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Charities likely to gain from two European decisions

Finance | Lucy Harvey | 22 Oct 2008

Two judgments have been made in the European Court of Justice (ECJ) which are likely to benefit cross-border charities and sports groups.

The first increases the likelihood that cross-border EU charitable donations may become tax-deductible, and the second allows sports clubs and associations to claim back at least three years’ VAT charges on subscriptions.

Currently, UK law only allows donations made to a UK charity to benefit from tax relief and many other European states take a similar stance.

But following a recent case involving a German man, Hein Persche, who successfully claimed a tax deduction for a donation-in-kind valued at approximately 18,180 euros to a Portuguese nursing home, the Advocate-General has suggested that the current stance is contrary to the principles of free movement of capital.

A judgment from the ECJ is required for this view to become binding but it is highly unusual for the ECJ to deviate from an Advocate-General’s opinion.

‘Significant’ opinion

Clive Cutbill, head of international philanthropy at law firm Withers LLP, said: “This is a very significant opinion which could have ramifications for charities, donors and tax authorities across the EU.

“For charities this is a double-edged sword. If the court follows the Advocate-General’s opinion it will open up a much broader range of potential donors for charities. However, it could also drastically increase competition for funds.

“Charities would also need to consider how best to attract foreign donors; and, as the burden of proof that a cross-border donation should be tax-deductible will fall on the donor, charities would need to be able to help the donors establish this.

Good news for donors

“For donors, this is unmitigated good news. It means that it is likely they will soon be able to give tax-efficiently to any charity in the EU – provided they can prove that the charity satisfies the domestic meaning of ‘charitable’.”

Cutbill added: “HMRC is likely to be less than delighted with this ruling as it means potentially more tax deductions for charitable giving, leading to a dip in tax revenue, not to mention additional compliance complications.”

Sports club affiliation fees not subject to VAT

The second ruling also affects HMRC, as the ECJ has ruled it has been wrongly making sports associations pay VAT and could now be liable to repay at least three years’ VAT on affiliation fees back to all clubs and associations.

The ruling was made in a case brought by the Canterbury Hockey Club, which claimed it should not have to pay VAT on affiliation fees to England Hockey Ltd, a non-profit-making body which promotes the sport.

The ECJ agreed that VAT was not due on fees where services provided were closely linked and essential to the sport, and where the true beneficiaries were individuals taking part in sport.

Backdated at least three years

Director of VAT at accountants PKF, Debbie Jennings, said: “The case is good news for umbrella sports associations who may no longer have to charge VAT and for sports clubs and associations who may no longer have to pay VAT on affiliation fees.

“Sports clubs who believe they may have overpaid VAT in the past can put in a claim to HMRC to recover the VAT.

“The claims for overpaid VAT might be for a substantial sum as claims can normally be made back for three years and, under special rules following an earlier case this year, might even be possible for the period between 1990 and 1996. Claims also carry interest.”

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