Europe Seeks to Build International Giving by Breaking Down Barriers

When the business-software developer SAP wanted to step up its international giving in recent years by supporting the U.N. World Food Programme, it ran into a common problem for European donors.

The company, based in Walldorf, Germany, could not receive a tax benefit for its gifts because the World Food Programme is based in Italy. Germany, like many other European nations, does not allow donors to deduct charitable contributions when they file their returns if the donations go to charities outside the country’s borders.

The business began supporting the antihunger group anyway, but last year it discovered a way to help needy people while still benefiting the company at tax time.

To ensure it received a tax benefit, SAP turned to Transnational Giving Europe, a small but growing network of nonprofit groups that channels money from donors to the causes they want to support.

Since starting in 1998, it has funneled more than $10.5-million to 100 charities all across Europe.

For example, to donate to the World Food Programme, SAP gives to Transnational Giving’s German partner, Maecenata International, a nonprofit group in Munich.

Maecenata then forwards the corporation’s money to the antihunger organization.

By spreading tax benefits across borders, the network hopes to spur giving and foster a pan-European approach to solving the continent’s social and economic problems, says Ludwig Forrest, a philanthropy adviser at the King Baudouin Foundation, a philanthropy here that leads the network.

“It gives the possibility of all beneficiaries to fund raise abroad,” he says about the network. “You open the doors of Europe to thousands of beneficiaries.”

And American donors can potentially benefit from the network, too. Two of its members — Baudouin and the Charities Aid Foundation, in London — have American branches.

What’s more, Mr. Forrest says, Transnational Giving could be a model for the European Union’s 27 members, which are considering taking a more unified approach in how they regulate nonprofit groups.

But some question Transnational Giving’s effectiveness.

Some critics call it a “Band-Aid solution” for a major problem, while others question the fee the network charges to transfer a contribution, which is at least 5 percent per gift.

“The problem with intermediaries is that there are transaction costs involved,” says Salvatore LaSpada, chief executive of the Institute for Philanthropy, a group in London that assists wealthy people with giving decisions.

He says that Europeans have cultural barriers to philanthropy, such as the perception that governments are responsible for social welfare, that will be tougher to solve than tax obstacles.

“Transnational Giving Europe is a really important first step, but we can’t stop there,” he says.

American Rules

To be sure, Europe is not alone with its restrictions on charitable tax deductions. The United States also restricts tax benefits for international giving.

The Internal Revenue Service provides income-tax deductions to people who make contributions only to American groups, though Americans who receive income from business enterprises in Canada, Israel, and Mexico can deduct gifts to organizations in those countries.

With the European Union’s dedication to open borders and the free flow of trade among member nations, however, a more liberal approach to tax incentives for charitable giving is long overdue, say charity experts.

“E.U. citizens are free to travel, study, and work in other E.U. countries and set up transnational European companies, but our rapidly growing [nonprofit] sector does not enjoy the same cross-border freedoms,” says Gerry Salole, chief executive of the European Foundation Centre, which is based here.

By most accounts, cross-border philanthropy is growing in Europe, but there are no solid figures on how much European corporations, foundations, and individuals give to causes outside their countries. According to Mr. Salole, two-thirds of his group’s 200 members support projects in other parts of Europe as issues such as immigration, the environment, and global health transcend borders.

A few countries have bilateral tax agreements that assist this trend. Belgium and France, for example, allow tax benefits for giving to charities in either country by their citizens.

And in an unprecedented move, the Netherlands in January said it would allow its citizens to take income-tax deductions for gifts to charities in Europe and America.

However, such piecemeal policies have made Europe a bureaucratic nightmare, with each country offering its own set of rules to govern charities and fund raising.

“In an era of globalization, our sector is still lodged in the 18th century,” says Mr. LaSpada.

Tax Controversies

In recent years, those regulations have been challenged.

In 2006, the European Court of Justice, which oversees disputes about European Union rules, said that the Walter Stauffer Center of Musicology, a nonprofit group in Italy that teaches violin making, did not have to pay taxes on rental income it received from property in Germany.

While German authorities disagreed, the court said that requiring an Italian charity to pay a tax that homegrown charities didn’t violated the Treaty of Rome, a bedrock agreement of the union that calls for the unhindered movement of capital between nations.

Other disputes have revolved around taxes and donations.

For example, in 2002, London’s Great Ormond Street Hospital for Children received a bequest from a Belgian resident worth more $2-million.

But because Belgium did not view the foreign hospital as a charitable entity, the gift was subject to the country’s harsh tax rates on inheritances, meaning the charity would have had to forfeit almost 80 percent of the gift.

By contrast, if a Belgian charity had been the recipient, the tax rate would have been about 9 percent.

Eventually, after the hospital complained to the European Commission, the administrative body of the European Union, Belgium amended its inheritance laws and the hospital received the money.

The commission is now studying the tax disparities and the feasibility of creating a unified policy on charities and foundations.

Nonprofit officials hope this will break down the tax barriers to cross-border giving and establish a common definition of what a nonprofit group is. Such a move would allow nonprofit groups to work and raise money in neighboring nations with less hindrance.

“We want the statute to act as a kind of mortar which will cement the existing bricks of national laws to form a coherent environment,” says Mr. Salole, of the European Foundation Centre, which is leading the fight for the proposal.

But some European countries are expected to resist such a measure.

“Governments aren’t keen to give tax benefits to charities outside their borders,” says James K. Myers, chief executive of the European Association for Planned Giving, in Lenham, England.

Extending Its Reach

So as charities wait for a consensus among politicians, Transnational Giving Europe has evolved.

It started with partners in four countries, but the network is expected to grow to 14 nations by the end of this year — Belgium, Britain, Bulgaria, France, Germany, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Poland, Romania, Slovakia, and Switzerland.

In 2005, it facilitated the giving of $600,000. Last year, that figure grew to $4-million. In all, it has assisted 650 donors, and to help fund raisers understand the complexity of cross-border gifts, Baudouin has also created an informational Web site (http://www.givingineurope.org).

“You see, there is big growth,” says Mr. Forrest of the King Baudouin Foundation.

He wants the network to eventually cover all of Europe. And the model could spread. Baudouin’s American branch last year established a partnership similar to the network to facilitate American giving to Asia and Latin America.

To be sure, there are other ways for European and American donors to avoid tax problems than Transnational Giving. For example, a charity in, say, Ireland could establish a branch in another country where it has a lot of donors, which would allow them to make gifts and receive an income-tax deduction.

But Mr. Forrest says that tactic is too complicated for many groups and that Transnational Giving potentially allows a charity to reach a large number of countries in one, simple step.

Promoting Donations

Thanks to an increased advertising effort, which included full-page ads in the Financial Times, the number of charities that want to receive gifts through the network has grown. But Mr. Forrest says Transnational Giving must turn away about half of them.

Due to the administrative burden, only groups with an active pool of donors abroad, such as universities with alumni scattered across the continent, are allowed to join. “If they tell us, ‘You know, it’s just in case we have a European donor,’ we say no,” he says.

Beneficiaries include such well-known European institutions as the Louvre Museum, in Paris, and the University of Oxford, in Britain.

According to Eléonore Valais, a fund raiser for the Louvre, the museum has raised more than $340,000 since 2006 with assistance from Transnational Giving, primarily to help pay for the renovation of an exhibition hall for 18th-century decorative arts.

She says the cultural institution promotes the network to its donors across Europe.

“We inform our prospects living outside of France of the possibility to use TGE any time we present a project,” she says.

Concerns About Costs

But Transnational Giving’s beneficiaries don’t always sing its praises.

Like others, Ms. Valais says she is concerned about the transaction fees the network charges.

“They can deprive the projects from thousands of euros,” she says.

Other beneficiaries are upset that by receiving donations through a third party, they are at arm’s length from donors and cannot develop relationships with them.

In the Netherlands, for example, the network’s Dutch member cannot tell foreign charities who is giving to them because of privacy laws.

For his part, Mr. Forrest admits that Transnational Giving Europe is an “imperfect solution.”

He is trying to make sure beneficiaries have access to donors’ contact information.

And the transaction fee, which starts at 5 percent and grows depending on the size of the gift, with a maximum fee of $13,000, is needed to pay for advertising, he says.

“All those fees are used to increase the promotion of Transnational Giving Europe,” says Mr. Forrest.

Ultimately, he says, the goal of the network is not to make money but to prove to the European Union that cross-border giving is not something to be wary of.

With luck and perseverance, he hopes, Europe in the next 10 years will create tax rules that foster, instead of hamper, philanthropy — and that would put Transnational Giving Europe out of business.

“I think there will be an exit strategy in the near future,” he says. “Our intention is to grow as fast as possible to disappear as fast as possible.”