A Single Market for Citizen Engagement, Charity and Philanthropy

On January 16, the Donors and Foundations Network in Europe (DAFNE) and the European Foundation Centre (EFC) launched the commissioned study “Enlarging the Space for European Philanthropy”. Among other aspects the study stresses that barriers to cross-border philanthropy pose a major challenge. While the freedom of capital movement prohibits foreign funding restrictions, Europe needs to move towards a European public benefit concept, non-discriminatory tax regimes and simplifying tax authority practices and providing for more information sharing tools.

In 2016 already, Felix Oldenburg, Chairman of DAFNE and General Secretary of the Association of German Foundations, spoke about his vision for a Europe that tears down the barriers for charity and philanthropy, and allows every citizen to help tackle social problems wherever they are at the DLDeurope Conference in Brussels. This is his speech:

 

Dear friends,

It is true: Europe is making it harder for us to help each other than to make money off of each other. But that is what we do, and I want to invite you on a short trip to a truly strange set of facts.

If you wanted to give to a Greek refugee shelter (for example if you are living in one of the many countries without them), you cannot claim a tax deduction from your tax office unless you prove what exactly the Greek charity did with your funds - even if the shelter is a registered Greek charity.If you wanted to volunteer in that refugee shelter, you would not be insured or exempt from certain liability like you would be for volunteering in a local charitable organisation.If you wanted to bequeathe your holiday home, say, in France, to a foundation you set up in your home country, you would have to pay full income tax before you do.If your foundation invested in Italian stocks, it would have to pay capital gains tax unlike with stocks of your home country. In fact, if the foundation wants to do anything in another country, it should better set up a new legal entity there, and not transfer funds between the organisations. And this is my favorite: A Dutch university receiving donations from the foundation of a German alumnus, would have to demonstrate to the German tax office that the donation contributed to the Germany's reputation in the Netherlands. 

We are, in fact, you could say, protectionist, when it comes to doing good - we are least generous with generosity. Depending on whether you ever made a donation or have a foundation, you may personally not care that much about the legal and administrative barriers put in your way, not by accident but very deliberately. For the not so philanthropically-minded, consider this: The foundation sector provides direct employment to between 750,000 and 1 million individuals in the EU and spends between €83 and €150 billion annually (there is much of giving like giving to a homeless person on the street, or dropping some cash after the service in your church, that is essentially a kind of black market). Using estimates based on EFC data and other sources, we arrive at a range of asset values between 350bn (the lower limit of the EFC estimate) and approximately 3 trillion euros (the upper limit)

This is not small change. What IS small change is the amount of transnational charitable giving. The network by the same name counted 7.9m€ in donations in Europe (in 2015. It charges a 5% commission. By comparison, sending funds to a village at the Romanian border is about 3% to a bank account and 8% to cash).

That sounds like the type of barrier for an illicit business we want to make really hard as opposed to the type of support for an activity celebrated in almost every speech.

And let's not believe that national differences make it too hard to create common rules. After all, businesses are no less different, and they enjoy a common framework.

I think this issue goes to the heart of what we want Europe to be, and what the kind of place we need it to be. This past year has shown us how, more than ever, social problems do not stop at national borders, not even at borders reinforced with barbed wire.

We need a Single Market for Citizen Engagement, Charity and Philanthropy. This really is not that hard. It only needs four simple tweaks that seem completely obvious:

A Europe-wide mutual recognition of charitable tax status. (Not very hard: European tax agencies effectively do this all the time in other fields)A Europe-wide definition of core charitable purposes (Again, not hard: France would probably keep churches off the list, and Portugal would add Port Wine - it actually has a national library of Port like other country have book libraries)A Europe-wirde agreement on the minimal organisational features required to operate under this set of harmonized rules.

Much of this is already expressed in court decisions but I am not going to bore you with a judicial review. A series of rulings by the European Court of Justice set out a “non-discrimination principle”, according to which Member States must award equal tax concessions to charities based in other Member States where the foreign charities can be shown to be “comparable” to domestic organisations holding charitable tax status. For example, a German donor who makes a gift to Portuguese charity can deduct his donation from his taxable income, provided that the Portuguese charity can be shown to be comparable to a German one. Similarly, a UK charitable trust that has generated income from investments in Sweden may, if it can show itself to be comparable to a Swedish charity, claim a refund of taxes levied on that income. In practice, however, demonstrating comparability can be so complex that it hinders or even deters cross border-philanthropy.)

Instead, I want to leave you with a final thought, perhaps the most important: The worlds of business and social are no longer separate, despite many age-old regulations. Today, we witness billion dollar markets emerging from nonprofit roots: Look at green energy produced by ciitzens, now accounting for 30% of German electricity, at car sharing, AirBnB and its precursor CouchSurfing, at the open education market, and many more: Many ideas that start as ideas for the good of all can turn into compelling business ideas within the space not of a generation but within the investment horizon of a patient investor. Foundations and institutional donors like family offices are about to discover a new role for themselves: growth investors for social enterprises. And now you have a generation of digital entrepreneurs in their 30s and 40s beginning to think or in early experiments with their philanthropy. The internet billionaires of the first generation in the US have through their foundations pioneered social entrepreneurship. What do we want a new European philanthropy to drive?

A Europe that wants to be competitive and look for the new sources of great ideas to conquer markets AND work for the good of all, finally has to create a set of rules that allow for foundations to be investors in innovation across Europe. I believe we are at the brink of a deep transformation of how foundations invest, not least due to the zero interest environment. Europe has a globally unique opportunity to invite a whole sector to play in a new way.

Let's not waste it.

Best,

Felix Oldenburg