EATLP Rotterdam Congress 2012
Taxation of Charities
The impact of EU law and ECJ
case law on cross-border nonprofit activities
Prof. Dr. Edoardo Traversa
U.C. Louvain
Erasmus University, 1 June 2012
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Agenda
I.
Preliminary question : do charities belong to the
internal Market?
II. Applicability of EU Treaty freedoms to charities
and donors
III. Justifications to discriminatory/restrictive tax
treatment of foreign charities/donors
IV. Other sensitive issues
I. Preliminary question : do charities belong to the
internal Market?
› Requirement of economic activity
» Art. 3 TUE and former Art. 2, art. 3 and 14 EC
» ECJ case-law :
- Concept of undertaking
- Provision of goods and services for
consideration in a market
» Applications in secondary law : Competition law,
State aid, Labour law, …
» Same criteria used for EU Treaty freedoms
(except free movement of capital)
I. Preliminary question : do charities belong
to the Internal Market?
1. EU Treaty more concerned with objectives and
operations than with the legal nature of
operators
2. EU law generally applies similarly to (economic)
activities carried out by businesses and by NFP
bodies => NPO usually not recognized as
such
3. However, EU law acknowledges in some cases
that favorable treatment may be granted by MS
under a non-profit condition (if non
discriminatory) – see Treaty freedoms, State 4aid
and secondary VAT law
II. Application of Treaty freedoms to charities and
donors
- Freedom of establishment (Art.49 TFUE): despite wording,
if stable economic activity (including active management
of movable or immovable property)
- Free provision of services (art. 56 TFEU): importance of
remuneration and economic activity (see art. 57 TFEU) –
agreement provider-recipient – both parties covered
See ECJ, 14 September 2006, Walter Stauffer, C-386/04 (taxation of
rental income in the hands of a non-resident charity)
See also ECJ, 10 January 2006, C-222/04, Cassa di Risparmio di Firenze
SpA et alii, para. 111 and 152 and Opinion Adv.-Gen. Jacobs, para.
128-133.
II. Application of Treaty freedoms to charities and
donors
- Free movement of capital (art. 63 TFEU)
• Absence of economic requirement in the application of the FMC
• Applies to charities (even without active managment)
» As investors (real estate or capital)
- ECJ, 14 September 2006, Stauffer, C-386/04
» As recipient of gifts and legacies
- ECJ, 10 February 2011, Missionwerk Heukelbach, C25/10
› Applies to donors
» ECJ, 27 January 2009, Persche, C-318/07
» ECJ, 16 June 2011, Commission v. Austria, C-10/10
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III. Justifications to discriminatory/restrictive
tax treatment of foreign charities/donors
(includes absence of comparability between resident and non
resident charities)
3 Justifications
A. Freedom of the MS to apply “different concepts of
benevolence as well as different requirements for
recognition”
B. Effectiveness of fiscal supervision
C. Cohesion of the national tax system, linked with
» Substitution for the public authorities in assuming
certain responsibilities of general interest, leading to
a reduction of public expenses
» Connexion with society
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C. Cohesion of the national tax system
Traditional concept of cohesion :
“direct link must be established between the tax advantage
concerned and the offsetting of that advantage by a particular
tax levy”
Broader notion proposed by some MS:
- Link between the grant of a direct or indirect tax advantage to
foundations and the burden on the State through their
domestic charitable objects on the basis of a domestic
connection for their activities (see Opinion Adv.-Gen. Stix-Hackl
in Persche, C-31/10, para. 100seq.)
- Restrictively accepted by the ECJ : “sufficiently close link
between the bodies which that Member State recognises as
pursuing some of its charitable purposes and the activities
pursued by those bodies” (see, Walter Stauffer, para. 37, 8
Missionswerk Heukelbach, para. 30)
Connection to society?
• “Furthermore, as regards the need for a connection
between the recipient of a benefit and the society of the
Member State concerned, the Court has already held that,
with regard to benefits that are not covered by European
Union law, Member States enjoy a wide margin of
appreciation in deciding which criteria are to be used when
assessing the degree of connection to society (...)” (ECJ, 22
December 2010, Case C-287/10, Tankreederei I, para. 31)
• Justification based on the link with the community not
excluded for charities by the ECJ, which nevertheless
pointed out the inadequacy of the residence criteria
(Missionswerk Heukelbach, para. 36)
Charities and EU Freedoms : unresolved problems
3 Need to leave Member States exercise their
exclusive powers, even using tax incentives
› Risk of mutual influence and spillover effects
› Indirect funding other States’ national tax policies
› Risk of disappearance of the tax incentives (comp. with
the credit for received dividends-Manninen)
› Coherence with non tax policies (EU and national)
3 Need to avoid too formal distinctions
› Tax incentive vs. direct subsidy
› Direct vs. Indirect beneficiaries
3 Taxpayers’ role in the administration of evidence
IV. Other sensitive issues
A. Interaction between Treaty freedoms and State
aid on territoriality requirement
See ECJ case-law and Commission’s practice in the area of tax
incentives in favour of audiovisual works (“certain degree
of territorialisation”)
B. Coherence between EU tax and EU non-tax
policies
Commission initiatives on services of General Interest