The OECD has published a report on tax policies to promote philanthropy, while taking steps to reduce the risk of abuse, including reassessing the charitable activities eligible for tax support to limit favourable treatment to areas consistent with government policy.
The report reviews the tax treatment of philanthropic entities and philanthropic activity in 40 countries, and highlights a range of potential policy options, including tax relief designed to encourage charitable giving. It was produced in conjunction with the Geneva Center for Philanthropy.
The report said there are concerns in some countries about the rising number of very large private philanthropic foundations established by UHNWIs who "may gain a disproportionate influence over how public resources are allocated." These UHNWIs are sometimes able to channel substantial resources into the priorities of their choice, while "significantly minimising their tax liabilities," the OECD added.
The fiscal pressures that governments are facing mean that it is even more crucial that this support is directed to where it is needed most
The OECD recommends that policy makers offer tax credits and fiscal caps rather than deductions, to ensure that tax support does not disproportionately benefit higher income taxpayers.
OECD's Centre for Tax Policy and Administration Director Pascal Saint-Amans said: "While there is a case for providing tax support for philanthropy, the fiscal pressures that governments are facing, especially in the context of the covid-19 crisis, mean that it is even more crucial that this support is directed to where it is needed most."
Other recommentations made by the Paris-based organisation include cutting back tax exemptions for commercial income of philanthropic entities, to minimise the risk of putting for-profit businesses at a competitive disadvantage; improving oversight and transparency of philanthropic foundations, to ensure that tax concessions are not abused through tax avoidance and evasion schemes, and to improve public trust in the sector. This could be done by setting up public registers of approved philanthropic entities, with annual reporting, differentiating between donating and sponsoring, and publishing tax expenditure data; and reassessing restrictions currently imposed on cross-border philanthropic activity. Beyond the European Union, most countries do not provide tax relief for foreign philanthropic entities operating domestically.