A Single Market for Philanthropy in the EU

The article was co-authored by Anna Korzeniewska, Founder of Social Impact Alliance for Central & Eastern Europe and Hanna Surmatz and as part of “CEE Philanthropy Series 2021”. It was originally published on Forbes in English and Polish on August 2, 2021.

The ongoing process of globalization applies not only to business operations, but also to philanthropy. While it is easy for goods and services to move freely across Europe, it is still difficult for businesses and individuals to donate across borders. According to ERNOP, the annual amount of philanthropic contributions in Europe is estimated at 87.5 billion Euro. Will a single market for philanthropy become a reality in the EU?

The ongoing COVID-19 crisis revealed the incredible involvement of global citizens in social issues, across borders and across sectors. We have mobilized resources and expertise to develop and implement solutions. The pandemic was also a breakthrough moment for Central & Eastern Europe – 15% of citizens started giving, and almost 50% started volunteering more. Since societal challenges don’t stop at the Polish-Czech border, stimulating and maintaining philanthropic involvement should be a key goal guiding the public administration and social organizations. So why don’t the single market and freedom of capital work for cross-border philanthropy yet?

EU single market for philanthropy – theory and practice

More and more Europeans and corporate donors support international causes and nonprofits based abroad. According to Transnational Giving Europe (TGE), the level of cross-border giving has more than doubled in the last year – from 13.8 million Euro in 2019 to 28 million Euro in 2020. Half of it was allocated to the COVID-19 response.

In theory, donors who make cross-border donations within the European Union are entitled to the same tax incentives as would in their country of origin. The condition is that the foreign EU-based organization is comparable to a domestic one. According to the European Court of Justice and its general principle of non-discrimination, EU countries are under an obligation to treat foreign EU-based donors as they would treat their own citizens and domestic businesses in a purely national scenario.

In practice, however, donors often find it difficult to claim the tax incentives they are entitled to. It is because different Member States have different approaches to verify if a foreign EU based organization is comparable to a domestic one. No formal or uniform approach exists – there are 27 sets of rules within the EU when it comes to comparability of non-profits and taxation. Even though a series of EU infringement procedures have helped ‘encourage’ Member States to comply with the Treaty on the Functioning of the EU, barriers still exist. Several countries have not removed the barriers yet and in the remaining ones practical or legal problems remain.

“We need a single market for philanthropy in the EU” – Hanna Surmatz

Unlocking tax incentives

Bureaucratic complexity and lack of transparency continue to hamper the work of individual donors, corporate givers and larger endowed foundations donating their assets across borders. No rules or even procedural guidelines for tax authorities appear to exist in the majority of countries to help them assess if a foreign EU based organization is comparable to a local one. It all makes claiming tax incentives for cross-border donations quite complex.

However, administrative burdens should not stop donors from giving across borders as these donations are generally entitled to tax incentives. If you are asking yourself the following questions: “How can I donate across borders tax effectively?” “Where do I find information?” “What documents do I have to provide?” – you may want to first contact your local tax authority or your tax advisor. You may also seek advice and support via the TGE network which currently covers 21 countries. Philanthropy Advocacy, a joint European Foundation Centre (EFC) and Dafne project, has also embedded proposals to help overcome barriers to cross-border philanthropy in its European Philanthropy Manifesto.

Corporate philanthropy

Corporate philanthropy is growing particularly in Central and Eastern Europe. It is expected that policy makers will start reducing barriers and creating incentives to stimulate more giving – domestically and across borders. There is a lot to be improved for corporate donors, especially around taxes. Are pro-bono services tax deductible? Are donors obliged to cover VAT costs on pro bono services? We need to advocate for a fairer VAT deal when it comes to philanthropy and work on solutions on EU and national levels, especially in the area of VAT exemptions.

A regional think tank Social Impact Alliance for Central & Eastern Europe has initiated the Corporate Philanthropy in CEE project. In a wide consultation process with businesses, academia, public and social sector, supported by UN Global Compact Network Poland, Association of Social Responsibility (A-CSR), Kantar and Dentons, they will first identify corporate donors’ needs in Poland and the Czech Republic and, ultimately, advocate for changes in the legal environment for corporate givers in those two countries.

We need changes. Now

Despite the efforts of the EU, neither the single market nor freedom of capital work in the context of cross-border philanthropy yet. In the face of today’s global threats, it’s high time to change them.