Chapter 7
Raising Funds Globally
7.1 Why Do You Want to Raise Funds in a Foreign Country?
As your organization grows in size and complexity, you may want to tap into a donor base outside the United States. However, before you decide to move forward with fundraising in any foreign country, you need to assess whether the potential benefit to your organization justifies the resources you will need to invest, initially and on an ongoing basis. Take a hard look at the reasons your organization might engage in fundraising in a particular country. Who are the donors you intend to target, and why do you believe they will be attracted to your organization? Will the funds support programs within or outside that country?
If you have done your homework and determined that potential supporters in a foreign country are waiting to take out their checkbooks and contribute to your cause, then you are ready to learn whether and how your organization can raise funds in that country. The basic questions you need to ask are:
Is it permissible to solicit funds for your organization's purposes, and under what conditions? Are tax benefits afforded to donors in the particular country, and are they important to your prospective donors? Do you need to establish or find a legal entity in the country in which you intend to raise funds? If you raise funds in a particular country, are there any restrictions on using those funds outside of that country?1In many countries, conducting fundraising is even more challenging than operating programs. A 2010 report by Worldwide Initiatives for Grantmaker Support (WINGS) and The Philanthropic Initiative (TPI) found that many countries' legal structures were designed without contemplating private philanthropy. As a result, the scope of permissible philanthropic activities, and of tax treatment for donors, is often unclear.2
Finally, you should be aware that there are vast differences in attitudes and approaches toward philanthropy among countries.3 Tax incentives may play a role, but equally if not more important are cultural norms. Looking at charitable giving as a percentage of a country's GDP tells only part of the story. For example, in some countries much of the giving is religious in nature, while in some others, much of the charitable giving is done informally (for example, to beggars on the street), and is not reflected in charitable giving data.
The important point here is to make sure you have identified a donor base for your organization before you devote scarce resources to establishing a fundraising presence in any particular country.
7.2 Will You Be Permitted to Solicit Contributions in a Foreign Country?
Previous chapters have touched upon a variety of constraints on the operation of charitable activities in various countries. Many countries impose yet another set of constraints on soliciting contributions.
In the United States, individual state laws regulate the solicitation of funds, while federal (and often state) laws dictate the conditions under which contributions are eligible for tax benefits. The majority of U.S. states require some form of registration and reporting by organizations that solicit contributions from the public. However, while states can enforce these requirements (and impose penalties for noncompliance) in the interest of protecting the public from fraud, the U.S. Supreme Court has repeatedly held that laws restricting charitable solicitation violate the First Amendment of the United States Constitution.4
In many foreign countries, the solicitation of funds is not a protected activity, and legal constraints may take a variety of forms. China has severely restricted public fundraising by prohibiting such activity to all but so-called fundraising-oriented, or public, foundations. As of this book's publication, very few organizations have succeeded in obtaining public foundation status, and no foreign (non-Chinese) organization has succeeded in doing so.5
To avoid violating laws, and possibly incurring penalties, you may need to obtain permission and/or satisfy registration and reporting requirements that are much more onerous than those imposed by any state in the United States. Some, but not all, countries permit only certain types of fundraising activities, such as annual events. Many of the countries throughout the Middle East and Northern Africa (the so-called MENA region) require obtaining a license or other form of approval before engaging in fundraising. The application process can be quite burdensome.
Some of the most restrictive countries in the MENA region include:
Bahrain, where a license application must describe how the money will be collected and how it will be used, and must disclose the name of the bank account where funds will be deposited. A license is good only for two months. Kuwait, where organizations are permitted to raise funds only once each year.6Keep in mind that your organization may need to comply with local as well as national laws of the country in which you wish to solicit funds.
7.3 Does the Foreign Country Provide Tax Benefits, and Are They Important to Your Donors?
Before deciding whether and how to structure your organization so that you can attract donations in any particular country, do your homework to determine what motivates your prospective donors. In particular, you should know what tax benefits are available to them, and the extent to which tax benefits are a motivating factor in their giving. Tax benefits can take a number of forms, such as income tax deductions, credits (where a portion of the donation directly offsets the tax owed), and estate tax deductions.7
Most, but not all countries provide some form of tax benefit for donors, although some make it very difficult for donors to claim the benefits. Some countries afford tax benefits only when funds are used for narrowly defined purposes. Kenya and the Slovak Republic are among the countries that provide no tax incentives for individual giving. In Turkey, it is very difficult for an organization to obtain public benefit status such that donors are eligible for tax benefits.8
Most countries impose a limitation or cap on the extent to which an individual can reduce taxes by making charitable contributions.9 Those limits vary widely among countries, and the potential value of tax incentives may be relevant in assessing whether tax benefits are important to your donors.
While it is often assumed that donors are motivated by tax benefits when they are available, the issue attracts continuing debate in the United States and elsewhere.10 In Singapore, a government investigation found that tax benefits had limited impact on donors' giving decisions.11
It may not be too difficult to find out whether tax benefits are important to your organization's major supporters in a particular country, even though economists disagree over the impact of tax incentives on large donor populations. Creating an international fundraising structure that affords tax benefits, particularly for cross-border giving, can be quite cumbersome and expensive, so before you go through all that effort, it is worthwhile finding out whether it matters to your donors.
7.4 Is a Separate Legal Entity Required?
Assuming tax benefits are important to prospective donors in a particular country, you will need to identify the legal structure that affords tax benefits for your donors. In many countries, as in the United States, donors cannot receive tax benefits for contributions they make directly to foreign legal entities. Some countries, including the UK, not only deny tax benefits to individuals who make contributions directly to foreign entities, but also impose additional taxes (such as gift taxes) on such contributions.
This means that you need to create a separate legal entity, or find one that can attract donations for your organization. At the same time, forming and maintaining a separate foreign legal entity can be quite burdensome and costly, as we saw in Chapter 5. For that reason, you may want to explore working with an organization that is already established and able to raise funds in the country you wish to target.
Consider Working with an Existing Fundraising Organization
If you intend to raise and use funds within a single country, you may be able to find an existing organization, such as a community foundation, that can accept contributions for your program. Community foundations exist in many countries throughout the world for the purpose of raising funds to support projects within their own countries.12
By contrast, organizations that facilitate cross-border fundraising are relatively rare. There are, however, some international organizations that operate cross-border donor-advised funds, receiving tax-deductible contributions in one country and contributing them to NGOs in one or more other countries. One notable example is Charities Aid Foundation (CAF), which facilitates cross-border giving by individuals in the UK, Australia, and Singapore, as well as the United States.13
Should You Create Your Own Fundraising Entity?
Before proceeding to form a separate fundraising entity in a foreign country, you should carefully weigh the pros and cons of forming your own fundraising entity, rather than partnering with an existing one.
Among the reasons to partner with an existing fundraising entity are these four:
Among the reasons to form your own fundraising entity are these four:
7.5 Tax Benefits for Cross-Border Philanthropy
The question of whether your donors are afforded tax benefits may be different depending on whether you intend to use the contributed funds within or outside of the country in which the donor resides. In addition, if you form an entity in one country to raise funds for programs in another, you need to be sure that the fundraising entity itself will be tax-exempt. In some countries, organizations that directly operate or fund foreign activities are subject to advance approval or burdensome procedural requirements, or may even be denied favorable tax treatment.14 The all-too-common practice of imposing restrictions on cross-border philanthropy is sometimes referred to as the landlock.15
Restrictions on Using Funds to Operate Foreign Programs
Many countries, such as the United States, allow a tax-exempt organization, formed under the county's own laws, to raise funds locally and use those funds to directly conduct programs in another country. For example, you might form a charitable organization in Canada to support a program in China. If the Canadian organization directly operates the program in China, it can raise funds from Canadian donors, and the donors are eligible for tax benefits.
However, not all countries permit organizations to raise funds locally and use those funds to conduct foreign programs. Brazil and India are two countries that deny tax exemption to organizations that use funds in foreign countries. Egypt, the United Arab Emirates (UAE), Malaysia, and Indonesia impose advance approval requirements on organizations that want to conduct foreign activities.16 In addition, many countries have adopted anti-terrorism laws that impose restrictions on nonprofit organizations that send funds outside their borders. See section 9.2.
Restrictions on Using Funds to Support Foreign Organizations
In many cases, the fundraising entity you establish in one country will not be the entity that operates the program in another country. This means funds will have to be contributed across borders, between entities. A number of countries distinguish between directly operating in a foreign country and acting as a cross-border grantmaker. As we saw in Chapters 2 and 3, the United States makes this distinction, requiring that a public charity exercise discretion and control over funds it sends to a foreign organization. U.S. private foundations are subject to even more stringent requirements when they fund foreign organizations.
A number of other countries draw this distinction, holding their own tax-exempt organizations accountable in various ways for the use of funds contributed to foreign entities. Canada and Australia represent one end of the spectrum, requiring that their tax-exempt organizations have a degree of direct control over the foreign projects they fund. Some other countries, such as the UK, take a more flexible approach to ensuring that funds are dedicated to charitable purposes when granted to foreign entities.
The following sections describe restrictions imposed by three countries that rank among the world's highest in charitable giving.17 The case study of Half the Sky Foundation, in Chapter 10, illustrates how one organization structured a fundraising entity in each of these three countries to support programs in China.
Canada
Canadian registered charities (those that are eligible for tax-exempt status and to receive tax-creditable contributions from Canadian residents) are, in most cases, not permitted to act as intermediaries by funding the foreign operations of non-Canadian organizations. Rather, Canadian charities are required to use their resources to carry on their own activities, whether inside or outside Canada.18 This is referred to as the own activities test. Organizations that fail to comply risk losing their tax-favored status and becoming subject to onerous penalties.
When a Canadian charity conducts operations outside Canada, the Canada Revenue Authority (CRA) considers the charity to be conducting its own activities if it does one of the following:
Conducts operations in a foreign country directly through its own employees or volunteers. Hires an agent to conduct activities under the direction of the Canadian charity. Forms a joint venture or cooperative arrangement with a foreign organization by pooling resources for a specific project, or by allocating responsibility to the Canadian charity for a defined aspect of a project.In all cases, the Canadian charity must maintain direction and control over the use of the resources it provides. When the charity operates through an agency or joint venture agreement, or cooperative arrangement, it is critical to have a written agreement to establish that the Canadian charity satisfies the direction and control requirement. Equally important, the parties must operate in accordance with their detailed agreement.
In addition, the CRA requires that a Canadian charity maintain extensive documentation to establish that it actually operates in a way that satisfies the direction and control requirement. The Canadian courts have upheld the CRA's revocation of charitable status where organizations failed to maintain extensive documentation establishing their direction and control over the use of funds outside Canada.19
A Canadian charity is also required to maintain its books and records, including all of the documentation needed to satisfy the requirements described previously, in Canada. It is not permissible to maintain books and records solely in electronic form on a foreign server.
The CRA's website provides extensive guidance on this topic, including detailed lists of recommended steps to establish direction and control, provisions that should be included in written agency, joint venture, or cooperation agreements, and documentation that must be maintained on an ongoing basis.20
Australia
In Australia, a donor is eligible for a tax benefit only if the Australian nonprofit recipient has obtained Deductible Gift Recipient (DGR) status. Similar to Canada, Australia prohibits an organization from acting as a mere intermediary by receiving tax-deductible funds and passing them on to a foreign organization. Rather, an organization that wants to have DGR status, for purposes of funding foreign projects, must demonstrate that it is directly engaged in a foreign project. It does this by acting in partnership with an organization based in the foreign country.21
Specifically, an Australian organization that wants to fund foreign projects must satisfy seven requirements under the so-called Overseas Aid Gift Deduction Scheme (OAGDS). Notable among those requirements are:
The organization must have a number of members who are representative of the community in which the organization is based (i.e., must have Australian resident members). The organization must promote its Australian identity to its supporters and beneficiaries. For example, foreign projects supported by the organization might identify the organization's role, with a plaque or banner, so that the project is clearly identified as the work of the Australian organization. The organization must be engaged in development, and/or relief work, in a country that appears on a list of developing countries maintained by the Australian Minister for Foreign Affairs. Projects that are considered welfare, as distinguished from development work, are not approved. For example, donating food, clothing, and school supplies, and the provision of scholarships, are all considered ineligible welfare efforts. On the other hand, efforts that lead to sustainable benefits, such as training teachers, qualify as development activities. Projects that generate short-term benefits may qualify as relief measures when undertaken in emergency situations. The Australian organization must act in partnership with an organization based in the developing country, and must enter into a written partnership agreement setting forth the responsibilities of each party.Australian organizations that want to engage in overseas development or relief activities must provide detailed documentation to the governmental authorities demonstrating that they satisfy these requirements, among others. Once qualified, an organization must maintain continuing documentation, establishing that each foreign project funded is carried out in a way that satisfies all of these requirements.
The UK
The UK allows tax-exempt charities to fund the charitable activities of foreign organizations, subject to a requirement that a UK charity must take reasonable steps to ensure that funds are used for charitable purposes. The only exception to this requirement is where funds are transferred to a foreign supplier of goods or services in the charity's ordinary course of business.
In 2011, the UK tax authority, HM Revenue and Customs (HMRC) issued guidance (the HMRC Guidance) regarding the steps a charity must take to ensure that a payment to a foreign organization is applied for charitable purposes.22 The HMRC Guidance also describes the information and documentation a charity must provide to tax authorities to establish that it took reasonable steps.
Rather than setting forth specific requirements for all cases, the HMRC Guidance takes an approach that looks at what is reasonable under any given set of facts and circumstances. In particular, circumstances to be taken into account are:
The charity's knowledge of the overseas body. Previous relations with the overseas body. Past history of the overseas body. Amounts given, both in absolute and relative terms.The HMRC Guidance provides several examples, and indicates how the minimum requirements may be satisfied in each case. On one end of the spectrum, a thank-you note and photograph showing how the funds were used are sufficient where the donation was a one-time event, the amount was small (£500), and the UK charity's pastor had a connection to the foreign organization.
Another example sets forth the required steps in the case of a long-term (18-month) school construction project that requires more significant funding (£250,000) from the UK charity. In this case, the charity is required to prepare, and be able to produce, comprehensive evidence of the trustees' considerations in deciding to fund the project. This evidence may include a detailed project plan, a formal funding application from the overseas body, and records of the trustees' evaluation of the project. In addition, the UK charity is expected to enter into a formal agreement with the foreign recipient, providing for staged grant payments based on specific project targets, reviews to monitor project delivery, and claw-back provisions in the event the project fails.
On the far end of the spectrum is a charity that wishes to provide an endowment of £1 million to a foreign organization, to be used at the discretion of the foreign organization. In this case, the charity must obtain detailed, legally binding assurances from the foreign recipient that the funds will be applied for charitable purposes. Alternatively, the UK charity may make its own determination that the foreign organization is legally required to use the funds for charitable purposes.
It is noteworthy that, in the final example, the UK charity is required to make a determination based on foreign law. It must determine either that an agreement between the parties is binding and enforceable in the recipient's country, or that the recipient is subject to certain legal constraints. This may be a difficult hurdle in some countries and for some smaller UK charities.
The HMRC Guidance leaves many questions unanswered. Undoubtedly, the rules will become clearer over time. It is worth noting, however, that the UK has taken a very different path from that of Canada and Australia, by recognizing that merely funding a foreign charitable organization can be a charitable activity. That is, unlike Canada and Australia, the UK does not require that a UK charity be directly involved in a foreign program.
7.6 Exceptions to the Separate Legal Entity Requirement for Fundraising in Foreign Countries
While most countries afford tax benefits only to donors who contribute to domestic legal entities, there are some limited circumstances in which tax benefits are available for cross-border contributions. A few of these are described in this section.
Special U.S. Treaty Provisions
The income tax treaties between the United States and Canada, Mexico, and Israel have unusual provisions that allow U.S. taxpayers to claim U.S. income tax deductions for contributions to charitable organizations that are established in those other countries. Likewise, these treaties allow taxpayers of those other countries to claim tax deductions for contributions to U.S. 501(c)(3) organizations. In each case, there are significant limitations, described in the following paragraphs.
Canada
The income tax treaty between the United States and Canada contains a special provision that allows U.S. residents to claim U.S. income tax deductions for contributions to a Canadian religious, scientific, literary, educational, or charitable organization that meets the requirements for U.S. 501(c)(3) status. A reciprocal provision allows Canadian residents to deduct contributions made to U.S. 501(c)(3) organizations.23
A U.S. donor's deduction is subject to the normal U.S. law limit on charitable deductions (as a percentage of income), with that percentage limitation applied only to the donor's income from Canadian sources. If the donor does not earn income in Canada, for example by performing services or owning rental property in Canada, no U.S. deduction is available. A similar limitation applies to Canadian donors. The limitation does not apply to contributions to a college or university in which the donor, or a member of his or her family, is or was enrolled.
In 1999, the IRS issued a notice clarifying that a religious, scientific, literary, educational, or charitable organization that is recognized as a registered charity in Canada will automatically qualify as a 501(c)(3) organization.24 This means that U.S. donors can claim U.S. tax deductions for contributions to Canadian registered charities. Note, however, that under the IRS notice a Canadian charity is treated as a 501(c)(3) private foundation, not a public charity, unless it applies to the IRS for recognition as a public charity. As a result, individual U.S. donors may be subject to further limitations on their deductions, and U.S. private foundations that make grants to Canadian charities may have to satisfy additional requirements.25
Mexico
In 1992, the United States agreed to a special income tax treaty provision with Mexico as a way to encourage U.S. donors to support Mexican charities. In doing so, the U.S. government recognized that many small Mexican charities seeking support from U.S. donors would not have the resources necessary to form a U.S. 501(c)(3) organization.26
This special treaty provision is somewhat different from the Canadian treaty. It allows a U.S. resident to claim a U.S. income tax deduction for contributions to a Mexican charity, but only if the two governments agree that Mexican law provides standards for Mexican charitable organizations similar to the U.S. law standards applicable to U.S. public charities. A reciprocal provision applies to Mexican residents who donate to U.S. 501(c)(3) organizations.27
Assuming the treaty provision is applicable to a particular contribution, the amount of the deduction is subject to a limitation similar to that under the U.S.-Canada treaty. That is, a U.S. donor's deduction is subject to the normal U.S. law limit on charitable deductions (as a percentage of income), with that limitation applied only to the donor's income from Mexican sources. If the U.S. donor does not earn income in Mexico, for example by performing services or owning rental property in Mexico, no U.S. deduction is available. A similar limitation applies to Mexican donors.
From the time the U.S.-Mexico treaty came into force, there were lingering questions about whether and how U.S. (or Mexican) donors could take advantage of this provision. In 2003, the IRS determined that Mexican charities that received Mexican government authorization would be treated as equivalent to U.S. 501(c)(3) organizations. However, subsequent changes in Mexican law have called into question whether U.S. donors can continue to rely on that determination.28 In recent years, some major U.S. donors have been able to make qualifying donations.29 Mexican organizations that want to attract contributions from U.S. donors must obtain authorization from Mexican authorities, and will be subject to additional restrictions.30
In light of these complexities, it is critical to consult U.S. and Mexican advisors before relying on this treaty provision.
Israel
Under the U.S.-Israel income tax treaty, a U.S. resident may claim a deduction for a contribution to an Israeli charitable organization that meets the U.S. requirements for 501(c)(3) status. The deduction is limited to 25 percent of a U.S. individual's income earned from Israeli sources.31 A reciprocal provision allows Israeli residents to claim Israeli tax deductions for contributions to U.S. 501(c)(3) organizations.
As with the Mexican treaty, it is critical to consult an attorney before relying on this provision.
Estate Tax Treaties
U.S. citizens and resident aliens (see section 6.4) can receive U.S. estate and gift tax deductions for charitable gifts and bequests made directly to foreign organizations, even though they cannot take income tax deductions. However, individuals who are treated as nonresident aliens in the United States (and who are subject to U.S. estate and gift tax) are restricted in taking estate and gift tax deductions for gifts and bequests to foreign organizations, as well as to certain U.S. entities that use the gifts outside the U.S.32
A small number of U.S. estate tax treaties, along with the U.S.-Canada income tax treaty, provide limited estate tax benefits for U.S. nonresident aliens who make gifts or bequests to qualifying organizations in the other treaty country.33
Intra-European Philanthropy
Within the European Union (EU) and the European Economic Area (EEA), individual country laws are evolving to facilitate cross-border giving. As of this book's publication, a single legal entity can raise funds and operate programs in multiple EU and EEA countries. At the same time, it is often a cumbersome process for an organization that is formed in one EU country (Member State), or EEA country, to qualify in another Member State or EEA country for tax-exempt status, and for the ability to attract tax-deductible contributions.
Some recent decisions by the European Court of Justice (ECJ) have resulted in changes of law in some countries, facilitating cross-border giving within the EU.34 Notably, in 2009 the ECJ ruled that European law requires that a Member State afford the same tax benefits for contributions to a public benefit organization regardless of whether the organization is formed under its own laws or those of any other Member State. It is permissible, however, for the Member State to require that the foreign recipient organization meet its standards for public benefit status, and to impose procedures on the organization to establish that those standards are met.
Following the 2009 ECJ decision, a number of EU Member States and EEA countries enacted legislation permitting their residents to claim tax benefits for contributions to organizations formed in other Member States and EEA countries. As of this book's publication, these include Austria, Belgium, Bulgaria, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Latvia, Luxembourg, the Netherlands, Poland, Slovenia, and the UK.35
Even among those EU Member States that now afford tax benefits for cross-border contributions, the procedural hurdles can be quite burdensome. For example, a number of these countries require that a public benefit organization that is recognized in another Member State must nevertheless undergo a registration and approval process. The European Commission (EC) takes the position that these registration requirements contravene the EU rules on free movement of capital, and it has initiated proceedings against a number of countries, including the Netherlands, to challenge this practice.36
The UK responded to an EC challenge by enacting legislation that provides automatic UK charity tax status for any organization that is recognized in any other EU Member State, Norway, or Iceland, as long as the organization meets the English and Welsh definition of charity and has fit and proper management.37 The legislation affords tax benefits for UK residents' contributions to non-UK organizations that obtain UK charity tax status in this way.
Within the UK, there are separate government bodies that regulate charities for England/Wales, Northern Ireland, and Scotland. Each of those countries has its own definition of charity. Once an organization is registered as a charity in one of those countries, it can then apply for tax-exempt status, and the ability to receive tax-favored contributions through the UK tax authority, HM Revenue and Customs.
German residents are eligible to deduct contributions to organizations formed in other EU Member States, or EEA countries, only if the recipient organization's activities could benefit Germany's reputation or support individuals who are permanent German residents.38
To further facilitate cross-border philanthropy in Europe, nonprofit organizations have been supporting the concept of a European Foundation Statute (EFS), which would allow organizations to create a single legal entity that would be recognized, based on uniform standards, in all EU Member States, without the need to comply with further procedures. The EFS would also facilitate transfers of an organization's registered branch or headquarters, and would eliminate intra-EU discrimination with respect to tax benefits for donors who contribute to organizations established outside their home countries.39 As of this book's publication, the European Commission has adopted the EFS, and it is proceeding through the approval process.
Additional Exceptions
There are some countries, notably within Europe, that afford tax benefits to residents who contribute to organizations established in other countries, even outside the EU or EEA. Many, if not most of the countries that afford deductions for contributions to foreign (and non-EU or EEA) organizations, require some form of registration or approval to ensure that foreign recipient organizations satisfy their standards.
The procedural difficulty of qualifying and maintaining qualification varies significantly among countries. In a number of European countries, such as the Netherlands, it is necessary to satisfy governmental officials that the organization meets the particular country's definition of a charity or public benefit organization, terms that have no universally accepted meanings. A single entity may find it difficult to satisfy the requirements of multiple jurisdictions, and may ultimately choose to form separate entities.
7.7 Structuring Relationships among Fundraising and Operating Entities
As we have seen in this chapter, once you decide to raise funds in multiple countries, you will probably need to create separate legal entities in all or most of those countries. Before proceeding, you will need to identify the most appropriate form of legal entity, taking into account the scope of activities you intend to conduct in the short and longer terms. Do you intend only to raise funds, or might you also operate programs in that country? In some countries, there is a form of legal entity used solely for fundraising and grantmaking. It is worthwhile thinking this through in order to avoid having to create a new entity should you change or expand your activities in the future.
It is also important to give careful thought to structuring relationships among various fundraising and operating entities. If you are forming an entity in one country to raise funds for programs in another, you may well be concerned about maintaining a consistent image, brand, and/or message with donors and others. In Chapter 5 we explored a variety of ways to maintain control over a separate legal entity, and that discussion is relevant here. You should be aware, however, that some countries impose more restrictions on fundraising entities than on operating entities, for example by requiring local control of the board, membership, or both. For this reason, you may have to rely on contractual arrangements to achieve the desired control over your brand in a foreign country. See section 5.5. Even in more restrictive environments, it should be possible to achieve your objectives through careful drafting of agreements.
7.8 Keep It as Simple as Possible
By the time you have decided to create one or more fundraising entities to support activities in other countries, you have traveled quite far down the road toward complexity. As we saw in Chapter 5, separate legal entities trigger ongoing legal compliance and reporting requirements, and these administrative burdens can be even greater for fundraising entities. If you choose to raise funds in countries that, like Canada and Australia, require that the fundraising entities conduct projects directly, you will have another layer of complexity to deal with.
At this point in the book, it goes without saying that you must evaluate whether the benefit to your mission warrants the burdens of maintaining multiple entities in multiple countries. Assuming they do, your mantra should be simplicity, wherever possible. For example, if you create a Canadian entity to raise funds in Canada, have that entity enter into a joint venture agreement with one single foreign entity for purposes of operating a discrete project. Avoid complex funding arrangements that involve multiple party agreements.
Finally, above all, be sure that you can comply with all of the terms of any written agreements between any of the separate country entities you create. You may hire lawyers in various countries to draft agreements that satisfy the government authorities, but those agreements will not help you if you can't implement them in accordance with their terms. Be sure to question anything that seems too complex or burdensome. There may be a simpler solution.
7.9 Review and Further Considerations
In this chapter, we have seen that if you want to raise funds from donors outside the United States, you may have to establish a separate legal entity in the country in which your donors reside. If you are raising funds in one country for use in another, you may have to comply with additional requirements and restrictions under the laws of the donor's country. Establishing and maintaining multiple fundraising entities adds another layer of administrative complexity for your organization. It's important that the benefit justify the burden.
In Chapters 8 and 9, we turn away from the subject of how to structure international activities, to focus on some additional U.S. and foreign legal and practical issues that international nonprofit organizations often encounter. Without going into depth on any particular topic, these chapters help identify the questions your organization may need to consider, and may serve as a starting point for discussions between the organization and its legal advisors.
Notes
1. For a country-by-country summary of the legal, tax, and cultural environments for in-country and cross-border private philanthropy, see “Global Institutional Philanthropy: A Preliminary Status Report,” A Report of WINGS: World Wide Initiatives for Grantmakers Support, and TPI: The Philanthropic Initiative (2010), Parts 1 and 2, available at www.wingsweb.org.
2. Id. at 8.
3. For an overview of giving patterns among 153 countries, see Charities Aid Foundation (CAF), “World Giving Index: A Global View of Giving Trends” (2011), available at https://www.cafonline.org/publications/2011-publications/world-giving-index-2011.aspx.
4. See Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980); Secretary of State of Md. v. Joseph H. Munson Co., 467 U.S. 947 (1984); Riley v. National Federation of Blind of N.C., Inc., 487 U.S.781 (1988).
5. See section 10.5.
6. See “Survey of Arab NGO Laws,” Global Trends in NGO Law 1, no. 4 (March 2010), at 9, available at www.icnl.org/research/trends/trends1-4.html.
7. The mechanics of providing tax benefits to donors also varies among countries. For example, in the UK a donor may elect to use Gift Aid, whereby a donor contributes after-tax funds rather than taking a tax deduction. The government then contributes to the charity an amount equal to the tax paid on those funds.
8. For summaries of tax incentives for philanthropy in a number of countries throughout the world, see “Global Institutional Philanthropy: A Preliminary Status Report,” supra note 1.
9. The UK is one country that, as of the time of this book's publication, does not impose any cap on tax benefits for charitable giving. A 2012 government proposal to impose a cap was met with strong opposition from the charitable sector, and was ultimately withdrawn, in May 2012.
10. A 2006 Report commissioned by Charities Aid Foundation noted that, “there is yet no international research comparing the precise effects of different tax reliefs on levels of giving.” CAF Briefing Paper, International Comparisons of Charitable Giving” (November 2006), 10, available at https://www.cafonline.org/publications/archive/international-giving.aspx. In the United States, proposals to cap the charitable deduction for wealthy taxpayers have generated extensive debate over the extent to which tax benefits motivate individual giving. In 2011, Indiana University published a study concluding that individual giving is affected by changes in tax benefits. See The Center on Philanthropy at Indiana University, “Impact of the Obama Administration's Proposed Tax Policy Changes on Itemized Charitable Giving” (October 2011), available at www.philanthropy.iupui.edu/research-by-category/tax-policy-and-giving-2011.
11. See CAF Briefing Paper, “International Comparisons of Charitable Giving,” supra note 10, at 10.
12. Appendix B lists some resources for finding organizations, based in the United States and abroad, that support organizations and projects outside the United States.
13. More information about the Charities Aid Foundation is available at www.cafonline.org/about-us/international-network.aspx.
14. See David Moore and Douglas Rutzen, “Legal Framework for Global Philanthropy: Barriers and Opportunities,” The International Journal of Not-for-Profit Law 13, no. 1–2 (April 2011), 9, available at www.icnl.org/research/journal/vol13iss1/index.htm.
15. Ineke A. Koele, International Taxation of Philanthropy (IBFD: Amsterdam, 2007), 4.
16. David Moore and Douglas Rutzen, “Legal Framework for Global Philanthropy,” supra note 14, at 9.
17. A 2011 report published by Charities Aid Foundation found that Canada, Australia, and the UK were seventh, third, and fifth in the world for charitable giving. Charities Aid Foundation (CAF), “World Giving Index,” supra note 3, at 11.
18. See Canada Revenue Agency (CRA) Guidance: “Canadian Registered Charities Carrying Out Activities Outside Canada, Ref. No. CG-002, July 8, 2010, available at www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/tsd-cnd-eng.html.
19. Id.
20. See also Patrick Boyle, Robert Hayhoe, Lisa Mellon, and LaVerne Woods, “Canada–U.S. Boundary Issues for Cross-Border Charitable Activities,” Taxation of Exempt Organizations 18, no. 03 (WG&L) (November/December 2006).
21. Detailed information about how an Australian organization can qualify to receive tax deductible contributions to support projects outside of Australia can be found on the Australian government website at www.ausaid.gov.au/publications/pages/oagds-guidelines.aspx.
22. The guidance is found at www.hmrc.gov.uk/charities/guidance-notes/annex2/annex_ii.htm#9.
23. Convention Between The United States and Canada With Respect to Taxes on Income and Capital (1983) (“U.S.-Canada Income Tax Treaty”), Article XXI, available at www.irs.gov/Businesses/International-Businesses/Canada---Tax-Treaty-Documents.
24. IRS Notice 99-47, I.R.B. 1999-36, 344 (September 1999).
25. For a discussion of the effect of Notice 99-47 on U.S. private foundations, see Patrick Boyle, Robert Hayhoe, Lisa Mellon, LaVerne Woods, “Canada–U.S. Boundary Issues for Cross-Border Charitable Activities,” supra note 20.
26. Treasury Department, Technical Explanation of the Convention Between The Government of The United States of America and The Government of The United Mexican States for the Avoidance of Double Taxation (1992), Article 22, available at www.irs.gov/businesses/international/article/0,,id=169680,00.html.
27. Convention Between The Government of The United States of America and The Government of The United Mexican States for the Avoidance of Double Taxation (“U.S.-Mexico Income Tax Treaty”) (1992), Article 22, available at www.irs.gov/Businesses/International-Businesses/Mexico---Tax-Treaty-Documents.
28. IRS Information Letter 2003–0158, March 17, 2003. For additional background and updates, see www.usig.org/countryinfo/mexico.asp.
29. As reported in “Enabling Reform: Lessons Learned from Progressive NGO Legal Initiatives,” Global Trends in NGO Law 2, no. 3 (December 2010), 8, available at www.icnl.org/research/trends/trends2-3.html.
30. See “Beyond Borders: Observations for U.S. organizations considering nonprofit incorporation in Mexico,” published by U.S.-Mexico Border Philanthropy Partnership (2010), found at www.borderpartnership.org/membership/publications.html.
31. Convention Between The Government of The United States of America and The Government of the State of Israel with Respect to Taxes on Income (1975) (“U.S.-Israel Income Tax Treaty”), Article 15-A, added by Protocol I (1980), available at www.irs.gov/Businesses/International-Businesses/Israel---Tax-Treaty-Documents.
32. I.R.C. §§ 2055(a)(2), 2106(a), 2522(a)(2).
33. U.S.-Canada Tax Treaty, supra note 23, Article XXIX. A list of U.S. estate and gift tax treaties in force is available on the IRS website at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-&-Gift-Tax-Treaties-%28International%29.
34. Hein Persche v Finanzamt Lüdenscheid, Case C-318/07, European Court of Justice (ECJ) Case C-318/07 (2009), available at http://bit.ly/fzDXb3. For additional information about the Persche case, and updates on its impact, see The European Foundation Center website, available at www.efc.be/programmes_services/advocacy-monitoring/Taxation-and-foundations/Pages/EU-level-tax-and-cross-border-issues.aspx.
35. See European Foundation Center, “Comparative Highlights of Foundation Laws: The Operating Environment for Foundations in Europe” (2011), available at www.efc.be/programmes_services/resources/Pages/Foundations-FAQ.aspx.
36. See European Foundation Center (EFC) Briefing, “European Commission refers Netherlands to court over discriminatory treatment of foreign public benefit organizations,” April 15, 2011, available at www.efc.be/programmes_services/resources/Documents/befc1106.pdf.
37. See EFC Briefing, “UK Extends Tax Incentives to Cross-Border Giving,” April 8, 2010, available at www.efc.be/programmes_services/resources/Documents/befc1025.pdf.
38. David Moore and Douglas Rutzen, “Legal Framework for Global Philanthropy,” supra note 14, at 13.
39. For updates on the EFS, see www.efc.be/programmes_services/advocacy-monitoring/European-Foundation-Statute/Pages/default.aspx.