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February 22, 2011updated 10 Jan 2016 3:33pm

Forex Philanthropy

By Spear's

Cross-border giving just got a whole lot simpler, say Hannah Candlin and Leanne Hooper: now charity needn’t begin – and end – at home
AS A RESULT of recent UK legislation following a developing body of European case law and culminating in the European Court of Justice (ECJ) cases of Persche, which was decided in 2009, and Missionswerk, decided in February 2011, it is now possible for UK taxpayers to make tax-efficient donations to EU charities and those in Norway and Iceland without channelling donations through a UK charity or establishing their own UK charitable foundation.  

The case of Persche concerned a German national and resident, who made donations of chattels to a foundation in Portugal and claimed tax relief on the donation. The German tax authorities refused the tax relief on the basis that the recipient foundation was not established in Germany. However, the ECJ concluded that the gifts, whether money or otherwise, fell within the EC Treaty provisions on free movement of capital and goods and, in order for national legislation to be compatible with the EC Treaty, the difference in tax treatment had to concern situations which were not objectively comparable or justifiable in the public interest.

Essentially, the decision states that any law of a member state which refuses tax relief for donations to foreign institutions without regard to whether the gifts would qualify for relief to an equivalent institution in the donor’s member state, constitutes a restriction on free movement of goods and capital and is not justified.

Previously, most EU countries, including the UK, made it impossible for their taxpayers to make tax efficient donations to charitable organisations outside their own member state.  Following the ECJ’s decision, it is clear that this practice is discriminatory.

These new measures, which are discussed in more detail below, also allow charities from Europe, Norway and Iceland to claim UK tax breaks. It is envisaged that this change, together with similar changes across the EU, will encourage cross border charitable giving throughout Europe.

The recent UK legislation means that on donations to (certain) charities the gift aid relief available in the UK now extends beyond its borders. Therefore, on a donation of £100,000 to a relevant charity in, for example, France, a higher rate UK tax payer (paying tax at 50%) could claim £37,500 of tax relief. In addition the French charity can claim a further £25,000 from Her Majesty’s Revenue and Customs (HMRC), so the gross value of the gift to the French charity is £125,000 whilst the net cost of the gift to the donor is £62,500.  Whether the gift to the French charity will attract relief in the UK will depend on its ability to satisfy various conditions imposed by the new UK legislation.

The measures imposed by the UK legislation relate to the definition of ‘charity’. To claim relief, donations must be to a ‘charity’ as defined in the legislation. This carries four conditions.

The first three – that the charity must be established for charitable purposes, meet the jurisdiction condition and meet the registration condition – are not particularly controversial. These require the charity to be established for purposes recognised as charitable under the Charities Act 2006; it must be under the control of the UK courts or courts of the member state in which it is established and must be registered with its local regulator.

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Significantly, these conditions apply equally to EU, Norwegian and Icelandic charities and, in particular, the purposes of the EU charity must be recognised as charitable under the Charities Act 2006.

The fourth condition states that managers of the charity must be ‘fit and proper’. Unhelpfully, UK legislation does not define ‘fit and proper. Should HMRC decide a manager is not ‘fit and proper’ the charity will fail to satisfy the definition, and donors to that charity will not be able to claim tax relief.
Other European nations are implementing their own legislation, and it will be interesting to see what inspiration they take, and lessons they learn from nations where legislation has already been implemented.
THE NEW PROVISIONS should make cross border philanthropy easier, cheaper and more appealing to higher rate and additional taxpayers and is intended to be of benefit in an increasingly cosmopolitan, seemingly borderless world. Although these changes sweeping Europe may appear to represent a golden age in cross border philanthropic giving, there is a slight tarnish to the sheen. In the UK, HMRC is concerned that this opening up of tax reliefs could give rise to abuse and fraud. As a result, elements have been built in to the new definition of ‘charity’ which attempt to guard against this risk. These elements add complexity to what was intended to be a simple vehicle for philanthropic spending. Similar restrictions are emerging in other states.

More importantly, the measures as drafted do not apply to countries outside the EU, Norway or Iceland and so are not of benefit to those donors wishing to make donations to charities or organisations in, for example, Switzerland, the US or the third world.

In light of this, there are still many advantages to setting up your own charitable foundation.

A charitable foundation:

1.    Allows tax efficient gifts to countries anywhere in the world, without being restricted to EU member states, Norway and Iceland. This allows for a greater degree of flexibility and benefits a wider group of beneficiaries.

2.    Can be used to help donors to maintain anonymity. Donations to subsequent charities by the foundation could obscure the identity of the original donor.

3.    Allows the donor to make provisions for continuous and future philanthropy. A tailor-made foundation with clear and binding objects can ensure that charitable giving from the donor’s estate can continue beyond their lifetime in a manner that fits with the donor’s wishes.

4.    Can also allow for family involvement, as members will be able to express their opinions and guide trustees as to how to make donations.

5.    Can, finally, allow the donor to delegate administrative responsibilities to the trustees of the foundation. This allows donors to make a significant impact without the burden of sifting through the numerous funding applications (or so called ‘begging’ letters). In addition, leaving the administration of a charitable foundation to professionals helps ensure that funds are not misappropriated or abused in any way, which, in turn, safeguards the donor’s reputation.

It is clear that while the new rules extend charitable giving beyond home shores, it does not go as far as one’s own charitable foundation can in facilitating tax efficient philanthropy. Whilst the changes across Europe have generated helpful discussions and represent a step forward, for many philanthropic families the solution will still be their own charitable foundation.

Hannah Candlin is a Solicitor in the Private Client team at Speechly Bircham LLP. Hannah can be contacted on: +44 (0)20 7427 451 or by email:

Leanne Hooper is a Trainee Solicitor in the Private Client team at Speechly Bircham LLP. Leanne can be contacted on +44 (0)20 7427 4531 or by email:

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