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EFFECT | summer 2007 European Foundation Centre | www.efc.be

Giving an overview of the varied legal

and fiscal landscapes for foundations

across the EU is the main aim of the

EFCs 2007 publication, Foundations

Legal and Fiscal Environments

Mapping the European Union of 27.

In 2002, when the EFC first publishedprofiles of foundations legal and fiscal

environments in the EU, there were 15

Member States. Given the tremendous

enlargement of the EU since 2004,

and given the changes that have

taken place in the original 15 Member

States, the EFC decided to embark on

an enlargement of its own, with the

publication of this expanded, fully

updated set of profiles covering the

Union of 27.

This publication represents, in fact,

the only mapping of its kind a setof concise, comprehensive overviews

of the legal and tax environments

affecting foundations in each of the EUs

27 Member States.

Within the diversity of legal and

fiscal rules across the EU, the profiles

show certain areas of consensus. For

example, all Member States require that

a foundations assets be devoted to a

specific purpose, and that foundations

file annual reports and financial records

with the relevant authorities. MostMember States require foundations to

register with an authority or a court, and

to have a governing board. And most

of them allow foundations to engage

in economic activities, although the

majority of these impose certain limits

on the types of such activities that can

be pursued. With regard to taxation,

all EU countries provide tax benefits

for foundations with a public benefit

purpose, while differing in how they

define public benefit. They also differ

in their tax treatment of economic

activities.

In the area of cross-border activities,

most Member States allow foundationsto engage in activities abroad without

losing tax benefits. Furthermore,

because of a series of infringement

procedures initiated by the European

Commission (against Belgium, the

UK, Poland and Ireland, so far), a few

countries have started to extend to

donors the same tax benefits for gifts

to foreign recipients within the EU as

for those to domestic recipients (see

chart p.12). The Netherlands and Poland

(the latter in response to Commission

action against it) have amended theirtax laws to enable donors to get tax

relief for cross-border donations;

Slovenia also provides tax incentives

to individual donors that give to

recipients in other EU states. The EFC

hopes that this trend will continue.

This is in line with the EFCs Model Law,

which aims to positively influence the

drafting of new foundation laws as

well as the revision of existing laws at

national level. The Model Law stipulates

equal tax treatment for domestic and

cross-border giving in the EU. It also

stipulates equal tax treatment for

locally-based and foreign public benefit

organisations.

Continuing with the tax treatment of

donors, it is interesting to note that

only one EU Member State, Slovakia,

does not provide any tax incentives for

either individual or corporate donors.

And Sweden, Finland and Malta offer

incentives only for corporate donors. But

taken as a whole, the glass is more than

half full as the EU's other countries all

have tax incentives for both individual

and corporate donors. These incentives

may soon get better in Germany, as alaw proposal is being discussed there

which would substantially increase tax

incentives for donors, from the present

5-10% to 20%. Other beneficial changes

in the tax environment for philanthropy

are also envisaged in the proposal.

The Slovak exception stems from the

fact that the countrys lawmakers

introduced a 2% designation scheme in

2004 (upgrading the original 1% system

restricted to individuals), whereby

both individuals and companies can

designate 2% of their taxes to eligible

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While you need at least 34,000 euros to start a foundation in Copenhagen, Denmark, just a short drive across

the Oresund Bridge in Malm, Sweden, there is no such fixed requirement, although your assets should beadequate to pursue your planned purpose for five years. And if you set up a foundation in Cieszyn, Poland,

you can run a business activity to generate income for it, but you cant do so if you set one up just across

the Friendship Bridge in Tein, Czech Republic. Such is the complexity that characterises the legal and tax

environments for foundations across the EU.

Foundations Legal and Fiscal

Environments Mapping the

European Union of 27,

published by the EFC, 2007

THE LEGAL AND FISCAL SCENE

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EFFECT | summer 2007

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NGOs of their choice. As a quid pro

quo, tax incentives were abolished.

Hungary, Poland, Lithuania, Italy,

Portugal and Spain also havepercentage schemes of various

kinds.

One of the topics in the new profiles

not covered in the original series is

asset management, including major

shareholding. This has become an

important issue in recent years.

The European Court of Justice has

examined whether tax benefits

for Italian foundations of banking

origin with substantial shareholding

in banks constitute unfair state aid

(the Court ruled that a foundation

cannot be considered a commercial

entity simply because it has major

shareholding in a company, unless

it directly manages the company).

Major shareholding by foundations

is quite common in several EU

countries, especially in northern

Europe where many large companies

are foundation-owned.

Most EU Member States do indeed

permit major shareholding.

However, in Germany majorshareholding is tax-exempt only if

the associated voting rights are not

exercised, hence most foundations

with such shareholding refrain

from voting. In France, a similar

situation prevails although major

shareholding is permitted and

is not considered an economic

activity. Only when a foundation

is actively involved in company

management is the shareholding

subject to corporate tax. Hence,

most foundations avoid majority

shareholding altogether, which

in any case has to be in line with a

foundations purpose.

These new country profiles are

based on a common framework with

standard sections and questions,

so comparison of specific legal

and tax provisions in different

Member States is relatively easy. The

new profiles not only cover more

countries than the 2002 version,

they have updated informationabout the original 15 countries and

provide more in-depth coverage of

various topics (as well as coverage

of some new topics), in particular

governance, asset management, and

taxation.

The profiles will serve as a tool

for comparative analysis to be

undertaken by the EFC, which will

result in comparative charts, making

quick comparisons even easier. Such

charts for the pre-enlargement 15

were published in 2004 and made

available on the EFC website. As

in the past, the profiles will be the

basis for benchmarking. The original

country profiles served as a starting

point for the drafting of common

legal principles and the EFC Model

Law for foundations, which is

reviewed periodically.

Readers interested in legal and fiscal

issues are encouraged to explore

the profiles to get a clearer picture

of the European foundation sectorthrough a better understanding of

the environment in which it operates

in particular the similarities and

differences in the ways foundations

are defined, classified, and regulated

across the new EU of 27 Member

States, and the ways they, their

donors and beneficiaries are taxed

(and given tax benefits). Of course,

the profiles are primarily a snapshot

of what is, after all, an ever-changing

landscape.

Nyegosh Dube, Miia Rossi and

Hanna Surmatz, EFC

To download the country profiles, or

to order a free hard copy of the full

publication, go to: www.efc.be/4911

THE LEGAL AND FISCAL SCENE

Tax treatment of foreign donations by EU country

Country Are donations to foreigncharities tax-deductible?

Austria No

Belgium No

Bulgaria No

Cyprus No, but some exceptions

Czech Republic No

Denmark No

Estonia No

Finland No

France No, with the exception that if the activities of the foreign-based organisation would be

UHFRJQLVHGDVEHLQJRIEHQHWto the French public

Germany No

Greece No, but some exceptions

Hungary No

Ireland No, but some exceptions in theHOGRIHGXFDWLRQ

Italy No, but some exceptions

Latvia No

Lithuania No

Luxembourg No

Malta No

Netherlands Yes, as long as the recipientis recognised as charitable(implementing rules still to beapproved)

Poland Yes

Portugal No, but some exceptionspossible

Romania No

Slovakia N/A, no tax incentives at all

Slovenia Yes

Spain No

Sweden N/A, no tax incentives at all for

individuals

United Kingdom No

Information from Foundations Legal and Fiscal Environments Mapping the European Union of 27, published by the EFC, 2007

European Foundation Centre | www.efc.be