EFFECT | spring 2007

LOREM IPSUM 12
exactly understand the need, and so we will have to make a
greater effort to not only explain the need, but also the will of
foundations to have such a tool for their work in Europe, says
Charhon. Its a misunderstanding of the capacity of the sector
to address the needs of citizens. We have to work on that to
explain and explain and explain.
Foundations are perceived as being intermediary bodies that
are not in touch with whats needed on the ground. But the
Commission has to understand that foundations are very
close to the needs of the eld, insists Charhon. Were people
who are working on projects, addressing problems and
nancing solutions.
This year Charhon would like to see more efforts made
at national level to convince key people in governments
of the value of a European Foundation Statute. He hopes
national governments would then press the Commission
to go forward with the Statute. So this would be a parallel
approach alongside ongoing efforts of the foundation sector,
particularly through the EFC, to convince the Commission.
The sector is growing at an exponential rate in all EU
countries. Figures suggest a high growth rate in the sector in
various EU states, with 28% up to 40% of the national-level
sectors having been set up in the last decade in countries such
as Belgium, Finland, France, Italy and Germany. Foundations
are increasingly active beyond their own borders, a trend that
is expected to continue. The EFCs estimate, extrapolating
from databases of known foundations, is that 25,000 of these
foundations have combined assets of 174 billion euros at their
disposal.
New wealth has been created in a variety of new sectors of
the economy, and within the next 20 years Europe will witness
the most important intergenerational transfer of wealth ever.
The EFC believes that part of this private wealth should be
directed towards the European public good. A European
Foundation Statute would provide foundations with the
necessary vehicle to channel these resources for the benet of
the European project and the EUs citizens.
Nyegosh Dube, EFC
More information on the Statute:
www.efc.be/european_statute
Such steps complement efforts, led by the European
Foundation Centre, to bring about the adoption of a European
Foundation Statute as a powerful new tool for cross-border
foundation activity in Europe. Enactment of a European legal
form for foundations and changes in national tax laws can
together contribute to creating a Europe-wide market for
philanthropy.
In fact, market is not an inappropriate term, since provisions
of the European Community Treaty geared primarily towards
business activities are now also being applied to philanthropic
activities. These are provisions on freedom of establishment
and free movement of capital, as well as free movement of
labour and people. Given the tremendous increase in the role
of philanthropy since the original Treaty was signed 50 years
ago, Treaty provisions are being applied in a exible way in
response to changing realities.
The rst major step in this direction came in 2002 when the
European Commission formally requested Belgium to change
its legislation on gift and inheritance tax, as it restricted
preferential rates on philanthropic donations and legacies
to entities established in Belgium. Actually, the request
concerned legislation in the countrys three regions. While
Flanders and Brussels amended their laws to satisfy EU
requirements, Wallonia did not go far enough. So in 2005 the
Commission referred the Walloon case to the European Court
of Justice (ECJ).
In 2006, the Commission decided to cast its net wider. It sent
formalrequeststothegovernmentsoftheUK,|relandand
Poland to end discrimination against foreign PBOs in their
income tax legislation. According to the Commission, these
Member States allow tax relief for gifts to charities, but
only if they are established in their own territory. Charities
in other Member States are excluded from the relief... The
Commission, moreover, threatened to refer specic national
cases to the ECJ if the governments in question did not
respond satisfactorily within two months. In December
2006, the Commission turned its attention again to Belgium,
sending it a similar request and warning.
The rules of the Internal Market forbid discrimination against
charities in other Member States, said EU Taxation and
CustomsCommissionerLaszloKovacsina1uly2006Luropean
Creating a tax-effective philanthropic market in the EU
Cross-border philanthropy in Europe may be getting easier. European institutions have taken steps to bring
national tax legislation into line with key provisions of EU law to end discrimination against public benet
organisations (PBOs) based in other EU states and against those who give to such organisations.
THE LEGAL AND FISCAL SCENE
European Foundation Centre | www.efc.be
EFFECT | spring 2007
13
Commission press release. Gifts to bona de charities in other
Member States should get the same tax treatment as gifts
made to domestic charities.
The Commission considers that differential tax treatment of
gifts infringes on the free movement of capital guaranteed
by Article 56 of the EC Treaty; the free movement of persons
guaranteed by Articles 18 and 39 of the Treaty; and the
freedom of establishment guaranteed by Articles 43 and 48.
Article 56 does not in fact dene free movement of capital,
but Council Directive 88/361/EEC provides a Community
denition of capital movements which explicitly includes
cross-border gifts. As for free movement of persons, Articles
18 and 39 establish the right to reside and work freely within
the Union. While on rst sight differential tax treatment might
not appear to infringe on this right, the Commission takes the
view that citizens of a Member State who move to another
Member State and wish to make donations to organisations in
their home state should be able to do so without suffering any
discrimination, giving equal tax treatment vis--vis citizens of
the state they have moved to, not their home state.
Regarding freedom of establishment, Article 48 refers to
companies or rmsor other legal personssave for those
which are non-prot-making. This would seem to exclude
foundations and charities. However, the Commission now
interprets this provision in a broad way, arguing that legal
persons take part in economic life, even if their main goal
is not to make prots. It should be added that in both the
Walloon and Polish cases, the Commission also cited Article
12 of the Treaty, which prohibits discrimination on grounds of
nationality. Since the provision does not specify any areas (e.g.
taxation) or objects of discrimination (e.g. natural persons), it
can be applied in a rather exible way.
In response to the Commissions request, Poland has amended
its corporate income tax law. As of January 1st 2007, tax
deductions have been extended to include donations to PBOs
in other EU states. At rst the Polish government proposed
entirely abolishing tax incentives for legal persons who give
to PBOs, but retreated in the face of a strong protest by the
NGO sector. Poland is now only the second EU country after
the Netherlands to allow tax deductions for donations to
foreignP8Os.TheUK,however,islikelytodefenditspresent
legislation at the ECJ if the Commission goes ahead and refers
the matter to the Court.
Apart from action initiated by the Commission, which may
lead to action by the ECJ, the Court has already made a
signicant ruling regarding an infringement of the EC Treaty.
In September 2006, the Court ruled in the so-called Stauffer
case that sections of German tax law are in conict with the
free movement of capital stipulated by Article 56 of the Treaty.
According to current German tax law, the tax exemption
granted to PBOs on rental income does not apply to PBOs
that have their registered ofce and/or governance structure
outside Germany. The case concerned Centro di Musicologia
Walter Stauffer, a public benet foundation based in Italy that
had income from German real estate holdings. This income
was taxed by the Munich tax authorities. The foundation
questioned this taxation and took its case to the Federal Tax
Court, which in turn called for a ruling by the ECJ.
Clearly, things are happening at the European level to create a
more tax-effective European market for philanthropy through
the scrapping of discriminatory national legal provisions.
Although these actions are very welcome and necessary, they
are far from sufcient. The adoption of a European Foundation
Statute remains the key step to be taken to ensure that
foundations fully benet from the EUs Internal Market. Only if
they can act without hindrance across national borders within
the Union can truly European philanthropy become a reality.
Nyegosh Dube, EFC
THE LEGAL AND FISCAL SCENE
The Dutch cross-border tax environment gets friendly
The Dutch Ministry of Finance an-
nounced in February 2007 the new
criteria for public beneft organisations
(PBOs), which will take effect as of Jan-
uary 1st 2008. Charitable tax incentives
are given to organisations recognised by
the Dutch tax authorities as PBOs - these
can be organisations based in the Nether-
lands and in any other EU Member State.
The Dutch government may extend this
rule also to other countries.
This introduces a very friendly cross-
border environment for foundations and
their funders in the Netherlands: For-
eign-based PBOs receive the same tax
treatment as domestic ones as long as
they qualify and register as a PBO. In ad-
dition, donations to foreign-based PBOs
may be deductible for Dutch income tax
purposes as long as they qualify and reg-
ister as a PBO.
Looking at the set of criteria, emphasis
is being put on the form of the endow-
ments and the spending obligation of the
organisations, as well as on transpar-
ency and the independence of the board.
The programme activities will have to
strictly correspond to the mission of the
organisation. A PBO can no longer be
dormant, and churches, research insti-
tutes and others can also be considered
to be PBOs.
More information:
www.fm-platform.nl
European Foundation Centre | www.efc.be