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BY 4.0 license Open Access Published online by De Gruyter August 15, 2022

Cross-Border Tax and Philanthropy: Avoiding the Icebergs in the Sea of Generosity

Oonagh B. Breen ORCID logo and Carolyn J. Cordery ORCID logo
From the journal Nonprofit Policy Forum


This study examines the structural and policy obstacles hampering free movement of philanthropic capital across the EU’s ‘sea of generosity’. While free movement of capital is a key element in the EU single market as enshrined in the Treaty of Maastricht, this principle previously focused on the for-profit sphere and efficient markets. In 2009, the European Court of Justice (ECJ) confirmed that the free movement principle also covered philanthropic capital, with Member States being prohibited from restricting philanthropic capital movements and payments across borders. This decision should facilitate cross-border fundraising, investment, and tax-effective giving by both corporates and individuals. Yet, significant regulatory drag hinders the use of fiscal incentives, and to date, proposals for EU-wide policy solutions (e.g. a common public benefit definition) have failed. Using the theoretical construct of regulatory space, we highlight the regulatory space characteristics impacting cross-border philanthropic capital movement. This multi-regulatory space analysis finds that contrasting actions by regulators, disparate national policies and the dominance of tax evasion concerns affect the free movement of philanthropic capital across the EU. We argue EU philanthropy could be expanded if there was greater clarity regarding administrative taxation procedures and support for foreign charities and donors seeking to navigate the straits of comparability.

1 Introduction

Where taxation benefits exist for philanthropy, household and philanthropic funders may actively manage their nonprofit giving and spending in order to minimize taxation, although at times, some claims may be outlawed.[1] Many European governments provide tax incentives (or concessions) to individuals and corporates for donations to nonprofits (Breen et al. 2018; Duquette 2020; Jung and Harrow 2014; Phillips, Dalziel, and Sjogren 2021; Rooney et al. 2020). Nonprofits depend on philanthropy, even more so in these troubled times, using donations to improve social outcomes, increase community resilience and represent a vibrant civil society. Nevertheless, where they exist, governments’ taxation policies impact how and which nonprofits corporate and individual philanthropists assist (Phillips, Dalziel, and Sjogren 2021; Rooney et al. 2020) and, as noted by Buijze (2016), any philanthropic incentives or concessions arise from political decisions. Such policies can be challenged when a set of principles governs multiple taxation regimes, as occurs in the European Union (EU). Responding to Young’s (2021) challenge to consider taxation in non-US contexts, we examine the structural and policy obstacles hampering the free movement of philanthropic capital across the EU’s ‘sea of generosity’ to aid those beneficiaries donors seek to support. As significant regulatory drag limits philanthropic capital movements, including cross-border fundraising, investment, and tax-effective giving by corporates and individuals, this analysis is important.

Buijze’s (2017) examination of philanthropy in the case of arts organizations highlights the unequal competition between domestic and ‘foreign’ EU charities when domestic application of tax incentives impact the support that philanthropists are willing to make. For example, Hungary’s tax designation scheme provides incentives to qualifying (domestic) charities that pursue public benefit as defined by law to accomplish state and municipal tasks. Other Member States such as France and Spain[2] are less restrictive as they recognize charitable purpose carried out internationally and domestically, extending tax exemptions to foreign EU charities using local intermediary charities (see below); Belgium and Germany are described as ‘relatively open’ due to the extensiveness of their tax treaties; and the Netherlands as ‘open’ (see below), delivering horizontal equity (Buijze 2016; Silver and Buijze 2020). Buijze (2017) argues for a mix of tax incentives to stimulate philanthropy, including: income deductions, tax credits, tax assignments and refunds to charity. We seek to extend her work beyond suggesting ideal types to identify not only why proposals for EU-wide policy solutions (e.g. a common public benefit definition) have failed, but also to provide a clearer navigational map of the icebergs to be avoided in the achievement of true free movement of philanthropic capital across the EU. We do this through the theoretical construct of regulatory space, which enables us to identify the disparate forces and coalitions that impact cross-border philanthropic capital movement.

Governments develop policy regimes to define the structure (regulatory institutions/instruments) and fiscal incentives for philanthropy (Buijze 2017; Duquette 2020; Phillips and Smith 2014; Silver and Buijze 2020; Young 2021). These structural and fiscal policies are necessarily jurisdiction-specific, they are often fragmented, and may fail to be updated to reflect the current needs of citizens.[3] Individual EU Member States retain exclusive jurisdiction over their tax sovereignty; nevertheless, in lieu of tax treaties, EU principles of free movement of philanthropic capital and non-discrimination on grounds of nationality apply equally to the levying of and exemptions from tax, making this a particularly fertile ground for examination. The multi-layered complexity that arises with intra-EU transfers is a problem that can be side-stepped in the US tax union, allowing researchers there to focus instead on the still difficult issue of how tax incentives affect US philanthropic gifts (Phillips, Dalziel, and Sjogren 2021; Rooney et al. 2020; for example, Duquette 2020).

This article analyses the structural and fiscal drag on philanthropy in the EU. Although little consideration was given to nonprofit entities in the treaties establishing the European Economic Community (EEC) (Breen 2015), the past 20 years have seen a growing recognition of the role of civil society in EU treaty amendments, and judicial confirmation that the fundamental right of free movement of capital within the EU applies also to philanthropic capital. This right, coupled with an obligation on Member States not to discriminate for tax purposes between comparable EU nonprofits on the basis of their nation of establishment has led, at least in theory, to increased opportunities for cross-border philanthropy by both corporates and individuals. Arguably, tax incentives should result in equal competition for philanthropic funds between domestic and foreign charities, with Buijze (2017) arguing that supranational agreements should ease the path of cross-border philanthropy. Nevertheless, evidence of tax efficient cross-border giving is patchy. For over 30 years, nonprofits have called on the EU to develop infrastructure to facilitate cross-border philanthropy and to remove national structural and fiscal obstacles (Breen 2018; Harrow and Jung 2019). Lobbying has been unsuccessful, with Harrow and Jung (2019) arguing that the recent European Philanthropy Manifesto (DAFNE & EPC 2019) may be merely re-traversing old solutions and is therefore likely to fail again. We problematize this lack of resolution by asking ‘what regulatory space characteristics affect the free movement of philanthropic capital across the EU’ allowing us to better identify the hidden depths of the obstacles to the free movement of philanthropic capital. Specifically, while donors, the nonprofit and philanthropic sectors all have interests in the free movement of philanthropic capital, and enjoy strong coalitions at European level enabling them to push to facilitate such movement, national tax sovereignty makes EU-wide fiscal harmonization or change extremely difficult to bring about. Moreover, structural changes by way of pan-European philanthropic vehicles – which would also enable philanthropic flows – have also experienced innumerable setbacks. Moving from a European context to a national one, Member States seek to maximize national tax bases, with regulatory authorities focussing predominantly on for-profit entities’ ability to erode those through tax evasion. It follows that, at times, the rationale for incentives for domestic—not to mention cross-border—philanthropy can thereby get lost in the bigger tax picture at national level. The application of regulatory space to the domain of tax and philanthropy highlights not only that structural change is required, but that further coalitions and tools are necessary to address the tax-effectiveness of EU philanthropy. Specifically, we recommend greater clarity on administrative taxation procedures, and support for foreign nonprofits and corporate and individual donors seeking to navigate the straits of comparability.

The paper continues as follows: section two contextualizes the importance of free movement of philanthropic capital within the EU’s common market, while section three examines the legal and fiscal issues that arise in the EU context when it comes to giving effect to these free movement principles. In section four we consider four case studies within the regulatory space/s allowing us to draw out what affects the free movement of philanthropic capital. Section 5 applies the theory of regulatory space to cross-border taxation of philanthropic capital movements to make sense of the regulatory frameworks which govern EU free movement and taxation policies in for-profit and non-profit markets. Finally, we explore some practical resolutions to intra-EU cross-border philanthropic funds transfers and how and why tax-effective giving should be encouraged. We also discuss how we advance theory, limitations of this approach and offer opportunities for further research in this important area.

2 Why Might Free Movement of Philanthropic Capital be Useful?

Philanthropists range from individuals to large corporate foundations who donate and distribute private funds for public benefit purposes (European Foundation Centre (EFC) 2001). Much of the research on philanthropic capital movement concentrates on institutional philanthropy (often achieved through the use of an independent or corporate foundation), which can be described as: ‘independent grant-making or operating charities whose income predominantly derives from private wealth’ (Jung and Harrow 2014, 8). Focussing on foundation giving, as opposed to individual philanthropy, provides a useful lens as foundations’ regulatory returns enable some abstraction of national data; data which is otherwise difficult to obtain on a cross-country basis (Bekkers 2016). The data suggest that the European ‘foundation’ sector’s economic importance (however defined) is significant. In 2020, while conceding that the diverse EU context made it difficult to make accurate statistical estimates on public benefit foundations across Europe, rather than just nationally, the European Foundation Centre (EFC) estimated that there were 147,000 foundations in Europe.[4] These foundations manage €511bn in assets and endowments and give an estimated €60bn annually.[5] Earlier research found (conversely) that European foundations hold assets in excess of €1000bn, with annual expenditure of approximately €153bn (Hopt et al. 2009). With more than 67% of European foundations engaged in international activities in 2009, the estimated historic costs of the legal barriers incurred by foundations engaged in cross-border philanthropic activities in the EU lay between €101 m and €178 m (Hopt et al. 2009). Whichever end of the financial spectrum one comes from, there are undoubted identifiable costs impacting free movement of philanthropy in the EU.

Across the EU, the label ‘foundation’ has both a specific technical and legal meaning in civil law (where a foundation is a body corporate without a membership in the EU’s 24 civil law Member States) and a looser descriptive meaning at common law (particularly in Ireland, Cyprus, the UK (before Brexit) and Malta, which is a mixed civil and common law country), where the term is applied indiscriminately to various legal structures used to facilitate philanthropy, whether that legal structure takes the actual form of a trust or an incorporated entity or an unincorporated association. These different meanings are problematic, and the misbelief that corporate/institutional philanthropy is represented only through foundations ignores important cultural, legal and historical differences between common law and civil law Member States (European Centre for Not-for-Profit Law (ECNL) 2009, p. 15). In addition, differences and misunderstandings between common law notions of ‘charitable giving’ and civil law notions of ‘foundation’ or ‘public benefit’ giving further complicate efforts to harmonize rules on cross-border donations and to develop pan-European philanthropic vehicles (Breen 2016). These differences or divergences are often invisible to an individual donor or even a well-intentioned policymaker, but like icebergs lurking beneath the surface, have the potential to sink or badly damage philanthropic endeavours. Interpretational differences also beset discussions on cross-border European philanthropy and the development of pan-European legal structures to facilitate it.

Corporate and individual philanthropists may desire free movement of capital, particularly within the EU, for several reasons, including better enabling them to achieve their ends. This may (as shown below) include an individual seeking to donate to their alma mater in another country, or a corporate wanting to support a nonprofit initiative in another part of the EU.

Nonprofit ‘foundations’ may also have reasons to engage in cross-border activity, including:

  1. Establishing a foreign branch or subsidiary to carry out charitable activity effectively or to fundraise for programs (Breen and Smith 2019). That ‘the number of national governments imposing restrictions on foreign funding of NGOs has increased exponentially over the past decade’ (Breen 2015, 62), provides another reason to establish a branch if the recipient country seeks to control foreign aid/grant monies.

  2. Seeking the best rate of return on endowments by spreading a portfolio of investments for charitable purposes across many Member States, thus increasing pawssive income.

  3. Availing of different taxation arrangements for tax-effectiveness. As Member States enjoy exclusive competence over taxation matters, divergences between tax regimes may make it attractive for nonprofits (and philanthropists) to base their foundations or their funds in one jurisdiction, while carrying out their good works in another. Further, some jurisdictions’ tax deductions may mean nonprofits and philanthropists can operate businesses to generate surpluses for distribution to related or unrelated causes (Breen 2015, 56; ECNL, 2009, 46; Hopt et al. 2009, 95), while other jurisdictions may not allow this (Philea 2022).

Corporate and individual philanthropists’ rights to engage in cross-border giving and nonprofits’ rights to receive funds are recognized and protected under Article 22 of the International Covenant on Civil and Political Rights, as part of the broader right of freedom of association, making the free movement of philanthropic capital not just a regional (EU) concern but an international one (OECD 2020, p. 138). With these broader considerations now in mind, we turn to consider the specific EU context for philanthropic capital transfers between Member States and the issues that can arise to thwart, or at least, disincentivize such fund movements.

3 Legal and Harmonization Attempts to Enable Free Movement of Philanthropy

The Treaty of Rome, establishing the European Economic Community (EEC), sought to establish a common market within which four fundamental free movement rights would apply, namely, free movement of workers, free movement of goods, free movement of capital and the right to freedom of establishment.[6] To give full effect to these freedoms requires Member States to eliminate discrimination on the grounds of nationality and, ultimately to adopt measures to make it easier to exercise them, including the harmonization of national access rules or their mutual recognition.

3.1 Work of the European Court of Justice (ECJ) to Clarify the Legal Position

The EEC’s focus was very much for-profit. The right to freedom of establishment, for instance, focuses on those who are legally operating in one Member State, allowing them to carry out economic activities in a stable and continuous way in another Member State[7] or to offer and provide their services in other Member States on a temporary basis while remaining in their country of origin.[8] Yet Article 54 TFEU (ex Article 48 TEC) specifically excludes nonprofit organizations from its scope.[9] Further, the freedoms relating to workers, goods and capital do not specifically reference nonprofits. However, the ECJ’s decision in the Stauffer Foundation case in 2009 judicially confirmed that free movement of capital extended to philanthropic capital also.[10] In that decision, the ECJ held that an Italian charitable foundation’s rental income earned in Germany was protected under the free movement of capital. In giving effect to that free movement, the Court ruled that:

where a foundation recognized as having charitable status in one Member State also satisfies the requirements imposed for that purpose by the law of another Member State and where its object is to promote the very same interests of the general public, which it is a matter for the national authorities of that other State, including its courts, to determine, the authorities of that Member State cannot deny that foundation the right to equal treatment solely on the ground that it is not established in its territory.[11]

This highlighted the German corporate income tax law which discriminated between relief granted to German established charities and charities established in Member States outside of Germany (such as the Stauffer foundation) and was in conflict with EU law.

While most Member States treat domestic corporate and individual philanthropy favourably,[12] this does not occur as readily to cross-EU philanthropy. Yet, in a series of decisions following the initiation of infringement proceedings by the European Commission, the ECJ has clarified that just as with free movement of philanthropic capital, so too with the treatment of taxation, Member States cannot discriminate in their treatment of comparable charities on the basis of nationality. In Hein Persche the ECJ ruled that charitable donations (including in-kind donations) are protected under the free movement of capital.[13] In that case, a German national claimed tax relief in respect of gifts that he had made to a retirement home and a children’s home in Portugal. The gifts valued at approximately €18,000 comprised bed linen, towels, Zimmer frames, toys and similar items. German law allowed for a tax deduction for gifts made to charitable organizations established in Germany but denied a similar deduction for gifts made to bodies established and recognized as charities in other Member States. The ECJ noted that German law may reduce donors’ willingness to make philanthropic gifts to other Member States, and therefore constituted a restriction on the free movement of capital, contrary to Article 63(1) TFEU, which could not be justified. Similarly, the ECJ found a restriction in the Missionswerk case when Belgian tax legislation disallowed a reduced rate for succession duties in the case of cross-border legacies to, in this case, a German charity.[14] Moreover, the ECJ reiterated that preventing the reduction of tax revenues is neither among the objectives stated in Article 65 TFEU nor an overriding reason in the public interest capable of justifying a restriction on a freedom instituted by the Treaty.[15] That is, tax-effective philanthropy should be enabled.

Throughout these decisions, the ECJ has been careful not to deny the sovereignty of Member States when it comes to taxing decisions but simultaneously, it has required such Member States to apply a comparability test before they decline to grant tax exemption to European charities not established in the Member State in question. As the Court stated in Staatssecretaris van Economische Zaken and another v Q, it was:

…necessary that the difference in treatment relate to situations which were not objectively comparable, such comparability being required to be assessed on the basis of the object and content of the national provisions at issue.[16]

Similarly, in Commission v Austria, the ECJ found that Austria had failed to fulfil its obligations under the free movement of capital by limiting deductibility of gifts to research and teaching institutes to those established in Austria.[17] It further confirmed that:

In order to be justified, moreover, the difference in treatment must not go beyond what is necessary to attain the objective of the legislation in question.[18]

While typically countries seek to allow tax incentives only to charities under home country control (Buijze 2017), the ECJ confirmed that the place of establishment of the gift recipient, by definition, could not be a valid criterion for assessing the objective comparability of the situations or, consequently, for establishing an objective difference between them.[19] In addition, in Commission v Austria the ECJ reiterated the view that it is a step too far for a Member State to deny outright a tax deduction or exemption on the ground that it cannot exercise effective fiscal supervision over a recipient institution in another Member State.[20] Thus, in the words of Stewart (2014, 250), the ECJ has ‘reframed the boundaries of charity and the market across national borders within the EU, by applying the logic of the “single market” of the EU.’

To date, this ‘reframing of the boundaries of charity and the market’ has required Member States to develop a comparability test or a comparability process by which they can adjudicate fairly on whether the foreign charity in question is comparable to their domestic charities and thus deserving of similar tax treatment. Thus, the supra-national EU and its ECJ contest the legal requirements in the regulatory space with Member State national regulators and those who interpret and apply national tax law.

3.2 Work of the Peak Bodies to ‘Harmonize’ Structures

When it comes to availing of charitable tax deductions in various Member States, a lack of institutional clarity and transparency regarding taxation processes can leave individual foreign charities feeling that national tax authorities treat their applications on a case-by-case basis without any insight into the timeline for determination, the likely cost or the administrative effort required to satisfy the tax authority’s conditions. Given these obstacles, some charities query whether it is worthwhile to attempt to recover taxes owed to them even when the refund would be sizeable (Breen 2020b; TGE & EFC 2017).

Concerted efforts have been made to make headway on dismantling other barriers to free movement, in particular the call ‘for a supranational legal form for public benefit foundations to enable them to operate seamlessly throughout the European Union’ (Breen 2014, 7). Nevertheless, Breen (2018) notes that over more than three decades numerous unsuccessful attempts have been made to facilitate cross-border philanthropy. The most recently failed attempt concerns work by the European Foundation Centre (EFC 2001) which proposed a wide definition of ‘philanthropic foundation’ across Member States and lobbied for the introduction of that supranational legal form. This led to a Commission proposal for a Council Regulation on the Statute for a European Foundation (‘FE’) COM(2012) 33 final, seeking to facilitate civil law foundations and also common law charities that make grants (regardless of their legal form) (Breen 2014). To enable inter-state cooperation, Article 45 envisaged that each Member State would have a supervisory authority and in Article 22, a national registry, these elements ensuring an FE was acting for the public benefit. However, the fragmented regulatory space beset with a host of different Member State regulators (and none), differing national definitions of philanthropy, different taxation rules, not to mention different legal approaches between civil and common law regimes, ultimately stymied the success of the proposed Regulation, and in 2015 the Commission withdrew the proposal (Breen 2018). Buijze (2017, 96) argues ‘The biggest problem with the FE, however, was …that it required Member States to trust each other’s supervising authorities’. The Donors and Foundations Networks in Europe (DAFNE) and EFC commissioned a report on a way forward (Breen 2018). Its findings informed a new European Philanthropy Manifesto (DAFNE & EFC 2019) which continues to call for a single market for philanthropy, although Harrow and Jung (2019) suggest that, by including the need for a supranational foundation form as one of their aims, their call may not lead to resolution of the issue.

In the next section, we distil the impact of tax regulation on the free movement of philanthropic capital, through the analysis of four case studies, examined through the lens of a non-profit regulatory space.

4 European Case Studies

Our four case studies detail different approaches aimed at facilitating tax-effective and tax compliant cross-border philanthropic donations. The first considers the work of the Transnational Giving Europe (‘TGE’) network which operates in 18 of the EU’s 27 Member States and in the UK. As a self-regulatory mechanism, it depends on voluntary jurisdictional take-up. The second and third case studies detail emerging challenges to free movement of philanthropic capital where full adoption of the TGE approach is unnecessary under current interpretations of tax law (in the case of The Netherlands) or must be abandoned (in the case of Ireland). The final case study highlights the efforts of the Luxembourg tax authorities to develop a seamless comparability test to facilitate cross-border philanthropy, and which may provide a balance within the regulatory space, enabling a way forward.

4.1 Transnational Giving Europe (TGE) Network

Founded in 1998 and with partner foundations in 19 European countries, the TGE network addresses the lack of European fiscal harmonization, which restricts cross-border philanthropy. TGE enables corporate and individual donors, resident in a participating partner country, to financially support nonprofit donees in other partner countries, while benefiting directly from the tax advantages provided in the legislation of their country of residence. In 2019 alone, the TGE network of intermediary ‘charities’ facilitated the transfer of €13.8 m in the form of 442 corporate donations and 6630 individual donations across 21 countries (TGE 2020, p. 5). Three TGE countries donated more than €2 m in cross-border philanthropy (namely, Belgium, France and Germany) while the countries receiving the most benefit in terms of incoming TGE donations in 2019 were Belgium, France, the UK, and Switzerland (TGE 2020).

The TGE system works in the following way: participating countries are represented by a partner organization, which is typically a nonprofit enjoying charitable tax-exempt status in its resident country.[21] The partner philanthropic institution acts as the first point of contact both for resident corporate and individual donors who wish to engage in cross-border philanthropy and resident philanthropic nonprofits that wish to encourage or receive donations from foreign based donors. A prospective donor to a foreign charity contacts its home TGE partner in country A in the first instance. The TGE partner contacts its foreign counterpart in country B to initiate the transfer. If the intended beneficiary has not previously received donations under the TGE network, it completes a TGE Grant Eligibility Application Form and returns it to its country B national TGE partner for approval. This due diligence on the part of the TGE ensures that the beneficiary meets the relevant nonprofit test under national law and is compliant with any necessary tax laws, regarding registration and filing requirements. The corporate or individual donor in country A transfers its donation to the country A TGE national partner’s bank account (a national transaction) which then provides the donor with a fiscal receipt for national tax deductibility. The TGE network then transfers the gift (minus a 5% administrative commission) to the TGE partner in the recipient country (an international transaction) which relays it to the final nonprofit beneficiary. This network mechanism works particularly well for educational institutes whose alumni donors are often scattered across many countries. In 2019, the most popular beneficiary sector remained education (30% of total TGE network donations, worth €4.1 million); heritage and culture ranked second (26%), followed by social matters at 13% (TGE 2020).

The TGE network was intended to be a temporary solution to the lack of fiscal harmonization within the EU. With the emergence of ECJ jurisprudence (see Section 3.1 above) clarifying the law on free movement of philanthropic capital and the need for Member States to develop comparability tests when applying fiscal rules to cross-border philanthropic donations, TGE should no longer be necessary, but more than 10 years after the ECJ’s decision in Stauffer, the TGE is still in demand. If anything, new obstacles to effective cross-border philanthropy are emerging and well-known chronic problems have yet to be satisfactorily resolved. In a small data survey conducted by the EFC amongst seven of its members (all with total assets of at least €500 million) in 2016, the responses revealed philanthropic institutions’ difficulties in claiming the tax incentives to which they were entitled under European law. Examples spanned investments in 16 countries and 67 individual claims. Of these claims, 35 had been successful, while 26 were still pending and six were unsuccessful (TGE & EFC 2017). One scenario related to a Dutch philanthropic organization seeking to reclaim tax on German investments:

In January 2017, the Dutch Fonds 1818 received a negative decision by the German Federal Tax Authority for a 2010 tax refund claim that they submitted for the tax paid on investments in Germany. Several tax experts consider this German tax practice to be against the EU non-discrimination principle. When asked if he was considering opposing this negative decision, the foundation’s director, Boudewijn de Blij, said: ‘I am not sure I am willing to battle this: we stand to gain €187,000 and we already spend half of that on tax lawyers. So if I have to spend another big bill, Fonds 1818 will end up break-even, if we succeed. At some point we have to cut our losses!’ (TGE & EFC 2017, p. 6).

Three TGE partner countries are not fully participating members as Portugal, Ireland and the Netherlands do not facilitate outgoing donations to other TGE partners through the TGE network - the Portuguese partner is in the process of achieving full approval of the Portuguese fiscal authorities to channel donations from Portuguese donors to foreign beneficiaries;[22] a step achieved by the Polish partner in 2020, allowing it to act on a fully reciprocal basis.[23] In the cases of the Netherlands and Ireland, both countries require foreign beneficiaries to register in their national systems with (in the case of the Netherlands), the Dutch Tax Authority and (in Ireland), the Charities Regulatory Authority and the Irish Revenue Commissioners. The rationale for these requirements bears consideration.

4.2 The Netherlands

In 2016, the Dutch Supreme Court held that conduit organisations facilitating Dutch donors to make tax effective gifts were not entitled to ABNI status (or ‘Algemeen Nut Beogende Instelling’ which translates as ‘Public Benefit Organization’), thus restricting donor use of intermediary organizations (including the Dutch TGE partner) for tax deduction purposes.[24] It follows that a foreign beneficiary seeking to receive tax effective gifts from Dutch donors must now register directly itself as an ABNI with the Dutch tax authority (Silver and Buijze 2020). The ANBI does not have Dutch legal personality, nor does it need registered offices in the Netherlands or in the EU. However, ANBIs benefit from several tax advantages: for instance, an ANBI does not pay Dutch inheritance tax or gift tax on inheritances. Neither does an ANBI pay Dutch gift tax on gifts that the organization awards to the public benefit. Natural and legal persons who donate to an ANBI can deduct their gifts from their Dutch income tax or corporate income tax. While Silver and Buijze (2020, 149) classify the Dutch approach to cross-border giving as ‘optimal in an era of philanthropic globalisation’, this statement holds true only so long as the reporting requirements for foreign charities registered as ABNIs remains as minimal as is currently the case. Given that these foreign bodies will (in many cases) be subject to charity regulation in their home Member States and may not be carrying on charitable activities in the Netherlands other than receiving charitable donations, the need to minimize imposition of additional regulatory burden on these entities is critical to the workability of the regime.

4.3 Ireland

The rationale provided by TGE for Ireland’s cessation as a fully reciprocal partner reads:

Due to legal and fiscal circumstances, the Community Foundation for Ireland will only operate as receiving partner, guaranteeing due diligence for Irish beneficiaries. Outgoing donations from Ireland will not be transferred through TGE. Foreign beneficiaries with Irish donors must register for (sic) Irish Charity Regulatory Authority and deal directly with their donations.[25]

In contrast to the Dutch system, registration with the Irish Charities Regulatory Authority (CRA) carries substantial compliance obligations for foreign based charities in addition to registration with the Irish Revenue Commissioners to facilitate tax effective giving by Irish donors to these organizations. For this reason, Ireland is now examined as a second case study.

Ireland joined the TGE network in July 2006 when the Community Foundation Ireland (‘CFI’) became a TGE partner. From 2006 up until 2018, the CFI was a fully reciprocal partner, facilitating Irish donors to make charitable donations to foreign nonprofits within the TGE network and equally receiving donations from corporate and individual foreign donors intended for charities located in Ireland. In its 2016 Annual Report, the CFI listed 10 foreign foundations that had benefitted through its participation in the TGE fund to a total value of €158,101 (CFI 2017). These included several academic institutions (the College of Europe, Bruges and colleges at both Oxford and Cambridge) along with several European charitable foundations. The value of the transferred funds in 2017 was referenced at €16,906 to five foreign institutions (CFI 2018), a figure more in line with value of transferred funds through the network in 2015, which stood at €13,092 (CFI 2016) and in 2018 (which stood at €11,779, CFI 2019). As already noted, in 2018, CFI announced that due to legal and fiscal circumstances, it would operate as receiving partner only, guaranteeing due diligence for Irish beneficiaries on incoming donations and no longer transfer outgoing donations through the TGE. The CFI states that foreign beneficiaries with Irish donors now must achieve DCHY status (Revenue’s tax determination for approved non-resident charities from EEA or EFTA states), following registration with the Irish Charities Regulatory Authority and thus be able to deal directly with their donations.

This move to allowing tax incentives only to charities under ‘home country control’ (Buijze 2017) brings about administrative difficulties for European philanthropic nonprofits that receive funds from corporate and individual Irish donors. Here we take the hypothetical case of an Irish corporate donor wishing to donate to a French philanthropic foundation in a tax efficient manner. Previously, they could donate through the CFI (a registered charity under Irish law) and be entitled to a corporate tax deduction. CFI would then transfer the donation to the French TGE partner (the Fondation de France) which would in turn transfer the donation to the intended nonprofit beneficiary in France once all due diligence and paperwork was complete. With the CFI no longer facilitating outbound philanthropic gifts, a corporate Irish donor has two choices: it can forgo the tax deduction, or it can encourage the French beneficiary to register for DCHY status so that the tax benefits can flow in the same fashion as they would to a domestic charity. So how does this work and what are the implications of such registration?

With an eye to the European law requirements discussed above, s.39 of the Irish Charities Act provides for the registration of non-Irish established EEA charities where those charities actively undertake activities or fundraise within Ireland.[26] The Irish Finance Act 2010, s.24 introduced a taxation regime that allows non-resident charities to apply for a determination (known as ‘DCHY status’) under Sections 208A and 208B of the Taxes Consolidation Act 1997 (‘TCA 1997’). It is categorised as a determination, rather than an exemption, on the basis that a non-resident charity will not have a tax liability in Ireland, save in respect of Irish source income, on account of its non-resident status. A successful application to Revenue for the DCHY regime results in the overseas charity obtaining a determination that if the body were to have income in the State of a kind from which domestic charities are exempt, then it would qualify for those exemptions. In effect, this levels the playing field in terms of the tax treatment on fundraising income as between domestic and overseas charities. To be eligible to apply for DCHY status, a body must:-

  1. Be legally established in an EEA State or in an EFTA State and have its centre of management or control therein;

  2. Have a minimum of three directors/officers/trustees, the majority of whom must be resident within the EEA or EFTA State and the organization must have a permanent establishment and some operations therein;

  3. Ensure that its objects and powers are so framed that every object to which its income or property can be applied is charitable, as defined for Irish law purposes; and

  4. Be bound, as to its main object(s) and the application of its income or property, by its governing instrument.[27]

A foreign body which is issued with a Notice of Determination will be given a charity reference number (‘DCHY’) and then must satisfy a series of specific conditions. These include account filing obligations, a prohibition on alterations to its governing instrument without the Revenue Commissioner’s prior approval and specific restrictions upon its winding up or dissolution. Up to this point, the approach in Ireland resembles that of the Netherlands in terms of recognition of non-resident charities.

However, an additional twist occurs in practice, according to the CFI, since a non-resident charity is ‘obliged’ to contact the Irish Charities Regulatory Authority (CRA) to register with it before applying to Revenue for a DCHY number. As noted, registration with the CRA brings ongoing annual reporting requirements and a suite of compliance obligations in relation to governance. The upshot is that the regulatory burden imposed on the foreign charity is often far more that might have been anticipated in order to facilitate the giving of perhaps a once-off unsolicited gift from a corporate or individual donor. Since its introduction in 2010, only 11 charities have successfully applied for DCHY status.[28] Further scrutiny of these 11 reveals that while the vast majority are registered with the CRA, three charities on this list enjoy DCHY status without such apparent charity registration.[29] Neither the CRA nor Revenue offer any explanation for this anomaly.

It follows that an Irish corporate donor wishing to benefit a French charity is no longer afforded the TGE’s conduit service for outgoing tax effective donations in Ireland, nor can the French beneficiary so easily remedy the matter as it would in the Netherlands by registering as an ABNI. Rather, it must engage with two regulators – the Irish CRA and the Irish Revenue Commissioners – and meet their ongoing requirements as a registered Irish charity with DCHY status. The requirement for such registration to access tax effective giving applies even if the foreign beneficiary is subject to equivalent regulation in its home Member State. What then explains the Irish position? It appears that the main driver is the fear that acting as a fully reciprocal TGE partner would lead to the CFI facilitating tax avoidance under Irish law. According to s 811(2) of the Irish Taxes Consolidation Act 1997, a transaction shall be a ‘tax avoidance transaction’ if having regard to any one or more of the following:

(a) the results of the transaction; (b) its use as a means of achieving those results; and (c) any other means by which the results or any part of the results could have been achieved, the Revenue Commissioners form the opinion that—(i) the transaction gives rise to, or but for this section would give rise to, a tax advantage, and (ii) the transaction was not undertaken or arranged primarily for purposes other than to give rise to a tax advantage…

Breen and Smith (2019, 544) have argued that the primary motivation in using an international network, such as the TGE, to make a charitable donation is to ensure that donating is both administratively convenient and maximizes the charitable receipts of the donee nonprofit. When an individual Irish donor gives to a registered Irish charity the tax paid on the gifted income is grossed-up by Revenue and can be claimed by the recipient charity (once it meets Revenue’s requirements). Equally, Irish corporate donors can write off Irish charitable donations as trading expenses. Ireland’s withdrawal from the TGE network denies (in the case of the individual donation) the overseas beneficiary the opportunity to recoup tax paid, while also denying an Irish corporate donor the possibility of writing off donations to EEA based charities as trading expenses unless in either instance the foreign charity successfully registers with both the CRA and the Irish Revenue Commissioners. While the latter registration would not be too burdensome, registration with the CRA would result in ongoing annual compliance and filing requirements under Irish charity law, the burdens of which would far outweigh the benefits of a once-off (and often unsolicited) charitable donation.

Arguably, where there is a tax advantage to using an international network to facilitate a charitable donation, that advantage is subsidiary to the primary philanthropic motivation of the gift and should thus fall outside the provisions of s.811(2) of the Taxes Consolidation Act 1997 (Breen and Smith 2019, 545). To date, the Revenue Commissioners have not ruled formally, nor issued any practice statement to the effect that s 811(2) should be applied to what is fundamentally a non-commercial transaction so as to deprive an overseas charity of funds to which it would be entitled if it were established in Ireland or if the donation were made to an Irish charity and applied by that charity to the same object.

Moreover, if Revenue were to find that the use of an international network such as the TGE amounted to tax avoidance under Irish law, such a finding would face three major objections (Breen and Smith 2019, 545). First, it would be contrary to EU principles regarding free movement of charitable donations (as delineated by the ECJ in Hein Persche and related cases discussed above).[30] Secondly, it would be contrary to Irish charity law principles regarding the charitable nature of overseas activity (where the activity would be charitable in Ireland); and thirdly, it would be contrary to Irish public policy regarding the promotion of overseas charitable activity, as evidenced by the support through Irish Aid of various development charities (Government of Ireland 2019). We argue that this fear of tax avoidance is an application of for-profit principles to the movement of philanthropic capital, a topic to which we will return in Section 5 below.

4.4 Luxembourg

Our final case study is the Luxembourg example of best practice when it comes to tax comparability tests for cross-border philanthropy. Considered a model within the EU for its pragmatic fiscal approach to foundations based in other Member States, Luxembourg requires a donor declaration that the recipient nonprofit meets the requirement of Luxembourg tax law (Breen 2018, 48). The intended EU/EEA-based recipient nonprofit must be recognized by its state of residence as a public benefit body being entitled to receive tax-deductible donations from residents of its state and also being exempt from income and wealth tax (TGE and EFC 2017, 16). When receiving donations from within the EU, Luxembourg requires the recipient public benefit nonprofit certifies to four requirements. These relate to:

  1. the legal establishment of the recipient;

  2. that it directly and exclusively pursues one or more of the following nine purposes: Art, Education, Philanthropy, Worship/Religion, Science, Social issues, Sports, Tourism or Development cooperation;

  3. that under the laws of the state of establishment, these selfless aims are recognized as being of general interest and fiscally favoured; and

  4. the recipient is exempt from income and wealth tax in its country of establishment for the year of the received donation and that such donations are fiscally deductible by the corporate or individual donor/s in their own country.

While Luxembourg’s tax authorities may proceed on the basis of the certificate, they reserve the right to request additional translated documents from the donee nonprofit such as a financial report or the statutes of the foundation in question. Further, notwithstanding this fully tax effective regime, Luxembourg remains a fully participating partner in the TGE network, where it is represented by Fondation de Luxembourg.

We argue there are two benefits of Luxembourg’s ‘best practice’. The first is that they have continued to allow the self-regulatory system of the TGE to operate, limiting regulatory costs (especially for longstanding arrangements for philanthropic capital flows) and recognizing the TGE as an important participant in the regulatory space. The second, more important step forward is that Luxembourg has integrated philanthropic capital movements within their national system, effectively aligning the nonprofit and for-profit regimes. Thus, arguably Luxembourg have given effect to the recent recommendations of the OECD’s study on tax and philanthropy (2020, p. 138).[31]

5 The Theory of Regulatory Space and its Application to Free Movement of Philanthropy

[I]ncreasingly, philanthropic organisations and donors work across borders and in collaboration with partners but they are challenged by various legal, administrative and fiscal barriers… There are fiscal and administrative barriers hampering the work, especially for cross-border philanthropy, since the tax non-discrimination principle is not yet implemented equally and in a meaningful way by the Member States to cross-border philanthropy (EESC 2019, 4.2).

In so stating, the European Economic and Social Committee (EESC 2019) called on Member States to establish an enabling environment for corporate and individual philanthropy and, by ensuring the legal and practical application of the fundamental free movement of capital coupled with the non-discrimination principle, to facilitate cross-border philanthropic activity. It argued European ‘foundations’ (philanthropic charities or nonprofit institutions) could expect to receive inter alia, exemption from taxation on income (specifically surpluses), reduced state and local taxes, preferential access to government and philanthropic funds. Further, corporate and individual donors would also receive taxation concessions. With Member State control of tax incentives, the theory of philanthropic free movement has yet to become a lived reality within the EU. Our case studies in the preceding section show the uneven treatment by Member States of cross-border philanthropy under national tax laws and hinted at possible rationales for this unevenness. Institutional awareness of the value of philanthropy coupled with both EU policy statements and EU judicial decisions reinforcing the rights of philanthropists (not to mention much lobbying and advocacy by European philanthropy networks) have not been sufficient to overcome the hidden regulatory icebergs that hamper realization of the benefits of both free movement of capital and the application of non-discriminatory tax principles in the cross-border philanthropic space. In this section, we return to theory to explore whether we can better understand the regulatory space in which the taxation of nonprofits occurs to identify workable solutions in aid of more tax-effective philanthropic activity.

5.1 The Concept of Regulatory Space

It is here that we turn to the theoretical concept of regulatory space. As an analytical construct, regulatory space recognises (regulatory) boundaries within which normative models are applied to existing sets of activities (Nicholls 2010), organizational power struggles, and the exclusion and inclusion of certain organizations, transactions or ideologies. This space is occupied, but unevenly subdivided and therefore contested (Breen 2020). Hence, we must understand the nature of this shared space in its particular political, legal and cultural settings, as these give rise to values that will favour certain arrangements and not others (Hancher and Moran 1998).

In giving life to this theory in 1998, Hancher and Moran argue that economic regulation is dominated by relationships between large, complex, private and public sector organizations. Regulation thus requires high levels of negotiation due to contradictory objectives and for states to acknowledge interdependence in these relationships. Hancher and Moran (1998) further note that interventionist states can trump strong private sector actors through the rule of law, and by imposing sovereign public authority. They state that these interdependencies supersede the notion of regulatory capture and instead, occur within a ‘regulatory space’. In the words of Hancher and Moran (1998, p. 166):

One advantage of approaching the subject of interdependence through the concept of regulatory space is that it alerts us to the problem of defining the character of the social relations between the occupants of that space. The notion of regulatory space focuses attention not only on who the actors involved in regulation are but on structural factors which facilitate the emergence and development of networks and which contribute to the institutionalization of linkages.

An example of one scenario giving rise to contested regulatory spaces centres on the different approaches of common law and civil law countries to certain matters of law – illustrated by our different understandings of ‘foundations’ for instance. Another example is the favouritism of some political systems for self-regulation over state-imposed regulation, although the balance between these may change over time (Breen, Dunn, and Sidel 2017). Differing institutional structures within this regulatory space are a third example of a factor affecting specific regulatory spaces, for example: state versus federal governments, size and concentration of non-state organizations, interest groups and their support structures (Mayer 2016). Hancher and Moran (1998, 164) specifically note that the rise of supranational agencies, such as the European Commission, exacerbates both fragmentation of regulation and competition, as well as weakening the ‘regulatory capacity of national governments’.

The concept of regulatory space (Hancher and Moran 1998) and observed practice, highlights the crowded and fragmented regulatory space when it comes to European tax regulation, an arena in which each Member State reserves national sovereignty in matters of domestic tax but which remains subject to EU rules on non-discrimination on the grounds of nationality. Thus, actors in the form of the European Commission (with its infringement proceedings), and national and European courts (with their enforcement proceedings) can require national tax authorities to remedy breaches of European law in philanthropic tax cases but face greater difficulty in dictating to Member States how domestic tax authorities should administer comparative treatment schemes on a broader basis.

Prior research considering regulatory practice and changes in regulation have used the concept of regulatory space. For example, Canning and O’Dwyer (2013) and Hazgui and Gendron (2015) both analyse regulation emanating from a crisis, noting its realignment, and how regulation was superimposed in response to a crisis. Key actors resisted regulatory change, withheld information, and downplayed the need for change to realign (re-interpret) regulated boundaries. Hence, Hazgui and Gendron (2015, 1238) note that not only is regulatory change disruptive but that ‘[a]ctors’ position in a given regulatory space is always fragile as they continually engage in boundary work in their attempts to secure and/or expand their respective roles.’ In an EU context, we see this constant clash of boundaries between the political decisions and the national tax incentive approaches of individual Member States, the European Commission’s desire for tax harmonization more generally and the attempts by bodies such as DAFNE and the EFC (now Philea) to promote philanthropy.

A regulatory space also allows for the development of new ‘facts’, by problematizing the issues for inclusion in regulation and developing solutions that legitimize the regulator (Young 1994). Free movement of capital is one such new ‘fact’, but the solutions developed must be superimposed to a new regulatory situation of philanthropic capital which brings new participants to the pre-existing regulatory space. In MacDonald and Richardson’s (2004) analysis of the formation of the Public Accountants Council of Ontario they found that individuals and groups not previously defined as a ‘community’ were treated homogeneously. Below we suggest that nonprofit entities are being treated as homogeneous to for-profit entities when regulators consider taxation incentives on donations within a for-profit framework.

Artiach et al.’s (2016) study of charity regulation in Australia observed the new Australian Charities and Nonprofit Commission (ACNC) struggling to establish legitimacy within a disparate and conflicted regulatory space, while Breen (2020) undertook a similar study of the regulatory effects of the introduction of the Charities Regulatory Authority in Ireland. Nicholls (2010) also noted the shaping of regulatory space with the new UK framework for Community Interest Corporations. Irvine and Ryan (2013) is an international study comparing and contrasting charity financial reporting regulation across five common law jurisdictions, which recognized that regulation will be impacted by the national context, the timing of regulation and diffusion caused by globalization.

Similar to Irvine and Ryan (2013) and unlike prior literature which has observed fragmented regulatory space in one nation (for example, Artiach et al. 2016; Breen 2020; Canning and O’Dwyer 2013; Hazgui and Gendron 2015; MacDonald and Richardson 2004; Mayer 2016; Young 1994, 1995), our analysis of national tax law application to ‘foreign’ philanthropic institutions allows us to examine a supranational sphere (in the context of the European Union and intra-state relationships). Here, the diversity and consequent potential for clashes in administrative approach of awarding tax deductions and exemptions or providing fiscal incentives to non-domestic foundations is magnified, while the pressure for compromise is weaker.

Drawing on the theory of regulatory space to understand the structural factors that lead to this regulatory impasse, we can identify three factors which negatively impact the free movement of philanthropic capital in a tax effective manner. These are first, the lack of uniformity when it comes to Member State tax treatment of cross-border philanthropic capital and the propensity to deal with the tax treatment of cross-border philanthropy on a case-by-case basis (Philanthropy Advocacy 2022).[32] The case studies in Section 4 serve to illustrate this dissonance. This ‘diversity problem’ is exacerbated by the lack of clear articulation of Member State compliance procedures which, despite the clarity of the free movement principles, undermines tax-effectiveness in the philanthropic space. There currently exists no European portal providing access to the comparability tests used by each Member State when it comes to the tax compliance procedures relevant to cross-border philanthropy. The further costs of translating and notarizing documents for domestic tax authorities adds to the administrative burden borne particularly when no timelines are provided for processing requests for equal tax treatment, some of which continue for many years (as evidenced in Section 4.1 above).

A second, structural factor, concerns the limited coverage and voluntary nature of the TGE’s ‘temporary solution’ and the recent roll-back on the reciprocity which underpins the TGE initiative in some countries, which further highlights the limits of a soft-law single non-profit solution.

A third, political factor, which complicates the regulatory space for philanthropic capital movement is that traditionally, taxation policy primarily focuses on raising revenue from for-profits. Deductions or exemptions awarded as part of that process normally occur in the context of the tax authority receiving more tax than it returns. Consequently, there is a strong focus on mitigating tax evasion and avoidance. This view of taxation is somewhat at odds with the regulatory space inhabited by philanthropic institutions which generally, at a domestic level, receive greater sums in tax deductions and exemptions than are paid in tax. When we move from the sphere of domestic charity to intra-European charity, one might better understand the greater reluctance of a host tax authority to rush to refund a ‘foreign philanthropic foundation’ for its activities in the host state. The intersection of these two regulatory spaces potentially subsumes the well-intentioned objective to enable philanthropy within the more dominant and prescriptive regulatory structures aimed at the for-profit space with a view to stemming tax evasion. This is because those focused entirely on nonprofit taxation issues and developed on an enabling basis underpinned by the jurisprudence of the ECJ and EU principles clash with regulatory authorities that focus predominantly on for-profit issues and are concerned to regulate against tax evasion.

5.2 Contextualizing Philanthropic Tax Issues within the Broader Framework of Tax Regulation

The focus on tax evasion is perhaps unremarkable, given highly significant for-profit corporate activity to maximize after-tax earnings. Understanding the broader ongoing taxation debate occurring at both EU level and internationally enables us to recognize that the tax treatment of philanthropic capital is only one small jigsaw piece of a larger European taxation puzzle. For the past decade, the European Commission has attempted to introduce an EU-wide Common Consolidated Corporate Tax Base system (CCCTB) in its quest to create a fair, transparent and efficient tax system (European Commission 2011, 2016). A CCCTB regime would provide a single set of rules to calculate companies’ taxable profits in the EU, meaning that cross-border companies would only have to comply with one, single EU system for computing their taxable income, rather than many different national rulebooks. Companies would file one tax return for all their EU activities, and offset losses in one Member State against profits in another. Corporate tax rates in the EU would not be changed by the CCCTB, as EU Member States would continue to have their own corporate tax rates.

First mooted in 2011, but lacking Member State agreement (with objections from Ireland and the UK [Mahony 2015]), the Commission withdrew its original proposal and replaced it with a new CCTB proposal in 2016. Under the 2016 proposal, the Commission made application of the CCTB regime compulsory for corporations but postponed the plan for its EU-wide consolidation. The revamped proposal added new goals of fighting tax avoidance, increasing tax transparency and taxing the digital economy to the CCTB regime (European Commission 2016). While Member States resisted the Commission’s pleas for full EU tax harmonization (de Wilde 2017), they were less able to prevent increased tax transparency requirements which inform many of the EU’s more recent tax legislation introduced in the aftermath of the financial crisis (European Commission 2019, 5–6). In terms of philanthropic treatment, Article 9(4) of the 2016 proposal provided that Member States could provide for the deduction of gifts and donations to charitable bodies. The proposal left ‘charitable bodies’ undefined, thereby ensuring that the divergent treatment of Member States of tax deductions for philanthropic cross-border transfers would continue under any future CCTB. This has prompted Hemmels to note that the CCTB would ‘not lead to a level playing field for businesses providing donations to philanthropic activities’ (Hemmels 2021, 471).

Recently, the Commission replaced its CCTB proposal with a new framework (Business in Europe: Framework for Income Taxation or BEFIT) (European Commission 2021a). Like its predecessor, BEFIT promises to introduce a single corporate tax rulebook for the EU, based on the key features of a common tax base and provide a simpler and fairer way to allocate taxing rights between Member States, while simultaneously reducing red tape and cutting compliance costs in the Single Market, thereby lessening the administrative burden on tax authorities and taxpayers. Concerned about the acceleration of digitalisation and cross-border transactions it warns of the outdated reliance on tax residence and the ‘patchwork of anti-tax avoidance and evasion measures’ (European Commission 2021a, 1), while acknowledging that Member States are best placed to judge their societal needs. The BEFIT proposal is expected to replace the CCTB proposal in 2023 and we must await its release to examine its treatment of philanthropic transfers, as the initial document focuses on the business taxation ‘agenda’ including tax avoidance.

Allied to the Commission’s goals at EU level and further informing the shift from the CCTB proposal to the BEFIT proposal have been the OECD and G20 moves towards eradicating tax avoidance strategies in the ‘Base Erosion and Profit Shifting Project’ (BEPS), with 135 countries collaborating to end tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax (OECD and G20 2019). Under BEPS, participating countries are striving to implement 15 measures to tackle tax avoidance, to improve the coherence of international tax rules and to ensure a more transparent tax environment. The combined effect of both the EU’s own efforts and the OECD/G20 BEPS efforts has been a new focus on tax transparency not just at EU level but also at international and national levels.

Thus, several cross-competing elements play into the EU tax regulatory space: while direct taxation falls within the exclusive competence of the EU’s Member States, they must exercise that competence consistently with EU law. Since EU Member States compete fiercely with each other in the field of tax rates, the EU has the challenging task of finding common, yet flexible, solutions at EU level, which are consistent with the OECD/G20 BEPS minimum standards and recommendations, while simultaneously paying specific attention to compliance with EU treaty freedoms and competences (Piantavigna 2017). Although these policy initiatives develop in the for-profit space, their effect inevitably flows into the nonprofit space. We argue that the changes against the TGE enabling (especially in Ireland, as illustrated by our case study) are likely to be driven by an overabundance of caution around tax avoidance spurred on by the CCCTB and BEPS regimes both conceived in the context of for-profit entities. Despite that, these are negatively impacting the nonprofit space; a cross-border space primarily driven by altruism in which mutual tax recognition is required and expressly encouraged by the EU itself (EESC 2019).

While tax remains a sovereign issue for European Member States and outside the control of the European Commission, apart from certain matters relating to VAT, tax regulation is subject to the over-riding requirement not to discriminate on grounds of nationality. In the previously stalled CCCTB proposals, one can observe Member States’ resistance to the deleterious effects of globalization on governments’ powers of self-determination to tax suggested by Levi-Faur (2014). Nevertheless, we would suggest that Member States must manage the shared space of interdependencies by integrating both for-profit and nonprofit actors to enable tax-effective philanthropy.

EU law requires Member States to ensure comparable treatment of nonprofit entities established in one Member State when it comes to taxation in another Member State. The notion of a universal tax exemption (Commission CCTB 2011, Article 16) was tied to the proposal for a new pan-European legal structure for public benefit foundations, which was dropped in 2013 in the face of strong Member State resistance to the automatic recognition of such foreign foundations for tax purposes under what some feared would amount to a harmonization of taxation policy (Breen 2015).[33] Such harmonization of taxation deductions across the EU would require a commitment to regulatory and monitoring compliance and likely (states Breen, 2018b) registration of certain philanthropic entities and data on them; for example, filing of financial statements and other reports, audit or other assurance practices and certain governance restrictions. In addition to the continued difficulty to resolve the structural issues of organizational form, an increased layer of regulation is the second issue that affects free movement of philanthropic capital.

Differences in the common and civil law legal systems between Member States are reflected in different regulatory frameworks in each jurisdiction, as could be expected under Hancher and Moran’s (1998) caution that a shared regulatory space is subject to particular political, legal and cultural settings and may be beset by contradictory objectives. Further, not all EU states currently have a nonprofit regulator capable of dealing with this philanthropy, and hence harmonization would require a financial commitment from each Member State if they were individually or at EU level, to establish a regulatory system (Breen 2014). Information sharing would also be an important aspect of this regulation. As it is, costs from the current lack of regulatory harmonization fall on philanthropists (Breen 2015, 2018) who fail to claim maximum taxation benefits and/or must find ‘work around’ structures, to fund projects across EU borders.[34]

Prior research has considered a single regulatory space (for example, Artiach et al. 2016; Breen 2020; Canning and O’Dwyer 2013; Hazgui and Gendron 2015; MacDonald and Richardson 2004; Mayer 2016; Young 1994, 1995), whilst recognizing that contestations arise from the complex interdependencies operating within it. In tackling the problems of free movement of philanthropic capital and realization of the principle of non-discrimination, we argue for nonprofits and donors to recognize the inter-related and broader regulatory spaces within which regulators work. These regulatory spaces extend beyond regulation of charities and donation tax policies, and must include a broader consideration of the wider field of for-profit tax treatment, which informs the nonprofit taxation space. Attention is also required to the multiple policy stakeholders in the tax arena (from OECD to EU to national) whose focus on tax equalization and prevention of tax avoidance occurs with scant consideration of facilitating philanthropy. While philanthropy peak bodies have engaged at European level (e.g. TGE, DAFNE and EFC – the latter two now Philea), further research could analyse whether other peak bodies have been missed from these regulatory space negotiations, particularly since the recent rise of CCBT and BEPS introduces new actors with whom further negotiation is required.

6 Conclusion

Notwithstanding fiscal incentives may encourage domestic giving (Duquette 2020; Phillips and Smith 2014), it is apparent that in the EU tax incentives (or concessions), combined with Member States’ differing structural arrangements relating to regulation, have resulted in regulatory drag against the free movement of philanthropic capital. This likely results in fiscal incentives not being effectively used. While warning of contestations, Hancher and Moran (1998) argue that navigating a crowded regulatory space requires recognition of interdependency and working through structural issues to enable better networks of regulatees and regulators. The geographic dispersal of philanthropists across EU Member States and the relative small size of peak bodies such as the EFC, DAFNE and TGE (as in: Nicholls 2010) has restricted their influence, although the December 2021 merger of EFC and DAFNE to form the Philanthropy Europe Association (Philea) may better consolidate their future influence in the regulatory space. Nevertheless, nonprofits and donors also have strong interests in the free movement of regulatory capital. It is likely they are being treated homogeneously as in MacDonald and Richardson (2004). As noted by Hazgui and Gendron (2015), these actors must engage in ‘boundary work’, seeking further coalitions to lobby for change, even with those from the for-profit space. This is especially the case as no crisis has occurred, nor has new regulation been enacted, both scenarios which would sharpen the attention of regulatory authorities to the issue (as with Canning and O’Dwyer 2013, Hazgui and Gendron 2015). Rather, new spaces of freedom have opened enshrining non-discrimination, but the structures and tools are focused on tax evasion rather than tax incentives and concessions for generosity.

Applying regulatory space theory to the issues of cross border taxation of philanthropy in the EU, we find that contrary to Sumarwan, Luke, and Craig (2021) for whom self-regulation eased tensions in the regulatory space for credit unions, the self-regulation efforts of the TGE in the cross-border taxation space have not enjoyed universal success. This is due to the competing hierarchical regulatory concerns of the OECD (via BEPS) and the European Commission (via CCTB) where, in the context of for-profit taxation, authorities focus predominantly on preempting tax evasion and facilitating tax payments, rather than enabling fiscal stimuli to philanthropy. Young (1994) would argue this is a case of new problematizations of the taxation base. We argue these are barriers to harm the free movement of philanthropic capital and find contrasting actions by regulators, disparate national policies and the dominance of tax evasion concerns negatively affect the free movement of philanthropic capital within the EU.

We have drawn on insightful literature relevant to our research question, but it would be helpful for further research to build on our four case studies to demonstrate additional issues both in the EU and in other countries. There may be structures that exist elsewhere to assist the EU in resolving this situation. In addition, whether a supra-regulator could be established and have legitimacy (Artiach et al. 2016) is a matter for further discussion. Further, we have concentrated most of our discussion on the tax-effectiveness of corporate and individual donations, but, as noted previously, philanthropists may also seek to diversify an investment portfolio through investing for return in another Member State. The nuances of the issues here require further work. It is possible that there is a self-regulatory nonprofit solution to allow certain donations free movement and non-discrimination on the grounds of nationality, but our case studies show that the current, temporary situation is untenable in the long term. Some of the current ‘best practice models’ at national level (such as the much-lauded Dutch example) work only due to the absence of a regulatory layer (namely a charity regulator) found in other jurisdictions. Appreciation of the nuanced nature of this regulatory success is necessary if such success is to be replicated elsewhere. The application of regulatory space theory thus serves an important end in this quest for better understanding.

Previously it was argued that enabling tax-effective philanthropy required the introduction of a common public benefit definition (EFC & TGE 2017), but cultural and legal differences between common law and civil law countries have stymied this. We argue that negotiations within this regulatory space must recognise the authorities’ concerns about for-profit tax evasion and taxation transparency in addition to balancing the nonprofit sector and donors’ rights to free movement of philanthropic capital. It is only by bringing these opposite stakeholders to the same table that political and regulatory headway can be made.

To move from regulatory authorities merely recognising their obligations not to discriminate against the free movement of capital (be it philanthropic or otherwise) to a position of actively facilitating such transfers requires a much deeper understanding of non-profit capital flows in the for-profit taxation policy discussions, making the forthcoming negotiations of the EU’s BEFIT proposal an important opportunity. Aside from BEFIT, greater clarity regarding the administrative taxation procedure to be followed in each country (supported by the work of Philanthropy Advocacy (2022)) is urgently needed. Further, in the absence of fiscal harmonization, each jurisdiction should identify a designated tax official well-versed in dealing with foreign charities who could develop over time a reservoir of know-how and knowledge to assist donors and charities seeking to navigate the straits of comparability (Breen 2018a). It is hoped that progress will be made in this area in the policy window that has recently opened with the publication of the European Commission’s response to the European Parliament’s for its resolution with recommendations to the Commission on a statute for European cross-border associations and non-profit organizations.[35] The Commission committed to publishing guidance clarifying the existing rules on the tax treatment of cross-border public benefit donations affecting foundations and associations and the implementation of the principle of non-discrimination with Member States. This commitment is additional to broader recent Commission proposals to address issues relating to the facilitation of mutual recognition of philanthropic organizations in its Action Plan on Social Economy (European Commission 2021b) and a further promise to issue guidance on relevant taxation frameworks for social economy entities (including associations and foundations), based on available analysis and input provided by Member States’ authorities and social economy stakeholders.

Regulatory space is ‘fragile and disruptive’ (Hancher and Moran 1998); in this case we argue that the promise of free movement of philanthropic capital across Europe has been unrealized due to sensitive for-profit boundaries within the Union and multiple national regulatory spaces. This reality negatively impacts nonprofits that depend on funding for their very survival, as well as donors (Rooney et al. 2020). The artificial boundaries between for-profit and nonprofit taxation must be reinterpreted if the current regulatory drag is to be overcome.

Corresponding author: Carolyn J. Cordery, School of Accounting and Commercial Law, Wellington School of Business and Government, Victoria University of Wellington, P O Box 600, Wellington, 6140, New Zealand, E-mail:


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Received: 2021-07-27
Accepted: 2022-07-21
Published Online: 2022-08-15

© 2022 the author(s), published by De Gruyter, Berlin/Boston

This work is licensed under the Creative Commons Attribution 4.0 International License.

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