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Jersey & Guernsey Law Review – February 2007

CHARITY UNDER REVIEW

Alison Paines

Introduction

1       It cannot be purely coincidental that, since the turn of the 21^st century, jurisdictions as far flung as Ireland, Scotland, New Zealand, Australia, Canada and England and Wales have reviewed what constitutes a charity, what charity’s role is in our society and how charities should be regulated.

2       Jersey itself has not been immune, with the Jersey Law Commission issuing a consultation paper in January 2004 on the Jersey Law of Charities. This covered a number of issues -

·                the definition of a ‘charitable purpose’ - in particular the extent to which “public benefit” should be a key factor in establishing a charitable purpose;

·                tax relief and the possibility of Jersey adopting a more liberal UK-style “gift aid” scheme to encourage greater giving;

·                the application of the cy-près doctrine and proposals for reform similar to Guernsey;

·                the recommendations of the Financial Action Task Force (‘FATF’)[1] and their impact on charitable and similar institutions; and

·                the possible role of a Jersey Charities Commission.

3       As these reviews have demonstrated, charity is an emotive and complex concept. Much charitable giving and charitable work is intensely personal – we want the freedom to pick and choose our own favourite causes. We want charities to be regulated properly, so as to prevent abuse (especially in these days of concerns about international terrorism), but we do not want them overburdened so that charity money is ‘wasted’ on administration. The current UK Labour Government and Conservative Opposition both want a bigger role for the voluntary sector in the provision of social services; is it appropriate that charities should contract with government to provide public services?  Many charitable causes also operate in areas which are the obvious responsibility of government, so what are, or should be, the respective responsibilities of state and charities? Charitable need and charitable response are increasingly international, but charitable structures and available tax reliefs have historically been essentially national in character and operation; what adjustments may need to be made in the future?

4       Of these various issues, this article looks at just three, all of which have been highlighted in the recent reviews -

·               what are recognised as “charitable purposes” and how “public benefit” can be identified in relation to them;

·               what sort of regulation of charities may be appropriate and what considerations may apply; and

·               what issues currently relate to charitable giving, especially as regards available tax reliefs (both local and  cross-border).

Charitable purposes and public benefit

5       In English law as it  stood at the end of 2006 it is still the case that a charity is any organisation which is established for purposes which are exclusively charitable (the advancement of religion or education, the relief of poverty, and other purposes regarded as being for the benefit of the community) and which provide public benefit. A charity may be set up in many ways, a simple trust in a will, an unincorporated association, an incorporated association, a friendly society, or a limited company. The structure does not matter; the purposes do.

6       An organisation set up for purposes which have not been recognised as being charitable (no matter how philanthropic, benevolent or well-intentioned those purposes are) is not a charity. Similarly, an organisation set up for purposes which are partly charitable and partly non-charitable is not a charity.

7       These principles have affected many related jurisdictions – including all those referred to in the Introduction to this article. Obviously in Jersey there has also been Norman influence, but in many cases Jersey law has applied English precedent – for instance (as cited in the Jersey Law Commission’s 2004 consultation paper), Re Meaker[2], where it was held that in Jersey a charitable purpose must be both enforceable by the court and within “either the express terms or the ‘spirit and intendment’ of the preamble to the ancient statute of Elizabeth”.[3]

8       The ‘ancient statute’ referred to in Re Meaker was the Statute of Charitable Uses, passed at the end of the reign of Elizabeth I in 1601 and so now over 400 years old. This has provided the foundation for charity law in the common law world. Purposes to be construed as charitable were listed as follows: “Releif of aged impotent and poore people, some for Maintenance of sicke and maymed Souldiers and Marriners, Schooles of Learninge, Free Schooles and Schollers in Universities, some for Repaire of Bridges Portes Havens Causwaies Churches Seabankes and Highwaies, some for Educacion and prefermente of Orphans, some for or towards Reliefe Stocke or Maintenance of Howses of Correccion, some for Mariages of poore Maides, some for Supportacion Ayde and Helpe of younge tradesmen Handicraftesmen and persons decayed, and others for reliefe or redemption of Prisoners or Captives, and for aide or ease of any poore Inhabitantes concerninge paymente of Fifteenes, setting out of Souldiers and other Taxes …”.

9       In essence, these purposes divided into two principal categories - purposes for the relief of the poor and purposes for public works – and, as always with legislation, the Statute reflected the concerns of its time. It is noticeable, for instance, that, although there is a reference to the repair of churches, religion does not otherwise feature, which, given the turbulent period of Tudor rule through which the English legislators in 1601 had just lived, was perhaps not surprising.

10     The Statute is not just of historic interest. As already noted in relation to the Jersey case of Re Meaker, subsequent judicial decisions have established that the list of purposes set out in the preamble was not exhaustive but that, for a purpose to be charitable, it must be within the ‘spirit and intendment’ of the preamble[4]. This has been an enabling approach – permitting the development of new charitable purposes to meet changing social demands over the centuries by analogy with purposes in the preamble – even if it has sometimes been taken to extremes.[5]

11     But what should be recognised as charitable purposes today?  The new English Charities Act,[6] which has taken nearly four and a half years to reach the statute book, was finally passed on 8 November 2006 but is not yet in force. It contains the following thirteen descriptions of charitable purposes -

(i)            the prevention or relief of poverty;

(ii)           the advancement of education;

(iii)           the advancement of religion;

(iv)           the advancement of health or the saving of lives;

(v)            the advancement of citizenship or community development;

(vi)           the advancement of the arts, culture, heritage or science;

(vii)          the advancement of amateur sport;

(viii)         the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;

(ix)          the advancement of environmental protection or improvement;

(x)           the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;

(xi)          the advancement of animal welfare;

(xii)          the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services; and

(xiii)         any other purposes recognised as charitable purposes under existing charity law or by virtue of the Recreational Charities Act 1958; which may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of the above purposes; and which may reasonably be regarded as analogous to, or within the spirit of, any recognised charitable purpose.

12     Charity law is a devolved matter in both Scotland and Northern Ireland. Scottish charity law has recently been changed by the Charities and Trustee Investment (Scotland) Act[7], which received Royal Assent on 14 July 2005, whilst the Department for Social Development in Northern Ireland has recently finished consultations both on reforming charity law and regulation in Northern Ireland and on a new draft Order in Council that would give effect to the proposals[8].

13     Although the charitable purposes set out in the three pieces of legislation – English, Scottish and Northern Irish - are similar in many respects, they are not identical. For instance, whilst the English Charities Act includes “the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services” and “the promotion of religious or racial harmony or equality or diversity”, these are not mentioned in the Scottish Act, and the Scottish Act contains no “sweep up” clause which deems any purpose charitable which has previously been recognised as such.

14     Because of concerns that these discrepancies would cause problems for existing charities which operate across the UK and indeed for HM Revenue & Customs which has one system of charitable tax reliefs to apply to all “charities” in the UK, there has been dialogue between the English Charity Commission and the Office of the Scottish Charity Regulator (“OSCR”). From this dialogue, various compromises, or agreed positions, seem to be developing - for instance, that charities established to promote the efficiency of the armed forces, which feared that they might no longer be regarded as charitable in Scotland, are likely to be regarded as akin to charities established for the “advancement of civic responsibility or community development” (which include bodies such as the Boy Scouts), which is a charitable purpose expressly recognised in the Scottish Act.

15     Under the English Charities Act 2006, all charities will need to demonstrate that they exist for the public benefit, thus abolishing the historic presumption that charities established for the advancement of religion or education or the relief of poverty exist for the public benefit. Public benefit is the legal requirement that, to be charitable, an organisation’s purpose must be beneficial in a way that the law regards as charitable to the community as a whole or a sufficient section of the community. It has long been accepted that the way in which public benefit is demonstrated can vary for different charitable purposes.

16     The English Charity Commission, which the main regulator of charities in England and Wales, is being given a new objective by the Charities Act 2006 to promote understanding and awareness of this public benefit requirement. The Commission has announced that it will hold a consultation with the sector and the wider public and then provide general guidance on what the requirement means. It has stated that “One size won’t fit all, and public benefit will look different for different groups of charities”. The Commission will also be talking to specific groups of charities about how they demonstrate public benefit in their work. The Commission’s indicative programme[9] runs to summer 2008, when it will report its findings to Parliament.

17     There was much debate, when the English Charities Bill was going through Parliament, about whether any written guidance on public benefit should be included on the face of the legislation, but the arguments that there were dangers in doing so prevailed – principally for two reasons -

·               first, that “the nuances present in current case law will be overridden by any definition contained in primary legislation, creating uncertainty in the law.”[10]; and

·               secondly that, as opinion on what is good for society changes, any statutory definition would almost certainly become obsolete;

18     The conclusion was that the best way to protect the subtleties of the public benefit test, and ensure that the concept does not become inflexible, was not to include any formal public benefit definition in English charity legislation.

19     In this context, a challenging discrepancy between the English and Scottish Acts is that, whilst the English Act is silent on how public benefit is to be measured, the Scottish Act introduces into the interpretation of ‘public benefit’ two required assessments[11] -

(i)            how any “disbenefit” incurred or likely to be incurred by the public, in consequence of the body exercising its functions, compares with the benefit gained or likely to be gained by the public in that consequence, and

(ii)           where benefit is, or is likely to be, provided to a section of the public only, whether any condition on obtaining that benefit (including any charge or fee) is unduly restrictive.

20     The Northern Irish draft Order[12] is based on the model adopted in Scotland. It specifies that no particular purpose is presumed to be for the public benefit and that when determining whether a body provides public benefit, any superficial public benefit must be considered in the light of -

(i)            any benefit to individuals who are not legitimate beneficiaries; and

(ii)           any disbenefit to the public.

21     Given this divergence in the UK legislation it is going to be interesting to see how, or if, the English Charity Commission deals with this Scottish / Northern Irish concept of ‘disbenefit’ as it develops its guidance – referred to above. It is in no-one’s interest to have different rules applicable by different regulators to charities in different parts of the United Kingdom.

What regulation is appropriate?

22     The Statute of 1601 highlighted another issue relating to charity which is still with us – the need to regulate charities and to target abuse of assets which have been given for charitable purposes.  It was entitled: ‘An Acte to redresse the Misemployment of Landes, Goodes and Stockes of Money heretofore given to Charitable Uses’ and its provisions were mainly concerned with establishing a body of Commissioners and vesting them with powers to supervise and inspect charitable trusts.

23     Although the statutory terms of reference of the present Charity Commissioners of England and Wales[13], and of the statutory corporation which is the Charity Commission established by the Charities Act 2006, are more extensive and sophisticated, they have their origins in these provisions.  The Charities Act 2006 contains provisions[14] which give the Commission a number of objectives -

(i)            a “public confidence objective” - to increase public trust and confidence in charities;

(ii)           a “public benefit objective” (already mentioned above) - to promote awareness and understanding of the operation of the public benefit requirement;

(iii)           a “compliance objective” - to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities;

(iv)           a “charitable resources objective” - to promote the effective use of charitable resources; and

(v)            an “accountability objective” - to enhance the accountability of charities to donors, beneficiaries and the general public.

24     Specifically, the Commission’s statutory functions are -

(i)            determining whether institutions are or are not charities;

(ii)           encouraging and facilitating the better administration of charities;

(iii)           identifying and investigating apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with such misconduct or mismanagement;

(iv)           determining whether public collections certificates should be issued, and remain in force, in respect of public charitable collections;

(v)            obtaining, evaluating and disseminating information in connection with the performance of any of the Commission's functions or meeting any of its objectives, which includes (among other things) the maintenance of an accurate and up-to-date register of charities;

(vi)           giving information or advice, or making proposals, to any Minister of the Crown on matters relating to any of the Commission's functions or meeting any of its objectives, which includes (among other things) complying, so far as is reasonably practicable, with any request made by a Minister of the Crown for information or advice on any matter relating to any of its functions.

25     So would a Charity Commission  - of this sort, or a slimmed down version - be appropriate for Jersey?  However unjustifiably, concern over Jersey’s status as an offshore financial centre is one of the principal drivers towards the introduction of a more formal system of charity regulation. Although Jersey has co-operated with the OECD, FATF and other international bodies in implementing a regulatory framework for its financial institutions which meets the recognised standards, the media still tends to portray offshore jurisdictions as places which allow individuals and corporate bodies to avoid tax and engage in criminal activities behind a cloak of banking secrecy.

26     In 2001 there was quite a lot of press coverage of the Muwafaq Foundation which was based in Jersey.  Associated entities or operations were also identified in the Isle of Man, Delaware, Sudan, Ethiopia, Somalia, Pakistan and various of the Balkan countries. In an article in The Guardian newspaper,[15] under the heading “Muslim relief groups caught in crossfire”, there was discussion of the Foundation’s complex structure and the secrecy seemingly attendant on its operations. In relation to Jersey the journalists commented as follows -

“Jersey does not have a charities commission, as the UK mainland [sic] does, requiring charities to register and submit accounts. The self-governing offshore island, whose company secrecy laws and tax haven status have attracted growing international concern, does not appear to maintain any public record of the Muwafaq Foundation. Officials there say if it was structured as a financial trust, it would not require to be registered at all.”

27     Of the eight Special Recommendations on terrorist financing adopted by FATF in October 2001 in recognition of the “vital importance of taking action to combat the financing of terrorism”, the last (Recommendation VIII) specifically concerns non-profit organisations and states -

“Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organisations are particularly vulnerable and countries should ensure that they cannot be misused -

(i)            by terrorist organisations posing as legitimate entities;

(ii)           to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and

(iii)           to conceal or obscure the clandestine diversion of funds   intended for legitimate purposes of terrorist organisations.”[16]

28     It is recognised that this recommendation consists of two elements -

·               jurisdictions should review the legal regime of entities, in particular non-profit organisations, to prevent their misuse for terrorist financing purposes; and

·               with respect specifically to non-profit organisations, jurisdictions should ensure that such entities may not be used to disguise or facilitate terrorist financing activities, to escape asset freezing measures or to conceal diversions of legitimate funds to terrorist organisations.[17]

29     In July 2005 the EU issued a new consultation paper[18] to all Member States on the subject, which was primarily designed for the EU implementation of this FATF Special Recommendation VIII. It makes recommendations for a code of conduct regarding best practice for the promotion of transparency and accountability of non-profit organisations and proposes that all Member States should designate an authority to oversee the sector. The selected authority would: construct and regulate a publicly accessible registration system for all non-profit organisations wishing to take advantage of tax exemptions; provide guidance on financial transparency; coordinate other authorities to investigate abuse; and have the capacities to assess the risk of abuse.

30     The Jersey Law Commission acknowledged, even before this 2005 EU consultation, that Jersey does not meet all the FATF recommendations for non-profit organisations. Thus, reluctantly, the Law Commission recommended that further regulation would be required but, so far as possible, it should be introduced in such a way that it does not decrease the level of charitable giving or add significantly to the burden of cost suffered by charities, whether public or private.

31     What the Jersey Law Commission proposed with regard to regulation was that -

(If registered, a charity would have to produce and file audited financial statements, thus significantly reducing, if not eliminating, the possibility of it being used for a fraudulent purpose. An exemption from the audit requirement, but not the requirement to produce accounts, could be allowed for registered charities with lower income, say, less than £5,000 per annum so that small charities were not over-burdened with cost.)

·               as regards private trusts with charitable objects or other private charities, a requirement would be introduced that at least one of the trustees or directors or one member of the management would have to be a registered person under the Financial Services (Jersey) Law 1998. Such private trusts or other private charity would not have to register or apply for exemption from tax.

32     The distinction between “public charities” and “private charities” is one which has not yet been introduced in any part of the United Kingdom but is well known in the United States of America.  There the Attorney General of each state maintains a register of charitable organisations. To qualify as ‘charitable’, organisations (which may be trusts, foundations or corporations) must meet the requirements of section 501(c)(3) of the US tax code.  That section describes two distinct tax categories – public charities and private foundations -

(i)            a section 501(c)(3) organization will be treated as a public charity (and not a private foundation) if it can show that it is responsive to the general public because it serves the public, is supported by the general public (as opposed to a few individuals), or is an affiliate of another section 501(c)(3) organization that serves or is supported by the public;[19] certain specific organisations (including churches, schools, universities, and hospitals) also qualify as public charities;

(ii)           a 501(c)(3) organization that does not qualify as a public charity will be treated as a private foundation; for instance, a typical charitable foundation established by a wealthy donor with his or her own funds would find itself within the private foundation tax regime because it would not be able to prove that it is supported by the general public. 

33     For US income tax purposes, donors may generally deduct donations to public charities against up to 50% of their income and donations to most private foundations against up to 30% of their income.  In addition to these deduction limitations, private foundations face numerous operational restrictions and punitive excise taxes for failure to comply with these restrictions that do not apply to public charities.

34     The Jersey proposals relating to private charities are somewhat different. According to the Law Commission’s recommendations, a private charity in Jersey would not be required to register with any particular regulator (e.g. the Jersey Charity Commission, if one were to be established). The main formal requirement would be that referred to above – that at least one of the trustees or directors or one member of the management would have to be a registered person under the Financial Services (Jersey) Law 1998. The Commission regarded this as sufficient safeguard  - “thus implicitly introducing an adequate degree of regulation”.[20] In addition, the Commission suggested that such private trusts or other private charities would qualify for (but would not have to apply for) a specific exemption from income tax.

35     As regards public charities, the Law Commission floated the idea that the Association of Jersey Charities might, with suitable amendments to its constitution to enable it to fulfil a quasi-judicial function, take on the role of Jersey Charity Commission. The Association[21] is the representative body of the majority of charitable organisations operating in Jersey with objectives of encouraging charitable and community work on the Island and co-operation and co-ordination between members. The Association will admit as members only organisations which have a properly formed constitution with at least 10 members and a committee. It is not, however, currently a public body and has no system of compulsory registration of charities, nor any regulatory role beyond its limited membership requirements.

36     Some of the commentary in the Law Commission Consultation paper demonstrated that there was debate whether there was actual need for a Charities Commission in Jersey and, in particular, doubt about whether the Association was the right body for the role. The reforms in charity regulation, which were then being implemented in Scotland, were analysed. As acknowledged in the Consultation paper, however, there is a considerable difference in size between the Scottish charity sector[22] and that in Jersey[23].

37     A more relevant comparison may be with Northern Ireland, where the active charity sector - still bigger than Jersey’s but much smaller than Scotland’s - is estimated to be in the region of 3,700 organisations.[24] In 2005 the Charities Branch of the Voluntary & Community Unit of the Northern Irish Department for Social Development came down in favour of the introduction of a Northern Ireland Charity Commission to operate the Northern Ireland Register of Charities and to act as a charities regulator for all charities operating in Northern Ireland, on the grounds both of independence and consistency with the rest of the United Kingdom and with the Republic of Ireland.  Implementation provisions are set out in the draft Order to which reference has already been made.

38     What is proposed is a Northern Ireland Charity Commission organised as follows –

39     As regards likely costs, the Department for Social Development has estimated that outline costs would be somewhere in excess of £800,000 a year. In addition, there would be start-up costs for computer systems and other office equipment in the region of £300,000. These costs might be reduced by buying in services from other bodies, such as the English and Scottish bodies responsible for charity regulation, and from bodies with similar functions in Northern Ireland, such as the Companies Registry.

40     This level of analysis (and indeed the Scottish experience in introducing OSCR) is something on which the Jersey authorities might draw in the future, if they do wish to think of implementing a scaled down version of a formal charity regulator – appropriate to the size and relative simplicity of the Jersey charity sector, but nevertheless meeting the underlying concerns relating to transparency and accountability. It is surely difficult, given the importance to Jersey of its standing in the world of international finance, for nothing to be done.

Donation/taxation

41     Lurking within the title of the 1601 Statute - An Acte to redresse the Misemployment of Landes, Goodes and Stockes of Money heretofore given to Charitable Uses - is also the third theme of this article – that of gifts for charitable purposes.

42     As already alluded to, many people want to support charities and this donative principle is often encouraged by government – e.g. the ‘Get Britain Giving’ campaign launched by the British government in 2000 and the 2005 Year of the Volunteer. Part of this encouragement, as well as the recognition that charities are for the public benefit, is provided by tax reliefs on charitable donations.   Most, if not all, tax systems offer tax reliefs on cash gifts to charities and to charities themselves on their income and capital gains, but a strict condition of such reliefs is usually that the charity concerned is subject to the jurisdiction of the courts of the country concerned. Certainly this is established jurisprudence in the UK.[25]

43     In its consultation document in 2004, the Jersey Law Commission commented that, not only were there restrictions on the amount of the gift in respect of which tax relief could be claimed (cash gifts in excess of £250 but less than £500,000 per calendar year), but also the gift had to be made to a charity established in the Island, so that major international charities, unless with a Jersey branch, could not benefit from the reclaim of income tax.   With a view, therefore to simplifying the system and encouraging greater charitable donation, the Jersey Law Commission advocated two measures -

(i)            an extension of tax relief on charitable donations akin to that offered by the UK Gift Aid scheme – i.e. the abolition of separate tax relief for payments under a deed of covenant and relief for all payments made under a revised gift aid scheme, with no minimum or maximum criterion; and, more controversially,

(ii)           recovery of tax under a revised gift aid scheme not just for all UK and Guernsey charities but also for any ‘bona fide EU charity’.

44     This latter suggestion is a proposal which has a resonance with the line which is currently being taken by both the European Commission and by the European Court of Justice. On 10 July 2006, the European Commission sent the United Kingdom a formal request to end discrimination of foreign charities.[26] This was on the basis – as described above - that the United Kingdom allows tax relief for gifts to charities, but only if they are established in the UK. Charities in other Member States are excluded from the relief and the Commission considers that this discrimination is contrary to the EC Treaty. The request was in the form of a 'reasoned opinion' under article 226 of the EC Treaty. The United Kingdom had to reply satisfactorily to the reasoned opinion within two months; if it failed to do so the Commission might refer the matter to the European Court of Justice.

45     Since then the European Commission has issued – on 17 October 2006 - similar formal requests to end discrimination of foreign charities to the governments of both Poland and Ireland.[27]  The stated view of EU Taxation and Customs Commissioner, László Kovács, is that the rules of the Internal Market forbid discrimination of charities in other Member States and that gifts to bona fide charities in other Member States should get the same tax treatment as gifts made to domestic charities. The European Commission is arguing that -

·              the difference in treatment between gifts made to charities in the United Kingdom and charities in other Member States constitutes an obstacle to the free movement of capital. Cross-border gifts are explicitly mentioned in Council Directive 88/361/EEC, which provides for a Community definition of capital movements;

·              the discrimination is also contrary to the free movement of persons, as workers and self-employed persons moving to the United Kingdom might wish to make gifts to charities established in the Member State where they came from; and

·              finally, the rules are contrary to the freedom of establishment, as foreign charities are forced to set up branches in the UK in order to benefit from the favourable tax treatment.

46     The UK’s two-month response time has already expired, but it is not known at present what, if any, action has been taken, nor what response the governments of Poland and Ireland will make. In the past there has been comment by UK Government spokesmen that, if reliefs have to be conceded to foreign charities, the amount of relief allowed to UK charities may be reduced, so as to limit the cost to the UK Treasury.

47     This was not the reaction of the Belgian Government when a similar reasoned opinion was issued to them in 2002.[28] Belgium has a federal system and, in that case, both Flanders and Brussels changed their tax laws to extend the reduced rates which they had hitherto offered only to legacies and gifts made to local charities to all equivalent EU and EEA charities.

48     The third province in Belgium – Wallonia – also made changes in response to the EC reasoned opinion, but in that case imposed conditions. After some review, the European Commission has decided to refer Belgium to the European Court of Justice.[29] In its view the Walloon inheritance and gift tax laws continue to discriminate against foreign charities. Article 60 of the Walloon Code des droits de succession and article 140 of the Walloon Code des droits d'enregistrement, d'hypothèque et de greffe provide for a reduction of inheritance and gift taxes but only for two types of organisations -

(i)            organisations resident in Belgium; and

(ii)           (for the application of the inheritance tax law) organisations established in the EU Member State in which the person making the legacy (the de cujus) effectively resided or had his place of work at the time of his death, or in which he had previously effectively resided or had his place of work; and (for the application of the gift tax law) organisations in the EU Member State in which the donor effectively resides or has his place of work at the time of the donation, or in which he has previously effectively resided or had his place of work.

49     These conditions mean that the reduced tax rate is not applied when Walloon residents who have never worked or lived in another Member State make legacies or gifts to charities in other Member States. The reduced rate is also not applied if a person, who has moved from another Member State to Belgium, makes a gift or legacy to a charity in a third Member State.

50     The outcome of the Belgian case referred to above may well be affected by the judgment, given in September 2006, of a case argued in the European Court of Justice in 2005.[30]  Although that case does not involve the question of tax relief on gifts by an individual to a foreign charity, but rather the tax treatment by one EU Member State of the investment income of a foreign charity, many of the arguments raise similar issues.  It concerned an Italian charitable foundation called the Centro di Musicologia Walter Stauffer which was based in Milan, had no permanent establishment in Germany, but was in receipt of rental income from a German investment property. The view of the European Court of Justice was that the Italian charity should not be liable to German tax on that income in circumstances where a similar charitable foundation established in Germany was exempt from tax. This was on the basis that the provisions in the EC Treaty relating to free movement of capital applied.[31] (In other similar cases in the ECJ, charities and taxpayers have also referred to the freedom of establishment rules, which have been cited in the Commission’s reasoned opinion against the UK referred to above.)

51     In the course of the case, both the UK and Irish governments had made submissions in support of the German tax position – i.e. seeking to deny tax relief to the foreign charity. This is perhaps not surprising, because the case has implications for all charities established in the EU. Following this judgment, we may well be moving to a position where a charity established in one EU Member State will be able to claim tax reliefs in other such states where it is not established, if a domestic charity established in that jurisdiction would have been entitled to tax relief in a similar situation.

52     One aspect which Counsel for the UK argued in the Stauffer case was that, whilst under the UK system a gift to charity can thereafter only be used for charitable purposes (and, if need be, either the Charity Commission or the UK courts will enforce this), in some regimes within the EU it is possible for organisations which are ‘charitable’ at one stage to alter their objects or purposes subsequently in a way which might cause them to cease to be recognisably charitable. Is it therefore appropriate for tax relief to be given to such organisations?

53     This concern chimed with some of those raised by respondents to the Jersey Law Commission consultation. In the submission made by the Association of Jersey Charities[32] the Anthony Nolan Trust commented that “If funds are being raised in Jersey by EU based charities then, at the very least, there should be a requirement to notify an authority in Jersey of that fact and a power (whether it is used or not) to investigate local fund-raising activities (assuming that this is also proposed for Jersey public charities). In addition, there is no assessment of how effective oversight regimes are within the EU.”

Postcript

54     In February 2004 Advocate Alan Binnington lamented that “Whether it is due to the absence of lay people on the Jersey Law Commission or the backlog of work in the Law Drafting Office it is perhaps regrettable that the reports of the Jersey Law Commission appear to have, to use the words of the late Professor Willoughby, ‘gathered dust’ since the Commission’s formation. Of the four topic reports that the Commission has produced since its creation, only one has resulted in legislation reaching the statute book.”[33]  In relation to the Consultation Paper on the Jersey Law of Charities, the Jersey Law Commission’s Annual Report for 2004 stated that, having considered and debated the responses to the first consultation paper, the Commission had determined to issue a second Consultation Paper in 2005. This has not yet emerged.[34]

55     It will be interesting to see whether anything more will be done in Jersey – especially now that the English Charities Bill has been enacted and as the hitherto established rules relating to the tax treatment of charitable donations across the borders of EU Member States are being challenged. Certainly, Jersey will want to be alive to these reviews and to the continuing developments – in relation to what constitutes a charity, what is the role of charities in our society and how charities should be regulated - in its neighbouring jurisdictions.

Alison Paines is a partner and head of Charities and Philanthropy Department at Withers LLP, Co-editor of “The Law and Practice of International Charitable Giving” (to be published by Cambridge University Press in 2007)

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