EATLPEATLPRotterdam 2012Rotterdam 2012

Gift and Inheritance tax on charitiesGift and Inheritance tax on charities

Rik DeblauweRik Deblauwe

Frans SonneveldtFrans Sonneveldt

IntroductionIntroduction

EC Measures to tackle Cross-Border EC Measures to tackle Cross-Border Inheritance Tax ProblemsInheritance Tax Problems

Recommendation regarding relief for Recommendation regarding relief for double taxation of inheritances double taxation of inheritances

15 December 2011 (C (2011) 8819)15 December 2011 (C (2011) 8819)

EU member States’ double tax EU member States’ double tax conventions on inheritancesconventions on inheritances

EC Staff Working PaperEC Staff Working Paper

Member States’ inheritance tax provisions Member States’ inheritance tax provisions cannot apply a less favourable inheritance cannot apply a less favourable inheritance tax treatment for legacies made to a tax treatment for legacies made to a charity on the sole basis that the charity is charity on the sole basis that the charity is established in another Member State established in another Member State rather than in the taxing Member Staterather than in the taxing Member State

3 types of countries3 types of countries

I.I. Countries without gift or inheritance taxCountries without gift or inheritance tax

II.II. Countries with a general exemption for Countries with a general exemption for charities:charities:

Hungary, Finland, Turkey, UK, Germany, Hungary, Finland, Turkey, UK, Germany, Italy, Norway, The NetherlandsItaly, Norway, The Netherlands

III.III. Countries which tax charitiesCountries which tax charitiesDenmark (20%/0%), Greece (0,5%), Denmark (20%/0%), Greece (0,5%), Belgium (6,6/25%), France (35/60%)Belgium (6,6/25%), France (35/60%)

I.I. Countries without gift or Countries without gift or inheritance taxinheritance tax

Austria (repeal by constitutional court in 2008)Austria (repeal by constitutional court in 2008)

PortugalPortugal

SwedenSweden

Russian FederationRussian Federation

Poland: only acquisition by natural persons, thus Poland: only acquisition by natural persons, thus for charitiesfor charities

NB: Italy: abolished but reintroducedNB: Italy: abolished but reintroduced

II. Countries with a general II. Countries with a general exemption for charityexemption for charity

Hungary: Hungary: – Exemption is obtained with a ‘statement’ from Exemption is obtained with a ‘statement’ from

the tax authoritiesthe tax authorities– Some institutions are exempt by law: Some institutions are exempt by law:

churches, public foundations, …churches, public foundations, …

Turkey:Turkey:– general exemption for charity: legal entities general exemption for charity: legal entities

established for public purposes such as established for public purposes such as science, research, culture, arts, health, science, research, culture, arts, health, education, religion, charity and sports education, religion, charity and sports

II – UKII – UK

Two exemptionsTwo exemptions– The main charity exemption:The main charity exemption:

transfers of value are exempt to the extent the transfers of value are exempt to the extent the values transferred are attributable to property values transferred are attributable to property given to charitiesgiven to charities

– Special Exemption:Special Exemption: is provided for property transferred to museums, is provided for property transferred to museums, libraries, art galleries, local authorities, government libraries, art galleries, local authorities, government departments, universities and health service departments, universities and health service bodies. Some institutions are listed by name, like bodies. Some institutions are listed by name, like the National Gallery, the British Museum the National Gallery, the British Museum

II – Germany:II – Germany:

– Donations and inheritances received by a Donations and inheritances received by a domesticdomestic corporation, association, or estate corporation, association, or estate which exclusively and directly serves public which exclusively and directly serves public benefit, charitable or religious purposes are benefit, charitable or religious purposes are exempt from inheritance and gift tax. The exempt from inheritance and gift tax. The same is true for donations to same is true for donations to foreignforeign corporations if their state of residence corporations if their state of residence exempts donations to German charitable exempts donations to German charitable corporations from taxation.corporations from taxation.

II – Germany, special rule:II – Germany, special rule:

assets received as a lifetime gift or by way of assets received as a lifetime gift or by way of inheritance which are transferred within two years inheritance which are transferred within two years to a foundation which, according to its statutes and to a foundation which, according to its statutes and effective management, exclusively and directly effective management, exclusively and directly serves public benefit, charitable or religious serves public benefit, charitable or religious purposes, the recipient is exempt from inheritance purposes, the recipient is exempt from inheritance and gift tax with retroactive effect. and gift tax with retroactive effect.

Cfr. Variation of wills?Cfr. Variation of wills?

II – Italy:II – Italy:

– Exemptions apply, in case of transfer to legally Exemptions apply, in case of transfer to legally recognized recognized foundations or associationsfoundations or associations with exclusive with exclusive purpose of assistance, study, scientific research, purpose of assistance, study, scientific research, education or any other education or any other purpose for public benefitpurpose for public benefit and and also to so called ONLUS. also to so called ONLUS.

– The status of ONLUS can be granted, only to The status of ONLUS can be granted, only to associations, foundations, committees, social associations, foundations, committees, social cooperatives and other cooperatives and other privateprivate bodies. bodies.

– The exemption also applies to transfers to legally The exemption also applies to transfers to legally recognized recognized public public bodies, foundations and bodies, foundations and associations, if the transfers are made for purposes associations, if the transfers are made for purposes previously referred to. previously referred to.

II – Norway:II – Norway:

– organisations with a charitable purpose are organisations with a charitable purpose are exempt from the inheritance tax. exempt from the inheritance tax.

III. Countries which tax charityIII. Countries which tax charity

DenmarkDenmark– Family foundations – Family foundations – where members of where members of

certain families are given preference certain families are given preference to donations to donations from the foundations – are not regarded as charitable from the foundations – are not regarded as charitable foundations, and gifts to such a foundation are taxed foundations, and gifts to such a foundation are taxed at 20%at 20%

– Payment of donations to foundations etc. based in Payment of donations to foundations etc. based in foreign states with foreign states with low taxationlow taxation of foundations are of foundations are taxed by a 20 per cent rate in so far as the yearly taxed by a 20 per cent rate in so far as the yearly contribution exceeds DKK 10,000. contribution exceeds DKK 10,000.

III. – Denmark (cont’d)III. – Denmark (cont’d)

– The overall effect of this provision is that contributions The overall effect of this provision is that contributions to foundations in foreign states – including other EU-to foundations in foreign states – including other EU-member states – from fully tax liable physical or legal member states – from fully tax liable physical or legal entities in Denmark are taxed if the taxation of entities in Denmark are taxed if the taxation of foundations in the foreign state is low compared to foundations in the foreign state is low compared to Danish taxation, while contributions and gifts to Danish taxation, while contributions and gifts to Danish foundations are – as a rule – tax exempt. Danish foundations are – as a rule – tax exempt.

– According to the national Danish report, this seems to According to the national Danish report, this seems to infringe with European freedom rules, cfr. case C-infringe with European freedom rules, cfr. case C-318/07, Persche 318/07, Persche

III. – GreeceIII. – Greece

– GreeceGreece imposes, since 2010, a very low tax rate, of imposes, since 2010, a very low tax rate, of 0,5%, 0,5%, to charities, to charities,

– The rate is applicable to The rate is applicable to legal entities, which have been incorporated or are under legal entities, which have been incorporated or are under incorporation in Greece, incorporation in Greece, as well as by the respective foreign legal entities on the as well as by the respective foreign legal entities on the condition of reciprocity, condition of reciprocity, as long as these entities are proven to pursue national or as long as these entities are proven to pursue national or religious or are on a wider circle charitable or educational or religious or are on a wider circle charitable or educational or artistic in the sense,artistic in the sense, and to churches, the monasteries, the sacred space of the and to churches, the monasteries, the sacred space of the Holy Sepulchre, the Holy Monastery of Mount Sinai, the Holy Sepulchre, the Holy Monastery of Mount Sinai, the Ecumenical Patriarchate Kostantinoupoleos, The Jerusalem Ecumenical Patriarchate Kostantinoupoleos, The Jerusalem Patriarchate, the Patriarchate of Alexandria, the Church of Patriarchate, the Patriarchate of Alexandria, the Church of Cyprus, the Orthodox Church of Albania. Cyprus, the Orthodox Church of Albania.

III. – Greece (cont’d)III. – Greece (cont’d)

– An interesting point in the Greek report is the An interesting point in the Greek report is the taxation of taxation of sponsorshipssponsorships. .

– According to the opinion issued by the legal According to the opinion issued by the legal counsels of state and accepted by the counsels of state and accepted by the Minister of Finance, sponsorships Minister of Finance, sponsorships

are identified are identified as donations as donations as long as they are not as long as they are not accompanied by some sort of obligation on behalf accompanied by some sort of obligation on behalf of the non profit receiving the sponsorship. of the non profit receiving the sponsorship. If, however, the sponsor receives some sort of If, however, the sponsor receives some sort of reimbursement for the sum, then it is noted as a reimbursement for the sum, then it is noted as a reciprocal agreementreciprocal agreement..

III.- BelgiumIII.- Belgium

Gift taxGift tax Estate TaxEstate Tax

FlandersFlanders 7%7% 8.8%8.8%

BrusselsBrussels 6.6% or 7% 6.6% or 7% (a)(a)

6.6 or 12.5 or 25% 6.6 or 12.5 or 25% (b)(b)

WalloniaWallonia 7%7% 7% (c)7% (c)

III. – Belgium (cont’d):III. – Belgium (cont’d):

– (a): Brussels gift tax: (a): Brussels gift tax: 6,6% to public-interest foundations or 7% to other 6,6% to public-interest foundations or 7% to other charities charities

– (b) Brussels estate tax:(b) Brussels estate tax:a 6.6% rate applies for public-interest foundationsa 6.6% rate applies for public-interest foundations

12,5% will be applied when these entities have 12,5% will be applied when these entities have Federal approval for donation deduction in the Federal approval for donation deduction in the income taxesincome taxes

25% rate for other charities25% rate for other charities

III.- Belgium (cont’d)III.- Belgium (cont’d)

– (c) : (c) : One of the conditions imposed by the Walloon One of the conditions imposed by the Walloon region was judged in breach with EU law by the region was judged in breach with EU law by the European Court of Justice in the Missionswerk European Court of Justice in the Missionswerk Werner Heukelbach case: Werner Heukelbach case:

‘‘Article 63 TFEU precludes legislation of a Member State Article 63 TFEU precludes legislation of a Member State which reserves application of succession duties at the which reserves application of succession duties at the reduced rate to non-profit-making bodies which have their reduced rate to non-profit-making bodies which have their centre of operations in that Member State or in the Member centre of operations in that Member State or in the Member State in which, at the time of death, the deceased actually State in which, at the time of death, the deceased actually resided or had his place of work, or in which he had resided or had his place of work, or in which he had previously actually resided or had his place of work.previously actually resided or had his place of work. ’.’.

III. – FranceIII. – France

The only legal persons (other than public The only legal persons (other than public bodies) bodies) entitled to receive entitled to receive a legacy or a a legacy or a donation (beside manual gift) are the donation (beside manual gift) are the associations declared of public utility, associations declared of public utility, liturgical associations, congregations, the liturgical associations, congregations, the associations of charity, and similar associations of charity, and similar associations. associations.

III. – FranceIII. – France

The rate for donation or inheritance tax is The rate for donation or inheritance tax is 60 %. 60 %. The foundation or association declared of The foundation or association declared of public utility benefits from a reduced rate public utility benefits from a reduced rate of 35 %, and 45 % for the part in excess of of 35 %, and 45 % for the part in excess of € 24,430.€ 24,430.transfers of value are exempt to the extent transfers of value are exempt to the extent the values transferred are attributable to the values transferred are attributable to property given to charitiesproperty given to charities

III. – FranceIII. – France

The manual gifts are not taxed as such, but the The manual gifts are not taxed as such, but the act by which they have been disclosed to the tax act by which they have been disclosed to the tax authorities is subject to donation tax. authorities is subject to donation tax. In 1997, the association “the Jehovah’s In 1997, the association “the Jehovah’s Witnesses” was subject to a tax audit and Witnesses” was subject to a tax audit and produced its accounts to the tax authorities. produced its accounts to the tax authorities. – The tax authorities considered that this was a The tax authorities considered that this was a

“disclosure” of the manual gifts received by the “disclosure” of the manual gifts received by the association and applied the donation tax at the rate of association and applied the donation tax at the rate of 60 %. 60 %.

– The Jehovah’s Witnesses were not granted the The Jehovah’s Witnesses were not granted the exemption as a liturgical association as they had not exemption as a liturgical association as they had not been authorised to receive these donations. been authorised to receive these donations.

III. - FranceIII. - France

In 2011, the Court of Appeal of Rennes In 2011, the Court of Appeal of Rennes decided that a manual gift is subject to tax decided that a manual gift is subject to tax only if it is effectively “disclosed”, meaning only if it is effectively “disclosed”, meaning an active action from the discloser. an active action from the discloser. This case law will probably be overruled This case law will probably be overruled by the by the Cour de cassationCour de cassation, which has , which has already validated disclosure through tax already validated disclosure through tax audit, and a statute of 2011 has confirmed audit, and a statute of 2011 has confirmed this. this.

Conclusion:Conclusion:

A vast variety of personal links used by A vast variety of personal links used by countries creates a motley imagecountries creates a motley image

A limited attempt by the European A limited attempt by the European Commission to improve the situation is Commission to improve the situation is helpful but not sufficienthelpful but not sufficient

Harmonisation feasible in the long run?Harmonisation feasible in the long run?