The tax legislation of many EU Member States provides for some type of tax deductibility for donations to charitable bodies. Often this deductibility is limited to a maximum amount and subject to strict procedures and formalities, yet must still respect free movement of capital or even the free movement of goods (in the case of donations in kind).

On 27 January 2009, the European Court of Justice (ECJ) ruled on whether these limitations and formalities are contrary to the free movement of capital (Persche v Finanzamt Lüdenscheid [2009] C-318/07) and whether a Member State’s national requirements are sufficient to justify a difference in treatment between charitable bodies based on the national territory and others.

The ECJ decided that national legislators were indeed entitled to refuse the tax deductibility of gifts to charitable bodies established in other Member States if the former pursued objectives other than those advocated by the legislation of the Member State that would have to grant the deduction.

Furthermore, the ECJ did not see a threat to the effectiveness of a Member State’s fiscal supervision and enforcement, as long as sufficient proof of the donation is provided, as well as the conditions under it which was given.

This case shows that EU Member States cannot restrict the tax deductibility of gifts only to charitable bodies located in their national territories if the “foreign” organisation advocates goals for which it would have received charitable status under that Member State's national tax law and the reality of the donation can be proven.