The Charitable Deduction Games: Are the Laws in Your Favor?

Abstract

In today’s charitable world, many of the causes that have captured the attention of global philanthropists and organizations alike are international in nature. Gone are the days when US charities and the individuals and corporations who give to them are focused only on what is happening within the borders of the US in spite of economic hardship at home. In 2008, international funding represented almost 25% of overall giving in the US. As new international funders enter the global giving scene, it is clear that a focus on alleviating suffering abroad and world plights is on the conscience of American philanthropists. Should not a philanthropic CEO of a major US corporation who has donated to the American Red Cross be able to make the same tax-efficient donations to its UK equivalent if he has had to relocate to London to continue to progress in the global game of world markets? Should we require instead that the UK charity set up a US charity or seek administratively burdensome registration in the US? Both of these options come at a price that could be used to provide disaster relief rather than to circumvent a perhaps well-meaning but misplaced set of rules. The barrier to the CEO’s giving is the result of a notion present not only in the US’s set of charitable giving rules but also in those of the UK and most European Union (“EU”) countries. I will refer to that notion as the “notion of territoriality.” The notion of territoriality is the restriction of income tax deductibility to those donations made to charities formed within a given country’s borders. It is the opposite of allowing deductibility for donations made to charities formed in other countries (“foreign charities”). The notion of territoriality is endemic in the charitable laws of the US, the UK, and the EU, particularly the Netherlands. This article will address aspects of the notion of territoriality in all three sets of charitable laws. Part I of this article will define the notion of territoriality and examine the historical reasons for it; Part II of this article will discuss why the notion of territoriality is problematic; and Part III will explore the solution proposed by the European Union (“EU”) in a landmark case and how the US may adapt its laws in light of the change and historic notions discussed.