THE LEGAL AND FISCAL SCENE

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While you need at least 34,000 euros to start a foundation in Copenhagen, Denmark, just a short drive across the Oresund Bridge in Malm, Sweden, there is no such xed requirement, although your assets should be adequate to pursue your planned purpose for ve years. And if you set up a foundation in Cieszyn, Poland, you can run a business activity to generate income for it, but you cant do so if you set one up just across the Friendship Bridge in Tein, Czech Republic. Such is the complexity that characterises the legal and tax environments for foundations across the EU.
Giving an overview of the varied legal and scal landscapes for foundations across the EU is the main aim of the EFCs 2007 publication, Foundations Legal and Fiscal Environments Mapping the European Union of 27. In 2002, when the EFC rst published proles of foundations legal and scal environments in the EU, there were 15 Member States. Given the tremendous enlargement of the EU since 2004, and given the changes that have taken place in the original 15 Member States, the EFC decided to embark on an enlargement of its own, with the publication of this expanded, fully updated set of proles covering the Union of 27. This publication represents, in fact, the only mapping of its kind a set of concise, comprehensive overviews of the legal and tax environments affecting foundations in each of the EUs 27 Member States. Within the diversity of legal and scal rules across the EU, the proles show certain areas of consensus. For example, all Member States require that a foundations assets be devoted to a specic purpose, and that foundations le annual reports and nancial records with the relevant authorities. Most Member States require foundations to register with an authority or a court, and to have a governing board. And most of them allow foundations to engage in economic activities, although the majority of these impose certain limits on the types of such activities that can be pursued. With regard to taxation, all EU countries provide tax benets for foundations with a public benet purpose, while differing in how they dene public benet. They also differ in their tax treatment of economic activities. In the area of cross-border activities, most Member States allow foundations to engage in activities abroad without losing tax benets. Furthermore, because of a series of infringement procedures initiated by the European Commission (against Belgium, the UK, Poland and Ireland, so far), a few countries have started to extend to donors the same tax benets for gifts to foreign recipients within the EU as for those to domestic recipients (see chart p.12). The Netherlands and Poland (the latter in response to Commission action against it) have amended their tax laws to enable donors to get tax relief for cross-border donations; Slovenia also provides tax incentives to individual donors that give to recipients in other EU states. The EFC hopes that this trend will continue. This is in line with the EFCs Model Law, which aims to positively inuence the drafting of new foundation laws as well as the revision of existing laws at national level. The Model Law stipulates equal tax treatment for domestic and cross-border giving in the EU. It also stipulates equal tax treatment for locally-based and foreign public benet organisations. Continuing with the tax treatment of donors, it is interesting to note that only one EU Member State, Slovakia, does not provide any tax incentives for either individual or corporate donors. And Sweden, Finland and Malta offer incentives only for corporate donors. But taken as a whole, the glass is more than half full as the EU's other countries all have tax incentives for both individual and corporate donors. These incentives may soon get better in Germany, as a law proposal is being discussed there which would substantially increase tax incentives for donors, from the present 5-10% to 20%. Other benecial changes in the tax environment for philanthropy are also envisaged in the proposal.

Foundations Legal and Fiscal Environments Mapping the European Union of 27, published by the EFC, 2007

The Slovak exception stems from the fact that the countrys lawmakers introduced a 2% designation scheme in 2004 (upgrading the original 1% system restricted to individuals), whereby both individuals and companies can designate 2% of their taxes to eligible

EFFECT | summer 2007

European Foundation Centre | www.efc.be

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THE LEGAL LOREM AND IPSUM FISCAL SCENE

NGOs of their choice. As a quid pro quo, tax incentives were abolished. Hungary, Poland, Lithuania, Italy, Portugal and Spain also have percentage schemes of various kinds. One of the topics in the new proles not covered in the original series is asset management, including major shareholding. This has become an important issue in recent years. The European Court of Justice has examined whether tax benets for Italian foundations of banking origin with substantial shareholding in banks constitute unfair state aid (the Court ruled that a foundation cannot be considered a commercial entity simply because it has major shareholding in a company, unless it directly manages the company). Major shareholding by foundations is quite common in several EU countries, especially in northern Europe where many large companies are foundation-owned. Most EU Member States do indeed permit major shareholding. However, in Germany major shareholding is tax-exempt only if the associated voting rights are not exercised, hence most foundations with such shareholding refrain from voting. In France, a similar situation prevails although major shareholding is permitted and is not considered an economic activity. Only when a foundation is actively involved in company management is the shareholding subject to corporate tax. Hence, most foundations avoid majority shareholding altogether, which in any case has to be in line with a foundations purpose. These new country proles are based on a common framework with standard sections and questions, so comparison of specic legal and tax provisions in different

Member States is relatively easy. The new proles not only cover more countries than the 2002 version, they have updated information about the original 15 countries and provide more in-depth coverage of various topics (as well as coverage of some new topics), in particular governance, asset management, and taxation. The proles will serve as a tool for comparative analysis to be undertaken by the EFC, which will result in comparative charts, making quick comparisons even easier. Such charts for the pre-enlargement 15 were published in 2004 and made available on the EFC website. As in the past, the proles will be the basis for benchmarking. The original country proles served as a starting point for the drafting of common legal principles and the EFC Model Law for foundations, which is reviewed periodically. Readers interested in legal and scal issues are encouraged to explore the proles to get a clearer picture of the European foundation sector through a better understanding of the environment in which it operates in particular the similarities and differences in the ways foundations are dened, classied, and regulated across the new EU of 27 Member States, and the ways they, their donors and beneciaries are taxed (and given tax benets). Of course, the proles are primarily a snapshot of what is, after all, an ever-changing landscape. Nyegosh Dube, Miia Rossi and Hanna Surmatz, EFC To download the country proles, or to order a free hard copy of the full publication, go to: www.efc.be/4911

Tax treatment of foreign donations by EU country

Country Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Are donations to foreign charities tax-deductible? No No No No, but some exceptions No No No No No, with the exception that if the activities of the foreignbased organisation would be UHFRJQLVHG DV EHLQJ RI EHQHW to the French public No No, but some exceptions No No, but some exceptions in the HOG RI HGXFDWLRQ No, but some exceptions No No No No Yes, as long as the recipient is recognised as charitable (implementing rules still to be approved) Yes No, but some exceptions possible No N/A, no tax incentives at all Yes No N/A, no tax incentives at all for individuals No

Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands

Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom

Information from Foundations Legal and Fiscal Environments Mapping the European Union of 27, published by the EFC, 2007

EFFECT | summer 2007

European Foundation Centre | www.efc.be