Features Opening the door to overseas charities Figures obtained by BWB suggest that HMRC continues to take a strict approach towards the recognition of European charities for UK tax relief. Bill Lewis and Lucinda Ellen question attracted criticism in its application to UK-based whether the stiff hinges on what charities, which will generally be subject to regulation by the Charity Commission or the charity regulators appeared to be a closed door policy in Scotland or Northern Ireland. Bill Lewis are easing open Consultant However, when applied to a body based outside the T: 020 7551 7689 The Finance Act 2010 UK, these tests seem reasonable. In particular, the [email protected] The Finance Act 2010 introduced a new regime for government’s desire to impose a management test can be appreciated: it is understandable that when Bill advises on all aspects charitable tax relief in the UK, allowing organisations of taxation affecting in the European Economic Area (EEA) access to the granting tax reliefs to a body that falls outside the charities, including VAT, tax reliefs available to UK charities and Community UK’s jurisdiction, HMRC would wish to be satisfied PAYE, corporation tax Amateur Sports Clubs. This was a direct response to that the body is run by appropriate people, and is and gift aid. rulings of the European Court of Justice in the cases not a vehicle for fraud. of Stauffer and Persche, which together set out the ‘non-discrimination principle’. In summary, the ‘non- In reality, any attempts by overseas charities to register discrimination principle’ is that an EU member state with HMRC have, until now, been largely unsuccessful. must give the same tax concessions on donations to The indications are that HMRC was never happy a charity based in another EU country as it would to with the new law and has been hesitant to apply it in Lucinda Ellen a domestic charity. practice, making the process of registration for overseas Paralegal charities as onerous as possible. T: 020 7551 7608 [email protected] The ECJ decided that if a donor resident in one EU country gives to a charity in another EU country, When asked in December 2013 by the parliamentary Lucinda supports the that gift should be eligible for tax relief, provided the Public Accounts Committee about gift aid given in Charity and Social recipient charity would be classed as a charity under respect of donations to offshore charities, David Enterprise team with all local laws in the donor’s country. So a UK taxpayer Richardson, director of HMRC’S Counter-Avoidance aspects of their work. In who makes a donation to a French charity is entitled Directorate, stated that no relief had been given to particular Lucinda has offshore charities. He said that 103 applications had experience in assisting to UK relief on the gift, provided certain conditions been made by offshore organisations to HMRC for with the formation of are met. new charities, completing recognition as charities, only nine of which had been company incorporations The framework introduced in the 2010 Act means that accepted, and so far none of them had made a gift and providing general in order to qualify for UK tax reliefs, an organisation, aid claim. company law advice. whether based in the UK or in the EEA, must satisfy four requirements. These are: Indeed, according to the July 2014 report made by the European Foundation Centre and Transnational 1. a charitable purpose test: the organisation must be Giving Europe (TGE), people and institutions that established for charitable purposes (as defined in make donations across European Union borders are the Charities Act 2011); still finding it difficult, if not impossible, to get the 2. a jurisdiction test: the organisation must be subject tax reliefs they are legally entitled to. Consequently to the jurisdiction of a UK court, or a court in the a number of donors instead give to TGE members EEA; in their own country who then donate to a TGE member in the destination country who in turn passes 3. a registration test: the organisation must comply the donation on to the donor’s original cause. This with any local obligation to be registered with an enables the donor to obtain tax relief, but does mean appropriate regulator; and that the value of the donation is reduced by the cost 4. a management test: the organisation must be run of the management fees for making these payments. by ‘managers’ who are ‘fit and proper persons’. New statistics recently revealed by HMRC indicate The so-called ‘fit and proper persons’ test has that if the door is opening for non-UK charities, it 20 Charity and Social Enterprise Update | Summer 2015 Features “People and institutions that make In reality it is still probably both safer and easier for donations across European Union EEA organisations to set up a UK charity to receive donations from UK supporters, or to route UK borders are still finding it difficult, donations via a grant-making charity such as Charities if not impossible, to get the tax Aid Foundation. Registering EEA charities with HMRC reliefs they are legally entitled to” continues to be a slow and lengthy business. In order for the door to open more smoothly there needs to be is doing so very slowly and with some loud creaks. some liberal sousing of the hinges by a Treasury- or Following a Freedom of Information request made by minister-wielded oil can. BWB, HMRC has disclosed that 142 organisations not within UK jurisdiction have now applied to HMRC for recognition as charities under the provisions of Find out more the Finance Act 2010. Of these, only 11 have been The July 2014 report from the European successfully recognised. To date, fewer than five of Foundation Centre and Transnational Giving these 11 charities have made gift aid claims and Europe is available at www.transnationalgiving. HMRC has not disclosed whether any of these claims eu/tge/default.aspx?id=219948&langtype=1033 have been successful. Charity and Social Enterprise Update | Summer 2015 21.