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Giving to good causes in other countries
This article by Andrew Bibby, in a slightly different form, was first published in the Financial Times, 2005
A generous legacy of well over a million pounds to the Great Ormond Street hospital has put the spotlight on the some of the problems of trans-national philanthropy.
The gift, which comes from a Belgian donor, has been caught out by the harsh inheritance tax laws applying in the Walloon region: whilst a Belgian charity would have paid a modest 8.8% tax on the gift, overseas charities – in this case Great Ormond Street – face a penal rate of taxation of almost 80%. The Belgian state, rather than sick children, seems set to be the main beneficiary from the legacy.
Not surprisingly, this outcome is being challenged. The ‘Walloon case', as charity lawyers describe it, is at present subject to an appeal in the Belgian national court under anti-discrimination legislation. It has also formed the basis of a recent European Commission complaint against the Walloon state to the European Court of Justice, alleging a breach of EU community law.
But as Charles Whiddington, a partner with the legal firm Field Fisher Waterhouse, points out, this is not an issue unique to one country. His firm is leading the current court action in the Belgian national court, but he says he also is dealing with almost exactly the same situation in reverse. “One of the cases I've been helping with concerns a bequest by an English testator to a Belgian charity,” he says. Here the Belgian charity faces a 40% IHT liability, where a bequest to a UK charity would be free of tax.
Cross-border giving is still a relatively rare phenomenon when set against the overall amount of money given to charities. However Ludwig Forrest, project manager of the King Baudouin Foundation, is in no doubt that it represents an increasing trend. “Donors have a growing interest in causes that go beyond national boundaries,” he says. To help cut through some of the practical difficulties facing would-be philanthropists, his Brussels-based Foundation, named after Belgium 's late head of state, has recently launched the www.givingineurope.org website. This gives detailed fiscal and legal advice on charitable donations in sixteen European countries.
Ludwig Forrest identifies three types of people who are most likely to be considering cross-border giving. These include expat workers, living and receiving income in a foreign country, and older people who retired abroad in search of the sun. Both, he says, may be keen to support good causes in either their home country or their present country of residence. A third group of people are those simply wanting to donate to a foreign good cause: one example would be former alumni of overseas universities hoping to contribute to funding appeals.
Whatever the situation, donors wanting to maximise the benefits of their giving typically have to cope with the lack of tax harmonisation between states. Within Europe , any suggestion of income tax harmonisation – including income tax treatment of charitable gifts - is highly politically controversial. There may be slightly more grounds for hope in relation to charitable bequests. “For Gift Tax and Inheritance tax, I'm quite optimistic that there will be some improvement at European level,” Ludwig Forrest says, claiming that this area may be covered by EU treaty requirements on the free movement of capital.
In the meantime, there are mechanisms in place to try to help. Britain 's Charities Aid Foundation has joined forces with the King Baudouin Foundation and similar organisations in Germany , Holland and France to create the Transnational Giving Europe (TGE) network. Under this scheme, a UK taxpayer, for example, can make a fully tax efficient donation to a charity located in one of the other four countries by channelling their money through CAF. CAF in turn passes the gift on to its TGE partner body.
“The idea is that a donor in any part of Europe could give to any other part of Europe as easily and efficiently as possible,” says Sharon Stearnes, CAF's executive director of philanthropy. She accepts, however, that the partner foundations haven't properly marketed the scheme yet. At present, TGE is being used by only a handful of donors, with total contributions last year no more than about £400,000.
Across the Atlantic , the mechanisms for trans-border giving are rather more developed. A US taxpayer wanting to support a British charity can do so via CAF's US arm CAF America which has the necessary tax status under US tax code 501(c)(3) to allow full tax efficient giving. Some British charitable bodies have gone a step further, and set up their own 501(c)(3) organisations in the US . The American Friends of the British Library, for example, has contributed over $30m to the British Library in this way. Similar such bodies include the American Trust for Oxford University , Cambridge in America and the American Friends of the English National Opera.
For Sharon Stearnes at CAF, the potential of trans-border giving has particular importance when it comes to support for projects in developing countries. “There is a growing movement of ordinary donors who want to feel that their donations are directly going to help, not just going into some big pot,” she says. With tools like the internet to help, she says, donors can increasingly identify for themselves individual initiatives they would like to support. CAF has recently commissioned research on a proposed Global Philanthropic Exchange, which might be able to make use of e-commerce mechanisms such as PayPal to encourage this development. “Our job is to try to help smaller grassroots organisations have access to donors,” she says.
In the meantime, resources such as Giving In Europe now offer some help in blazing a route through the tax tangles. Although trans-border giving, Ludwig Forrest admits, may not always plain sailing, he adds “It is still possible, I think”.
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