Why we need to make it easier to give across borders

 

Derek Ray-Hill

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The crisis in Ukraine has captured global attention – and people have responded with a deep desire to help refugees and support the charities delivering aid on the front lines. Yet the war layers on top of other ongoing global crises, including the Covid-19 pandemic, natural disasters, and conflicts in other regions.

It is timely then that the Lilly Family School of Philanthropy at Indiana University recently released their 2022 Global Philanthropy Environment Index (GPEI). The report maps philanthropic environments and provides insights into the state of philanthropy on a global scale. According to the index, more than three-fifths (62 per cent) of the 91 economies in the study reported a favourable philanthropic environment in 2018-2020.

Cross-border giving – the technical term applied to any donation that qualifies for tax relief in one country and is given directly to a foreign charity – is not new. But as more disasters and crises occur, it has become an increasingly popular way to give.

In the last financial year, Charities Aid Foundation (CAF) helped deliver almost £1bn to over 100,000 charities in 110 countries. About a fifth of those donations moved across borders, originating from our offices in the UK, the United States and Canada. Much of it went to local civil society organisations and continues to support numerous appeals for crises. Notable individual examples from the UK include AstraZeneca’s Youth Health Programme and Johnson Matthey’s Science and Me programme, which both put their social purpose into practice by giving grants to international community organisations.

However, the GPEI warns that the space for philanthropy is shrinking. It is true that in the recent past we have seen new barriers being put in place which impede cross-border giving. In India, the government introduced new restrictions as part of the Foreign Contributions Regulation Act 2020 (FCRA 2020) which, among other measures, disallowed the onward granting of funds between FCRA compliant organisations.

In the UK, we still need more information on how Brexit might impact donors’ ability to make tax-effective donations; for example, from European Union (EU) Member States into the UK. However, as my colleague Daniel Ferrell-Schweppenstedde wrote previously, philanthropy can help the UK to build bridges with Europe and the appetite for increased collaboration with the UK is already there. Some practical solutions are already in place and CAF is a proud partner in the Transnational Giving Europe network, which allows donors to give to causes across Europe.

Despite the massive potential of cross-border philanthropy, this means of giving is often limited by restrictive global frameworks, with a complex web of national policy decisions and tax systems varying from country to country. The GPEI notes that many countries continue to report regulatory burdens that limit cross-border donations.

Even in the UK, which has a relatively liberal system, there are still considerable administrative burdens, and the complex rules can make giving difficult for individual donors. Organisations such as CAF need to collect information to ensure fund recipients fulfil national definitions of charitable causes, while also fulfilling our obligations to minimise the risk of contravening AML (Anti-Money Laundering) & CFT (Counter the Financing of Terrorism) regulations. When sending charitable funds and fulfilling these requirements across multiple jurisdictions and in various languages, costs grow substantially and, in some instances, act as a barrier to operating in certain geographies altogether.

Building on the desire to give cross-border, the UK has an opportunity to position itself as a global frontrunner in enabling cross-border giving. This world-leading position could not only enable various types of donors (both the general public and high-net-worth donors, institutional funders, businesses), but also grow a global centre of excellence for philanthropy and social investment that attracts others to move their giving activity to the UK.

The US provides a potential regulatory template to consider to facilitate donors’ ability to grant funding internationally. The American tax authorities formally endorse cross-border philanthropy via two different schemes: Equivalency Determination and Expenditure Responsibility. Expenditure Responsibility requires a review and funding of a specific charitable project and calls for at least annual reports on the expenditure of granted funds. Equivalency Determination is the process through which a US foundation makes a good-faith determination that a non-US grantee would meet the requirements of a US Public Charity registered under IRC Section 509(a). This is a review of the organisation itself rather than of a specific project and allows for unrestricted grants without the legal requirement to collect grant reports.

These two existing and well-tested mechanisms can serve as valuable reference points which could help to deliver a more effective method for philanthropy to fund charities across borders.

A tailored version of equivalency qualification could be introduced in the UK, inspired by the US system. As the Beacon Collaborative has argued, the UK already has the underlying principles required, but a practical (and technical) enhancement of the current approach could be beneficial to accelerate cross-border giving.

The Lilly School is right to point out that knowledge-sharing and innovative solutions are part of the answer to encouraging greater global philanthropy. Collaborative efforts underpin the Disasters Emergency Committee’s Ukraine Humanitarian Appeal, which CAF proudly supports, and has resulted in £150m being raised so far to fund the relief efforts of major charities and their partners on the ground. As the situation in Ukraine has reminded us, there is a fierce desire from many individuals and organisations to help, and we need to ensure the systems enable aid to get to where it is needed most.

Derek Ray-Hill is Director of International Strategy and Corporate Services at the Charities Aid Foundation.


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