Such a system penalizes donors who made gifts to foreign organizations that meet in fact all the criteria but did not make the step of filing a request in Belgium.
Like for other countries, the new Belgian system is inspired by the decision in the Hein Persche case, which states that the donor should have the possibility to prove that the organization can be compared to a domestic qualifying organization. Consequently, the donor will have to keep all the documents concerning the nature of the foreign organization, its formal recognition and the evidence of the payment which has been made.
A Royal Decree will establish rules concerning the documents that the donor should produce for the so called "comparability test". This decree is expected by the end of March 2010.

It should be noted that cultural institutions which are an emanation of a foreign EU member State or of a subdivision of that state (for instance a State museum, or a regional museum in the other country) will in principle not qualify for income tax deduction. The Belgian tax authorities will most probably follow the preliminary report (exposé des motifs) to the law of December 22, 2009. According to this report, the principle of free movements of capital as foreseen by article 56 of the Treaty of Rome is only applicable to private legal entities (associations, public benefit foundations, or private foundations) and not to public institutions. Donors who envisage making a significant gift to a (EU) foreign museum should first verify the legal status of such a museum before making the gift, either directly or through TGE . Private universities located in other EU member states are apparently not mentioned in the categories of entities that can benefit from the equal treatment.

The new regime will apply to all the gifts made as from January 1, 2010


UK charitable trusts and Belgian inheritance tax: Great Ormond case

As a consequence of a notification by the European Commission in October 2002, the preferential regime for legacies and gifts to charities foreseen by the Belgian legislation has been extended to charities located in the EU member states. However, here again, in the application of the "comparison test" we might be confronted with significant differences between two national legislations, to such extent that it would not be possible to grant the equal treatment.

The Belgian legislation foresees that the tax privilege (reduced inheritance tax rate) is only granted to non-profit organizations that are structured as a legal entity. At first sight, UK charities structured as a trust should be excluded from equal treatment.
The Court of appeal of Brussels, to whom the "Great Ormond" case was submitted, took however a very pragmatic approach at this level. In its decision of September 9, 2009, it considers that the trust in question, which has been recognized by the UK Charity Commission and appears to be a non-transparent taxpayer in both countries, can reasonably be compared to a "legal entity" in the sense where this concept is interpreted in Belgium. As a consequence and in application of article 56 of the Treaty of Rome (free movement of capital), the Court decided that the equal treatment should be provided to the appellant.
The Belgian State did not bring the case to the Supreme Court.

This jurisprudence is certainly an excellent news for UK charitable trusts, but it should be examined how the Courts of other European countries will react on similar cases in the future.


France : New French legislation on cross-border giving (January 2010)


Further to the Persche case (decision of the ECJ C-318/07 on January 27, 2009) and further to a notification by the European Commission on November 20, 2009, France has modified its legislation on tax deductibility for gifts to non-profit organizations located in other EU member states.
The law of December 30 (Loi n° 2009-1674) foresees that tax relief will be provided for gifts to non-profit organizations located in another EU member states, but also to entities located in a country of the European Economic Area, if there is a tax treaty with the concerned country, which foresees administrative assistance and exchange of tax information.

This equal treatment will be applicable insofar the foreign organisation can be considered as similar to a French organization which fulfils all the conditions foreseen by the French legislation.
The procedure for checking whether the foreign organization can be compared to a French qualifying entity is quite interesting, since it foresees two systems.

The first system, which is quite similar to the Dutch system, gives the poss

Commission decides to refer Belgium to Court of Justice over Walloon inheritance and gift tax laws


The European Commission has decided to refer Belgium to the European Court of Justice because in its view the Walloon inheritance and gift tax laws discriminate against foreign charities. These laws provide for reduced taxation of legacies and gifts to charity organisations, but can discriminate against foreign charity organisations. The Commission considers that this violates the prohibition of discrimination on grounds of nationality and the freedom of establishment (Articles 12 and 43 and 48 of the EC Treaty).

Article 60 of the Walloon "Code des droits de succession" and Article 140 of the Walloon "Code des droits d'enregistrement, d'hypothèque et de greffe" provide for a reduction of inheritance and gift taxes but only for two types of organisations:

a) Organisations resident in Belgium and

b) (for the application of the inheritance tax law) organisations established in the EU Member State in which the person making the legacy (the "de cujus") effectively resided or had his place of work at the time of his death, or in which he had previously effectively resided or had his place of work

and (for the application of the gift tax law) organisations in the EU Member State in which the donor effectively resides or has his place of work at the time of the donation, or in which he has previously effectively resided or had his place of work.

These conditions mean that the reduced tax rate is not applied when Walloon residents who never worked or lived in another Member State make legacies or gifts to charities in other Member States. The reduced rate is also not applied if a person who moved from another Member State to Belgium makes a gift or legacy to a charity in a third Member State.

In the opinion of the Commission these conditions are not in line with Articles 12, 43 and 48 of the EC Treaty and the corresponding articles of the Agreement on the European Economic Area. These articles prohibit discrimination on grounds of nationality, restrictions to freedom of establishment and discrimination between companies of a Member State and natural persons who are nationals of that Member State.

The Flemish and Brussels tax laws contained similar discriminatory provisions, but following the reasoned opinion the Commission sent to Belgium in 2002 (see IP/02/1527), they were changed and the reduced rates were extended to legacies and gifts made to EU and EEA charity organisations, without the conditions laid down in the Walloon tax law.

Of course, this decision from the Commission is a very important step towards better European philanthropy.

The press release was launched on February the 21st.

This release is also available in
- French
- Dutch
- German
- Italian
- Portuguese
- Spanish

We remain at your disposal for further information.

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