May 2010 | Tax treatment of charitable donations – EU case

The European Court of Justice (“ECJ”) ruled in June 2009 in the case of Persche v Finanzamt üdenscheid (C-318/07) that national restrictions on tax relief for cross-border donations to charities in another European Union (“EU”) Member State are unlawful.

The ECJ held that a restriction imposed by the German authorities constituted a restriction on the free movement of capital which is prohibited by EU law. The ECJ noted that the possibility of obtaining a tax deduction could influence the willingness of German taxpayers to donate to charitable bodies established outside Germany and rejected an argument that the restriction could be justified by the need to safeguard “the effectiveness of fiscal supervision” by domestic tax authorities.

This judgment should result in a change of law in Ireland and in other EU countries that impose a similar restriction.  This could open up a much broader range of potential donors for Irish charities but also increase competition for funds as Irish-resident donors should now be in a position to claim tax relief on their donations to charities in other EU Member States. However recent research indicates that not all EU states (including Ireland) are planning to comply, see commentary here.
 

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Aileen Keogan | Solicitor & Tax Consultant | 21 The Avenue | Louisa Valley | Leixlip | Co. Kildare | Ireland

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