New provisions introduced in finance legislation in 2010 stand to have a dramatic effect on the UK system for assessing entitlement to charity tax reliefs and exemptions, removing traditional domestic boundaries and opening up new opportunities for international philanthropic giving and cross-border activities by charities established outside the UK.
The evolution of the new provisions - the EU dimension
The new provisions were introduced in the Finance Act in April 2010. There was no prior consultation, but some changes to the tax system had been expected following a long line of developments in EU law.
Decisions of the Court of Justice of the European Communities (CJEC) have been upholding treaty principles of free movement of capital between member states of the EU, leading to a gradual erosion of restrictions on national charity tax concessions which had traditionally been defined according to domestic borders. These decisions have run alongside threatened infringement proceedings by the EU Commission, including a formal request to the UK Government in 2006 that it desist from similar discriminatory practices.
In January 2009, a decision of the CJEC in the case of Persche (C-318/07) made it clear that the principle of free movement of capital extended to removing undue restrictions on donor relief where a gift of goods was made across national borders to an organisation which would qualify as a charity had it been established within the donor's member state. The changes introduced in the Finance Act 2010 were designed to implement the Persche and earlier decisions into UK tax law.
The new provisions - Schedule 6, Finance Act 2010
When brought fully into force, the provisions will change the meaning of "charity" for most tax purposes under UK law so that a "charity" for these purposes will no longer be limited to organisations established within the UK, but can also extend to qualifying organisations across the EU and, at present, Norway and Iceland (but see further below).
This means that UK taxpayers can claim tax relief on donations to qualifying organisations and those qualifying organisations can claim equivalent tax reliefs and exemptions within the UK to those currently available to UK charities.
To qualify under the new provisions, an organisation, whether or not established within the UK, must satisfy 4 conditions:
it must be established for exclusively charitable purposes (as defined in English law); it must meet the...