Tax Relief on Charitable Donations

In Persche v Finanzamt Ldenscheid (Case C-318/07) a
German taxpayer claimed in his annual return a
deduction for tax purposes for a donation of goods
(Zimmer frames) to a charity based in Portugal (a
retirement home). The tax authorities in Germany
refused to grant the deduction sought. The German
courts upheld this refusal on the basis that the recipient of
the donation was not established in Germany and the
taxpayer had not provided a donation certificate in the
form required by German law. Concerned that German
law might be incompatible with EU law relating to the free
movement of capital in this area, the court in Germany
referred two questions to the European Court of Justice
("ECJ"):
1 Could the donation of in-kind goods (as opposed to
cash) from individuals resident in Germany to
registered charities based in other Member States be
considered a 'movement of capital' within Article 56
of the EC Treaty?
2 Was it contrary to the free movement of capital to
deny the benefit of a deduction for tax purposes for
gifts made in favour of non-resident charities on the
ground that the tax authorities cannot verify the
taxpayer's declarations?
The ECJ answered both questions in the affirmative.
The principle of free movement of capital precluded
legislation in a Member State which, in respect of gifts
(whether in cash or kind) to bodies recognised as having
charitable status, provided tax relief only for gifts to
charities established in that Member State without giving
the taxpayer the opportunity to show that a gift to a body
established in another Member State satisfied the
requirements imposed by the original Member State for
the grant of such a benefit. Difficulty in verifying the
foreign body's charitable status could not be the sole
ground for blocking tax breaks.
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