Attempts to overcome the complexity of cross-border transactions have not yet worked. One of the major goals of the European Union is a single market, which, as defined on its website, means "people, goods, services and money can move around the EU as freely as they do within a single country – instead of being obstructed by national borders and barriers". It's a nice theory, but in practice it's more complicated.
First, there is no single taxation authority, which results in cross-border difficulties over tax questions such as VAT and tax relief for donors. Graham Elliot, a consultant at the law firm Withers, says: "The EU has the Principal VAT Directive, but these generic VAT rules are liable to be interpreted in different ways by different member states. The European Commission and the European Court of Justice try to ensure consistency of treatment, but they are not entirely successful."
Elliott says that whether or not you have to pay VAT on cross-border transactions, and to whom, can depend on a number of factors including the status of organisations to which you are making payments and where you are located geographically. "The position is complex, and there is the possibility that, where the rules in each state appear not to match, you might pay VAT twice on only one sale," he says.
Alana Petraske, also of Withers, says the situation regarding tax relief on donations is just as complex. Traditionally, relief cannot be claimed when a donation crosses an EU border. "In some cases in the early 2000s, the European Court ruled that this was discriminatory and an unlawful restriction on the movement of capital," she says. "Everyone got excited in the belief that this would lead to the removal of cross-border barriers; but the reality has been very disappointing."
In many EU countries charities report to national or federal tax regulators rather than to an equivalent of the Charity Commission, says Jonathan Brinsden, a partner at the law firm Bircham Dyson Bell. "This means that the quality of support often does not compare favourably with what you get in the UK," he says. "These regulators might not view your activities in the same way as a charity regulator would."
Brinsden says there can be a more parochial mindset in jurisdictions such as France or Switzerland. The latter is not an EU member state but has access to its single market through bilateral agreements, and many UK multinational charities establish themselves there. "There will often be an implicit or explicit requirement to support projects locally, otherwise the tax authorities will say there is not enough flowing back to that jurisdiction," says Brinsden. "That can be an issue if you're trying to create a cross-border framework. Unless you've got boots on the ground, they might well be sceptical."
Some elements of cross-border complexity could be addressed by the European Foundation Statute, which comprises a legal form for public benefit organisations that would be recognisable across the EU. The statute was proposed in February 2012 by the European Commission and approved by the European Parliament last summer, but is yet to be enacted.
Despite this – and other small forms of progress such as the approval in June of the EU-wide standard on impact measurement – the EU remains some way off its goal of a single market as far as charities are concerned. As a result, many charities prefer to direct overseas work through jurisdictions such as the US, Australia and Singapore, rather than their EU neighbours.