Maybe. But should we all become tired and bored reading and thinking about Persche in this series of Posts, I would like to put a little perspective on whether Persche stands for anything more within the charitable sector than how much the government receives in taxes, and more specifically, how much money a particular Member State can lose because it grants a tax deduction for money flowing out of the State to a public benefit body resident in another Member State.
My main concern about some of the commentary regarding the Persche decision is that much of it suggests is that this will increase the potential for cross border fundraising by efficiently allowing tax deductible gifts to be made to charities outside the donor’s State. Thus, whereas in the past, tax incentives for charitable giving have been limited within many Member States, to domestic charities, the Persche decision was an attempt to level the playing field.
While the Persche rationale is based on the Court’s interpretation of Article 56 of the EC Treaty, this, it seems to me, could also raise the issue of transnational fundraising for charity beyond the limits of the EU, a much more interesting and broader question. Some commentators have suggested that although the theory of Persche may be accepted, the practice may be quite different, a subject beyond the scope of this Post.
If we limit the implications of the European Court of Justice decision in Hein Persche v. Finanzampt Lüdenscheid to the tax consequences of cross-border giving to charity, we are only addressing one part of the trust element with respect to transparency and accountability within the public benefit sector. I would argue that tax consequences of charitable giving, including gifts-in-kind donations, are only part of the motivation for giving, and are of limited relevance to the trust and loyalty that motivates much of the public benefit sector.
For example, recent statistics for giving in the United States reflect the fact that Americans gave the staggering sum of $306 billion to charity in 2007. This figure did not include more than $100 billion given to religious organizations, such as churches, foreign mission agencies, and church operated food kitchens and homeless shelters, camps, and large religious institutions, such the Salvation Army and denominational efforts. The largest percentage of giving reflected in these statistics was from individuals, with 85 percent of all households in the United States giving to charity. Of the total number of household givers in the United States, 65 percent were families with annual incomes of less than $100,000. The average annual household donation was $1,872.00, not enough I would suggest to have serious tax impact.
In the United States, approximately 70 percent of all taxpayers file tax returns claiming the standard deduction, with only 30 percent filing tax returns itemizing deductions. Accordingly, the tax consequences to individuals or households making donations to charities would appear to be quite insignificant when such contributions are not claimed as tax deductible gifts in their tax filings because of a standard deduction.
It would be interesting to know if there are comparable statistics and tax treatment of donations among the Member States of the EU, or indeed anywhere in the world, just to get some idea of how the tax consequences of charitable giving affect the giving patterns of potential donors.
It may be true that tax benefits accorded by the State to certain institutions in society represent that State’s assessment of what is important for society and what should be encouraged for its citizens. I could accept a proposition that tax consequences of charitable giving, such as the tax status of certain institutions, may also be reflected in the pattern of giving and the timing of giving on part of particular donors. Thus, major giving to charity at the end of a tax reporting period may be motivated by the overall tax situation on the part of the donor. Yet, I would argue that this may have more to do with the giver’s motivation with respect to the timing of the donation rather than to whether there should be any donation to a particular charity at all.
My guess is that the European Court of Justice was not focusing on the motivations for giving to charity, nor was it focusing on whether transparency and accountability within the public benefit or charity sector were even important factors to be considered on the part of donors. Moreover, if I understand the procedures involved in this case, the issues before the European Court of Justice were framed by Bundesfinanzhof, the Supreme Court of Federal Taxation and Customs in Germany, when it stayed the proceedings before it and certified the questions arising out of the application of the European Treaty to national tax laws. The European Court of Justice was only answering the questions which the Bundesfinanzhof certified to it for answers.
As we see in Persche, there may be several factors at play other than a challenge to the tax laws of Germany. Hein Persche may have already determined that he had a sufficient relationship with Centro Popular de Lagoa in Portugal that transparency and accountability on the part of Centro Popular were not big deals for him. Or maybe he had satisfied himself that the Centro was a charity he could support without regard its tax exempt status in Portugal and the tax consequences in Germany of his gifts. After all, he must have known what the Centro Popular needed when he gave the gifts of bed linens and towels, zimmer-frames, and toy cars for the children. Moreover, these donations with a total value of €18,180 did not represent an insignificant commitment to charity on Persche’s part.
The first question was simply whether or not gifts-in-kind, such as the consumer goods given by Hein Persche, were entitled to be treated as charitable, if so treated under the law of the Member State and as falling within the principle of free movement of capital within the scope of Article 56, EC. The Court of Justice held that gifts-in-kind came within the compass of Article 56 EC with respect to the principle of free movement of capital.
The second and third questions addressed the issue of a Member State’s interest in fiscal supervision of the charitable body receiving the benefit of the donation in question. It seems to me that a relevant question not articulated by the Court is the question of just what Germany required in its tax laws for tax exempt status of charitable bodies resident in Germany and for allowing the deductibility of gifts to those bodies, other than such charitable bodies satisfy some definition of public benefit or charity.
I recognize that this question, while posed in the context of a specific tax case arising out of German tax question, has broader application to all countries of the EU with respect to their respective tax legislation. My guess, as an American somewhat familiar with the tax laws and regulations in the United States regarding tax exempt status of charitable institutions and bodies, the requirement for achieving tax exempt status are quite minimal as long as the body seeking the exemption meets the definitional description of the allowed and recognized charitable or public benefit purposes listed in the statute.
More specifically, does German tax law recognize the role of charitable monitoring bodies in Germany, such as the Deutsches Zentralinstitut für soziale Fragen (DZI), to monitor charitable bodies entitled to, or seeking tax exempt status, and to assist the tax authorities in Germany in providing some form of fiscal supervision over the sector and bodies recognized by the State’s tax authorities as charitable institutions. I think the answer is clearly no. And I guess that no other Member State of the EU, or indeed in any country, has such a requirement. My further guess is that this subject is at the center of the debate about the role of government in regulating and monitoring charity versus the possibility of attempting to address the matter of transparency and accountability within the charitable sector. But, that is a topic I would like to address in a forum of future posts by guest contributors.
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