Tax & Legal

The free movement of capital under Article 63 of the Treaty on the Functioning of the European Union is not violated if the tax treatment of a donation to a foundation based in the Swiss Confederation is subject to national requirements that apply in the Member State of the donor. According to the Supreme Tax Court, the national legislature is not obliged to recognize the charitable status under foreign law.

Donations to a foundation with legal capacity established by a federal state are not exempt from gift tax if, according to the purposes specified in the statutes of the foundation, the donations do not exclusively serve the purposes of the federal state and are not exclusively used for tax-privileged purposes. This is the conclusion reached by the Supreme Tax Court in a recently published decision.

According to a decision of the Supreme Tax Court, the mere fact that a foundation returns the amount it previously received from the donor to the latter within a short period of time as an interest-bearing loan and uses the interest income earned to promote its tax-privileged statutory purposes is not in itself a reason to deny the tax-deductibility of the contribution as donation.

Membership fees paid to a charitable organization that promotes cultural activities which mainly serve the furtherance of recreational and leisure activities are not deductible as special personal expenses for income tax purposes.

In coordination with the Supreme Tax Authorities of the federal states ("Länder"), the Federal Ministry of Finance published further tax measures to assist those affected by the Corona crisis in its circular dated 9 April 2020.

The Supreme Tax Court decided in three separate cases that the payment of excessive consideration under the terms of a contract between a GmbH and a party related to the shareholder is not a partial gift by the GmbH, if the shareholder was involved in the conclusion of the contract between the GmbH and the related party. In such a case the benefit granted arises from corporate relationship between the GmbH and the shareholder. With these decisions the Supreme Tax Court has changedn its earlier jurisprudence on this question.

The Federal Ministry of Finance published a circular on 15 January 2018 on crowdfunding and the conditions for its deduction as a charitable donation. The circular defines various types of crowdfunding and makes a distinction between classic crowdfunding, donation-based crowdfunding and debt-based crowdfunding (also referred to as peer-to peer lending or crowdlending).

The Supreme Tax Court has held that donations to charities in other EEA countries must be supported by receipts and other documents. These documents need not necessarily be completely in conformity with the German forms, though they should demonstrate the substance.

The Supreme Tax Court has held that a donation to a charity registered in another EU/EEA member state is only deductible if its statutes and actual management conform to all the German requirements.

The finance ministry has added to its previous decree removing some of the formality from the required documentation of donations for the benefit of natural disaster victims in Japan.

The finance ministry has called on tax offices to follow the ECJ Persche case on donations to EU charities, provided the taxpayer shows that the charity would have qualified as such in Germany.