Taxing times

A European court ruling has granted tax relief on cross-border donations. David Ainsworth reports

After a European Court of Justice ruling last week, nearly all donations made to charities anywhere in the European Union will be eligible for tax relief.

The decision in the case of German businessman Hein Persche, who gifted EUR18,000 to a Portuguese charity, will have the effect of changing the law in the UK that tax relief applies only to donations to British charities.

Now the same benefits will have to extend to any European organisation that would count as charitable in the UK. This will make it easier for charities across Europe to compete with organisations in other countries for donors. For example, if a taxpayer in the UK gives money to a charity in France, that donation will be eligible for Gift Aid.

The decision is likely to lead to more recruitment by British charities of donors living outside the UK - particularly British nationals - according to Simon Weil, chair of the European Association for Planned Giving and a partner at law firm Bircham Dyson Bell.

It could also open the door for mergers among European charities operating under the same banner, he said. "If you're a big charity operating in several countries, such as Save the Children, do you still need lots of different organisations after this?" he asked. "You could have one charity, registered in one country, and operate the others as branch offices. It would cut the money you needed to spend on paperwork and administration considerably."

Weil said the decision could cause a headache for regulators, which would need to decide which European charities would count as charitable in the UK.

"The ruling handed down by the ECJ is very clear that the burden is on the taxpayer to prove that the charity they are giving to overseas would qualify as charitable in their own country," he said.

Clive Cutbill, head of international philanthropy at law firm Withers, said: "The UK might have to follow the lead of the Dutch government and create a register of approved foreign charities. If it does, it could mean a big administrative headache for someone, probably HM Revenue & Customs or the Charity Commission.

"The one thing the Government can't do now is nothing. If it does, it's likely to face a challenge from the European Commission."

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