Landmark tax ruling on cross-border donations

Great Ormond Street Hospital Children's Charity wins fight for tax relief on Belgian legacy

A British charity has won a landmark case that entitles it to a charitable rate of tax on a legacy left by a foreign taxpayer.

The Great Ormond Street Hospital Children's Charity was left a legacy worth about €1.2m (£1.1m) from a Belgian resident in 1996. The Belgian government ruled that because the charity was not Belgian the tax on the donation should be 80 per cent rather than the 8.8 per cent rate afforded to domestic not-for-profit organisations.

However, a Brussels court ruled this month that the charity should have been charged the 8.8 per cent rate, meaning it will receive €1.5m (£1.4m), including interest on the delayed payment.

The case comes after a legal victory last year for a German donor, Hein Persche, who won tax relief on an €18,000 (£16,300) donation to a Portuguese charity. This latest case is the first involving a British charity.

Charles Whiddington, partner and head of the competition and EU regulatory group at Field Fisher Waterhouse, which represented the Great Ormond Street Hospital Children's Charity, said the case set an important precedent for recognition of the British charity model, which is different from the legal structure used by continental organisations.

He said the case would pave the way for much more frequent cross-border donations within the EU.

"This will make it easier for British universities, for example, to solicit donations from alumni," he said. "And it will put more pressure on the UK Government to allow cross-border donations from taxpayers here.

"There are hundreds of thousands of foreigners living and working in the UK. They should be allowed to leave money to charities in their native countries without having to pay more tax."

How the case unfolded

In 1996, Raymond Ditmar, a Belgian citizen, died and left his entire estate, worth approximately €1.2m, to the Great Ormond Street Hospital Children's Charity. The inheritance was taxed at 80 per cent by the Belgian government – compared with the 8.8 per cent rate that would have applied to a bequest to a domestic charity.

The charity complained to the European Commission that this was contrary to the EU Treaty, which forbids discrimination on the grounds of nationality. The commission brought an action against the Belgian state, which caused a change in the law in the province concerned in 2002.

However, the Belgian government refused to apply the law retrospectively, forcing the charity to go back to court, eventually winning a judgement on 10 September 2009.



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