Are We in Need of a European Charity? How to Remove Fiscal Barriers to Cross-Border Charitable Giving in Europe

Abstract: Most Member States of the European Union only grant tax incentives for donations to resident charities. This restricts the free movement of capital and freedom of establishment and results in limiting the choice of donors to domestic charities and limits charities to resident donors in their fundraising. In the Centro di Musicologia Walter Stauffer v. Finanzamt München für Körperschaften case and the Hein Persche v. Finanzamt Lüdenscheid case, the European Court of Justice (ECJ) has forbidden this restriction. However, not only did most Member States not adjust their legislation after the Stauffer case, also, the ‘host-state control’ solution of the ECJ may in fact still make it impossible for charities to attract funds from different Member States. This paper first discusses an alternative solution at a decentralized level: home-state control through mutual recognition. However, it seems unlikely that this solution is politically feasible. Therefore, the paper addresses the question whether some form of harmonization would be a solution, using the subsidiarity test derived from fiscal federalism theory as a theoretical framework. The application of this test indicates that some harmonization would be appropriate. The suitable degree of harmonization (a directive or a resolution) depends on political factors, such as the trust Member States have in each other’s supervisory institutions of charities.