25 March 2010

Extension of Tax Reliefs to certain European charities

Until now charitable organisations registered outside the UK have been unable to claim the same charitable tax reliefs as those based in the UK. It is now proposed that the Finance Act 2010 will contain a new definition for organisations eligible for charitable tax reliefs which will include those based in the EU (including the UK), Norway or Iceland.

The proposed changes have been introduced to reflect the judgments of the European Court of Justice in _Centro di Musicologia Walter Stauffer v Finanzamt München für Körperschaften _(European Court of Justice, C386/04), which was delivered on 14 September 2006 and _Hein Persche v Finanzamt Lüdenscheid_(European Court of Justice, C318/07), which was delivered on 27 January 2009.

Broadly, these cases held that it was a breach of the EU Treaty for EU member states to distinguish for tax purposes between charities established under their own law, or within their own jurisdiction and those established under the law of, or within the jurisdiction of, another EU member state merely on the grounds that they were not indigenous. The Stauffer case had applied this principle to the income and gains of non-indigenous charities, while the Hein Persche case extended it to the tax treatment of gifts made to such non-indigenous charities. For further information, click here and here to read our earlier briefings.

Organizations eligible for UK charitable relief

Under the proposed changes, organizations eligible to enjoy the same tax reliefs as charities and Community Amateur Sports Clubs (‘CASCs’) in the UK, will be those which:

  1. meet the England and Wales definition of a charity or CASC ;
  2. are located in a Member State of the EU, Norway or Iceland
  3. are regulated by a body in their home country which has an equivalent function to the Charity Commission or a similar regulator, as required by the law of the home country; and
  4. is managed by ‘fit and proper persons’

HMRC will decide if someone is a ‘fit and proper person’ for this purpose by considering, with reference to any records it has access to, whether that individual is likely to exploit the charitable reliefs for non-charitable purposes.

Charitable reliefs

Organisations meeting the above definition will be eligible for all HMRC ‘charitable reliefs’, including reliefs on income tax, capital gains tax, corporation tax, inheritance tax, and various stamp taxes; they will also be able to enjoy the same VAT reliefs and exemptions as UK charities and CASCs, as well as the benefits of the Gift Aid scheme.

HMRC will be issuing guidance on its website about how organizations which meet the above requirements and wish to register for charitable relief should do so.

The relief may be available retrospectively to 27 January 2009 (the date of the Hein Persche judgment) but this will be considered by HMRC on a case-by-case basis and details of the process are not yet available.
The changes to do not apply to charities based outside the EU, Norway or Iceland.

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