Procedure to allow donations to European organizations to be tax-deductible in France

In this document, we explain:

• Which donations are tax-deductible in France
• Why should donations to European organizations could be tax deductible in France
• How can one ensure their tax deductibility in France
• Trans-Giving Europe (TGE)
• Getting the organization declared of general interest
• Protecting regranting organizations through legal advice
• Which organizations we recommend this for

Why would it be interesting to consider tax deductibility in France

French charitable giving amounts to approximately 8 billion euros annually, and French tax-payers benefit from considerable advantages:

• Individuals can deduct 66% of the donation amount from their income tax
• Very wealthy individuals can deduct 75% of their donation amount, up to €50,000 per year, from their specific tax (a tax on real estate assets exceeding €1.3 million)
• Companies can deduct 60% of the donation amount from their corporate income tax
• In the case of donations from companies made in favor of NGOs that do research, some of it also can be tax deductible (Crédit Impot Recherche).

These tax advantages are noteworthy. For example, given the 66% deduction rate, in certain situations a French tax payer can effectively triple their donations.

Which donations are tax-deductible in France

According to French law, in order to be tax deductible, organizations must:

• be of general interest, which means:
  • it serves one of the following purposes: "philanthropic, educational, scientific, social, humanitarian, sporting, family, cultural or contributing to equality between women and men, the enhancement of artistic heritage, the protection of the natural environment or the dissemination of French culture, language and scientific knowledge."
  • it does not engage in profit-making activities,
  • its management is disinterested,
  • it does not operate for the benefit of a restricted circle of people.
• have its head office located in the European Union or in another State party to the Agreement on the European Economic Area (EEA) that has signed an administrative assistance agreement with France to combat tax fraud and evasion.

The status "of general interest" is automatically granted to foundations (as conditions for this are checked before the foundation is created), whereas for associations and endowment funds, it is up to the NGO to decide whether they believe their NGO is "of general interest". NGOs can thus issue a receipt for tax deduction to donors without asking the French government for permission. However, the French government randomly checks both NGOs and/or for tax-paying individuals. For instance, if an individual is randomly selected to be audited, then all the NGOs to which this individual has donated to and declared for tax deduction will be audited too.

Note saliently that not all NGOs can be tax deductible. For instance, a non-profit might not be recognized as a public utility if it serves religious interests; if it serves a particular group of people, such as a local sports group or an NGO lobbying for a particular profession; or even if it disseminates scientific knowledge that is not produced within France.

Note also that organizations that are not based in the EEA will typically not be eligible, because e.g. the USA has not signed an administrative assistance agreement with France to combat tax fraud and evasion. An important condition of tax deductibility is the tracing of money from the donor all the way to final recipients of benefits of the work of the non-profit.

Reasons to assume that donations to European organizations should be tax deductible in France

The European Union (EU) law has two relevant pieces of legislation, which apply within the European Economic Area. First, the EU allows for the tax reduction when the aid serves a broader public interest (similar to the status “intérêt général” in France), such as aid for social purposes, cultural activities, or environmental protection. Second, the EU  has a blanket "no unfair competition" clause (Stauffer (C-386/04)), which means that similar rules must be applied to organizations from one's own country and other EEA countries. Combining these legislations means that French taxpayers can receive tax benefits for donations made to non-profits in other EEA countries if those organizations meet the criteria established by French law. Hence, NGOs must prove:

• Compliance with both French and EU regulations to maintain their tax-exempt status and any state aid they receive.
• Transparency, to demonstrate that any support they receive serves the public interest and does not distort competition.
• Monitoring to ensure compliance.

Practically, this means European non-profits must meet specific conditions to be tax-deductible in France. Something that makes these additional conditions obvious comes from comparing the list of organizations that are part of Trans-Giving Europe (TGE) and those available within TGE's representative in France (Fondation de France). TGE is a cross-border philanthropic network within Europe, focused on facilitating donations and support for non-profits across European countries which are a great deal more limited. Fondation de France, even if it is the French antenna of TGE, takes legal responsibility for any regranting, and thus filters out many organizations that, it would appear to us, should be eligible. An interesting example of this is GiveDirectly, which is part of TGE but was not accepted by Fondation de France.^[1] 

How can one ensure their tax deductibility in France

Trans-Giving Europe (TGE)

An obvious first choice is to accompany EU-based organizations through the TGE registration process. An advantage of this option is that it theoretically opens them to receiving donations from the whole of Europe; the disadvantage for us is that Fondation de France engages in an additional layer of selection, which we believe effectively means we could toil for registration in TGE with no gain. Also, NGOs have told us TGE procedures require additional work on their side such that it may not justify their maintaining the registration. A last argument is that we checked whether the other European effective giving institutions would be interested if we do so, since they would be also able to get access to these new non-profits with their local TGE. They all declined, except for the Belgian one.

Getting the organization declared of general interest

This second option is similar to how a French non-profit can try to gain the label of "general interest" through a "rescrit fiscal"; in the case of a non-French NGO it is called "agrément". Informal advice suggests that it is better not to ask for this label (agrémént or rescrit), as the procedure is cumbersome and typically results in a refusal. One source specifically told us that the first response will always be a refusal; that an appeal will also result in a refusal; and that the "general interest" label is only conceded after the administration is sued over this decision and loses the trial. A better alternative is to thus operate within the confines of the law, and be ready to prove the status of general interest if an audit occurs.

Protecting regranting organizations through legal advice

So how can we protect a regranting organization and/or donors giving through it in case of an audit? Clémentine Bacri, in consultation with lawyers at the Legicoop firm (hired by Don Efficace), found the following idea for a protective procedure, involving at least (a) a non-profit hoping to eventually receive donations -- we'll call it the "recipient"; (b) a French association -- we'll call it the "regrantor"; and (c) a French law firm:

1. The regrantor receives from the recipient all the documents needed to prove general interest in case of audit -- we call this the evidence. Note that these documents are quite extensive. A form that was prepared for Don Efficace with a complete list can be found here. Note that the documents in that form only pertain to the recipient. It may also be required to prove that very similar organizations within France are considered eligible recipients. For instance, Sinergia Animal & Dansk Vegetarisk Forening do not easily fit in the typical definition of eligible activities; arguably, if they act to improve animal welfare one should argue that their purpose is to help protect the environment, but our advisor firm defined this as: combating pollution and nuisance, preventing natural and technological risks, preserving fauna, flora and sites, preserving environments and natural balances, improving the quality of life in urban and rural sites. We think that a strategy for this may be to also provide evidence of the similarity between the activities of a French organization and the recipient; for instance, L214 may have similar programs. Ideally, this similar organization will be "too large to fail" or have a rescrit.
2. Once the regrantor has made sure that the recipient has provided all relevant documents, they can provide them to the law firm. The law firm may require that at least some of them are translated into French.
3. The law firm looks over the documents and issues a letter to the regrantor stating that, according to the available evidence and current legislation, the recipient should be eligible for tax deductibility in France.
4. The regrantor stores this letter and the evidence in a safe location, and the law firm keeps a copy for 10 years in case this information is needed later and e.g. the regrantor no longer exists.
5. From this point on, the regrantor can deliver funds to the recipient with no risk for:
   1. the donor (because they can say "the regrantor has given me a receipt, so they accept legal responsibility")
   2. the regrantor (because they can say "the law firm has given me a letter, so they accept legal responsibility if they are wrong")
   3. the law firm in that they have calculated their risk and rely on it being covered by their liability insurance.

Note that there is never any risk for the recipient, as per French legislation.

We wondered how frequently one should get a letter from the lawyers. Audits can go back for up to 5 years, which means that one should keep evidence and letters for at least 5 years since the last donation. Another time lapse to consider is that the agrémentation procedure is valid for 3 years, so another time frame would be setting that as a time limit. However, our law consultation revealed that, at least theoretically, if a recipient has not changed its activities nor any other characteristics that may affect its eligibility to "general interest" (e.g., changes in the governing body), it should be the case that the letter would still be valid.

If a sufficiently large number of organizations would benefit from this, it may make sense to pivot the strategy slightly. For example, another organization (such as GWWC or Effektiv Spenden) may be interested in centralizing the documents, so as to also facilitate similar processes of recognition in other countries. Yuval Shapira, a former EA Israel member, is also interested in serving this role.

Eventually, the regrantor may be willing to accept legal responsibility if they feel quite certain that the administration will not pose a problem. For instance, if the regrantor has been doing this for 20 years and has undergone several audits without issues, perhaps the regrantor will be willing to try to not rely on the law firm so as to cut costs.

Which organizations we recommend this for

At present, there are 4 organizations that have been recommended and/or funded by international evaluators and that are based in EEA:

• GFI Europe
• Future Cleantech Architects
• Sinergia Animal
• Dansk Vegetarisk Forening

As to whether it is cost-effective to apply the procedure described above to any of them, this depends, of course, on the ratio between cost and benefit. Our current estimate for cost is 3k€ for the law firm + 1k€ translations + time from the regrantor and recipient, which will likely be dependent on the complexity of the organizations carried out by the recipient.

One way to estimate benefits would be as follows:

• Estimate how much people in France donate today to a recipient, for instance through the GWWC or Mieux Donner platforms or based on the recipient's own statements. These donations do not benefit from tax reduction.
• If the procedure is successful, donors could theoretically give three times as much at the same cost to them. However:
  • Not every donor is rationalist in the way that they donate and may not donate 3x even if it costs them the same; some research suggests that, in fact, donors' behavior is not greatly affected by tax relief (see eg this).
  • In the French case in particular, given how tax eligibility works, donors would only benefit from the x3 if 1. they are able to front the money (since they'll receive the 2x back only later) and 2. they do not max out on their tax deduction allowance.
  • We believe a more reasonable estimate is to assume 1.5x
• As a result, the benefit would be .5x of the total amount currently donated to a given recipient
• One could also add an estimate of the amount given by french donors to actual french NGOs that pursue similar objectives, if hoping to convince a fraction of them to transfer their donations to these more effective foreign NGOs

Another open question is who would fund this initial procedure. We can imagine that the agents most likely to be interested in funding it will be: the recipients themselves; organizations that attempt to increase donations to highly effective charities (like OpenPhil); and regranting organizations in France.

A final open question is who should do this, i.e. the identity of the regrantor. We described things above as if the regrantor is an NGO because we assumed many people may want to e.g. give to GFI, and it would protect them personally if an NGO assumes the responsibility. However, the procedure we describe could be requested by an individual taxpayer, particularly one whose donation levels may individually justify the "investment" in protecting their donation.

Acknowledgments

We are grateful to the many people who have provided feedback on Don Efficace and our legal strategy, including: Mata'i Souchon, Jeremy Saada, Corentin Biteau, Thomas Beuchot, Guillaume Vorreaux, Romain Barbe, and Florent Berthet. They bear no responsibility over the content of the present post.

1. ^{^}

    A member of Fondation de France answered a private donor in an email: "Dans le cas de Give Directly UK, nous ne sommes malheureusement plus en mesure de générer des reçus fiscaux et de redistribuer les fonds à l’organisation, en raison notamment du fait de leur activité importante de redistribution/relais d’argent à des personnes ou à des familles (cercle restreint), et selon leur propre critère de sélection sans due diligence en amont du partenaire TGE délivrant le reçu fiscal (la Fondation de France)." Translation: "In the case of Give Directly UK, we are unfortunately no longer in a position to generate tax receipts and redistribute funds to the organization, mainly due to their significant activity in redistributing/relaying money to individuals or families (restricted circle), and according to their own selection criteria without upstream due diligence of the TGE partner issuing the tax receipt (the Fondation de France)."