Donation States: An international comparison of the tax treatment of donations

Donation States, future world giving, charities, charity, incentives, relief, donations, philanthropy, philanthropists

Tax incentives can play an important role in encouraging people to give money to charitable causes. However, there has been surprisingly little research into where and how they are offered around the world, how they are justified politically or even how effective they are.

 

Discussions of tax incentives for donors are often the preserve of a pretty niche audience. Even within civil society we are often content to let our fundraising colleagues worry about such matters whilst many wealthy philanthropists, more concerned with their chosen causes, are happy to leave wealth advisors and accountants to worry about tax implications. However, I hope that my new report will convince everyone that tax incentives for giving are actually the silent hand that is shaping the civil society of the future – and not necessarily for the better.

 

Donation States: An international comparison of the tax treatment of donations, compares the tax incentives on offer for giving and the system through which they are offered in 26 nations. The report details not only the relative values and limits of incentives – which vary wildly in our sample – but also profiles how civil society organisations (CSOs) gain donor incentivised status, how donors claim incentives, and the various forms that incentives take.

 

tax incentives, philanthropy, donors

Incentive value on a US $10,000 donation for a wealthy donor – click to enlarge

The report looks beyond the old democracies of Western Europe and North America to nations that are still developing their approach to encouraging giving. By including nations as diverse as Peru, Nigeria, Bangladesh and Vietnam we have been able to shed light on the potential for the growth of giving in some of the world’s future economic giants. This builds on previous work within the Future World Giving project which aims to establish a framework of recommendations for maximising the potential of future generations of global donors.

 

Donation States makes a number of striking conclusions. It finds for example that too many countries risk crowding out ordinary donors due to incentives regimes which are only accessible, or are disproportionately more generous for wealthy people. It also finds that some countries, particularly in emerging economies, offer more generous incentives for corporations than for people. The report warns that whilst such a policy might be implemented for pragmatic reasons, it is likely to damage public trust as people question the fairness of the system and limit widespread engagement in charitable giving in the long run.

 

The report will be of interest to those with an interest in a trend that has become known as the closing space for civil society whereby governments are seeking to restrict the advocacy and campaigning activities of CSOs. It finds that by offering incentives only for causes which align with the government’s agenda, some countries are skewing civil society and silently marginalising its independent voice.

Future World Giving, incentives, credit, deduction, relief, donations

Range of public benefit purposes for which tax incentives can be claimed on donations for individuals and companies – click to enlarge

Some of the key findings of the report include:

  • Greater numbers of people and businesses give to charity in countries which offer tax incentives on donations. People are 12 percentage points more likely to have given to charity in the past month if they live in a country which offers tax relief on donations than if they live somewhere which does not.
  • The value of tax incentives appears to have a direct impact on how much people give, with more money given when the value of tax incentives increases. Incentives are most effective in nations with higher rates of income tax.
  • Corporations tend to get more and bigger tax incentives than individuals. 77 per cent of countries offer tax incentives to businesses making charitable donations compared. 66 per cent offer incentives to individuals.
  • In some countries, tax incentives are being used to sideline parts of civil society which do not conform to the government’s agenda.

An important if nuanced finding of the report relates to how incentives are justified politically as this may impact on the form that relief takes (credit or deduction), their value to the donor and the causes which are incentivised. As in all areas of political thought, we are all guilty of seeing areas of consensus as somehow natural. In countries which offer generous tax incentives this has led to complacency about the future of tax incentives for giving and an intellectual stagnation in the debate about why they are justified. As policy makers are beginning again to look at such incentives as a potential area for revenue savings, we must redress this oversight.

 

Venn diagram of forms of relief for individual donors - click to enlarge

Venn diagram of forms of relief for individual donors – click to enlarge

The default argument for generous tax incentives for giving often flows as follows: The government should see tax incentives as value for money because so long as donors give more as a result of them, the state will benefit from the charitable provision of services which it would otherwise have to provide. The report finds that argument to be fundamentally flawed.

 

By justifying incentives as an alternative service delivery model we exacerbate the closing space for civil society by vindicating state attempts to silence criticism of its policies. A government might well point out that it agrees with the notion that incentives are justified as they result in an augmenting of public service delivery but that campaigning for LGBT rights or against environmentally damaging business does not constitute a service that the state wishes to provide. The report suggests that we justify incentives on the basis that they encourage a vibrant and diverse civil society which can be shown around the world to have brought about positive outcomes.

 

This new report provides the in depth analysis to compliment the breadth of Rules to Give By: A Global Philanthropy Legal Environment Index, which profiles the basic rules that underpin philanthropy in all 193 UN recognised nations. Like that report, which was produced in conjunction with Nexus and McDermott, Will & Emery LLP, Donation States benefited hugely from pro bono legal support through Trustlaw – an award winning initiative by the Thomson Reuters Foundation – through which we were able to work with DLA Piper, Doulah & Doulah, General Electric Company, and Grünkorn & Partner Law Co., Ltd.

 

As well as publishing this report, CAF is also making available detailed notes for all 26 nations. I encourage you to read the report and use the information it, and the country notes contain and I would be interested to hear your thoughts.

 

 

 

Adam Pickering

 

 

 

 

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