The EFC Legal Committee closely monitors national and European level developments affecting the cross-border work of foundations. European developments increasingly influence national foundation laws, in particular tax laws.
Challenges and opportunities for foundations’ and funders’ work across borders
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Legal and fiscal barriers for foundations’ and funders’ cross-border work
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European Court of Justice cases and infringement procedures affecting foundations
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How to improve the cross-border work of foundations and funders
The following overview outlines the difficulties that foundations still face when acting across borders.
Foundations that are active across borders face a variety of legal and fiscal barriers at their respective national levels. Unfortunately, foundations do not enjoy the same privileges as companies and citizens in the EU. Existing legal, administrative and tax barriers to foundations’ transnational work include:
- Administrative burdens during the procedure of setting up a branch in another country
- Increased cost linked to the creation and administration of several “recognised” legal entities in countries where a foundation needs to operate to fulfil its objectives, and use of available assets/funds which otherwise would have been distributed as grants or used for programme activities. New European initiatives are slowed down because of the lack of an appropriate legal tool.
- Difficulties with the recognition of legal personality of foreign foundations, and legal insecurity as to the recognition by domestic public authorities of the general interest character of the cross-border activities of the resident/domestic foundation
- Added difficulty of maintaining a common and effective policy strategy between different legal entities
- Most countries allow the creation of a foundation that is active abroad as well as cross-border activities, but the foundation might not qualify for tax privileges or will not be able to receive tax-deductible donations.
- Tax exemption is usually denied to foreign foundations established and based in other countries.
- Almost all EU countries refuse tax deductibility for donations made to foreign-based foundations. This is a significant barrier to cross-border giving.
- Foundations often have to pay foreign withholding tax on their foreign investment income without being able to recover this foreign dividend tax.
- European Court of Justice judgements
The EFC monitors European Court of Justice (ECJ) proceedings which affect European foundations. Two such cases are the “Stauffer” case, which has implications for the tax treatment of foundations that generate income in other EU Member States and the "Persche" case, which has implications for donors giving across national borders.
EFC briefings on the subject:
- Infringement procedures
The European Commission has launched a series of infringement procedures against Member States, which are accused of discriminating against public benefit foundations based in other EU Member States. Countries are requested to amend their tax laws on the basis that the rules of the Internal Market forbid such discrimination against non-resident charities.
At the last count there were 17 such cases pending and 14 successfully closed. Among those countries to have recently amended their tax laws are Belgium, Germany and the United Kingdom.
EFC briefings on the subject:
European Commission requests Netherlands to change its rules on cross-border giving
19 March 2010
- Possible national-level measures:EU Member States should review their national laws and introduce public benefit status regarding tax privileges for both national and European organisations; establish the same tax incentives for donors when donating to a foreign foundation; and ensure equal treatment for both foreign and national foundations.
- National developments could be supported by bilateral agreements: So far, the effects of bilateral agreements have been disappointing. Very few treaties address the issue of cross-border giving or the treatment of foreign-based foundations.
- Possible EU-level measures: At present, considerable attention is being given to foundations and their role in society. It seems timely to launch an initiative and seek political support for action in this field. The EFC has initiated action to enhance the legal and fiscal environment for funders in Europe. It has developed recommendations on a European statute for foundations. >more at European Foundation Statute
- Private agreements: By private agreements, it is possible to identify qualifying partners in other countries to work with in order to facilitate cross-border giving. One good example is the Transnational Giving Europe Agreement between the Charities Aid Foundation, the Community Foundation for Ireland, the Fondation de France, the Foundation for Poland, the King Baudouin Foundation, Oranje Fonds and the Maecenata Institute for Philanthropy and Civil society. For more information, please visit the Transnational Giving Europe website