Traditionally, EU Member States have restricted charitable tax reliefs to domestic charities meaning that a legacy to a foreign charity may attract a tax liability. However, the European Court of Justice has established a general principle of non-discrimination in line with the free movement of capital.

As many UK charities will know, theory and practice with regard to the application of non-discrimination in France have not always been aligned. French domestic law previously granted tax exemption only to legacies to French charities. Even after the law changed local notaries and tax authorities have often resisted application of EU law and the principle of non-discrimination.

Over the years we have successfully secured exemption in a number of French inheritances – challenging (discreetly) discriminatory treatment.

On 29 December 2014 France introduced a new Finance Law, ostensibly aimed at making France compliant with EU law and an EU-based charity may now benefit from the same tax-privileged status as a French charity if it:

  1. satisfies the requirements applicable to French charities; and
  2. receives a ruling from the French tax authorities confirming its eligibility for charitable tax relief.

Taking these in turn, the EU-based charity must have similar characteristics to French eligible charities and the legacies received must be applied toward activities similar to those of a French registered charity. Further, the proposed legacy to the EU-based charity must be allocated to ‘eligible activities’. As always the devil is likely to be in the detail and its application – it remains to be seen what activities will be considered ‘eligible’.

Tax relief in relation to lifetime gifts by French citizens to EU-based charities is subject to a local benefit requirement. The legislation is unclear as to whether this also applies legacy giving – nothing in the legislation itself suggests it does.

We are working closely with French lawyers on a number of French inheritances. One French charity lawyer’s opinion is that the local benefit requirement will apply unless the charity is aimed at providing humanitarian aid (one of the few charitable causes France appears to recognise!). If this is the case, the EU-based charity receiving a legacy, in addition to satisfying the two criteria above, will also have to satisfy the French tax authorities that the legacy will be applied to activities:

  1. providing benefit in France; or
  2. providing humanitarian aid to distressed populations (in cases of war, disaster); or
  3. promoting French culture, language or science.

Clearly, the additional local benefit requirements fly in the face of the non-discrimination principle and make no sense in light of the perceived rationale for this new law. Where Member States have failed to bring in compliant non-discrimination legislation the EU Commission appears to be showing more willingness to flex its muscles and bring infringement proceedings against the Member State for such non-compliance.

However, in the interim we continue to secure exemption for UK charities from succession taxes.