Tax incentives worldwide help increase charitable donations says new global study

1 December 2014

The proportion of people who make financial contributions to charity is significantly higher in countries offering tax breaks for giving, reported a ground-breaking study conducted by Nexus, McDermott Will & Emery LLP, and the Charities Aid Foundation, along with distribution partner NFP.

The Rules to Give By Index, the world’s first international index of government support for charitable giving, found that the percentage of people donating money to charity is 12 percentage points higher in nations offering tax incentives to individuals (33 per cent) than in those that do not (21 per cent).

The study compared tax incentives and other aspects of charity law to people’s likelihood to give as measured by the Charities Aid Foundation’s World Giving Index, the international index of generosity. It found that the influence of tax incentives on giving does not depend on a country’s level of economic development. Across the economic spectrum, countries which offer tax incentives to individuals see higher rates of people giving money to charity according to the World Giving Index.

However, there is a disparity between support for corporate donations and support for donations by individuals. Seventy-seven percent of countries offer some form of tax incentive to corporate donors, but only 66 percent offer incentives to individual donors.

While the majority of countries offer incentives for people making donations within their lifetimes, only 46 percent of countries that impose taxes on the estates of the deceased offer incentives for people who wish to leave money to a charitable cause in their will.

The report was produced to support the Nexus Global Campaign for a Culture of Philanthropy, which aims to enable and stimulate philanthropy around the world.

“As a network, Nexus convenes young wealth-holders and social entrepreneurs annually at the United Nations.  We want to encourage international standards. This report is a start,” said Jonah Wittkamper, Global Director of Nexus. “If young people see legislation and tax codes as the ‘operating systems’ for their countries, then this report helps to reveal the differences between Linux, MacOS and Windows. It reports about the infrastructure of philanthropy and donor institutions and encourages legislative action where it is needed. Is it time to upgrade the OS of your country?” he continued.

“The Rules to Give By Index will provide an invaluable resource to aid the promotion of global philanthropy and McDermott is proud to have contributed to its development" said Jeffrey E. Stone and Peter J. Sacripanti, Co-Chairs of McDermott Will & Emery LLP.

“This unique study shows that tax incentives play a crucial role in encouraging people to support the work of non-profits and the charitable sector," said John Low, Chief Executive of the Charities Aid Foundation, an international charity that helps people and businesses support the causes they care about and provides financial services designed specifically for the charitable sector.

He continued, “Tax incentives are of course very useful in encouraging greater levels of giving but they also represent an important principle; that we don't tax donations to civil society organisations for the public good.
"This work suggests that we are close to a global consensus on this principle, which bodes well for the future of charitable giving and civil society. Of course, it is vital that tax incentives for giving are not misused in order to avoid paying a fair rate of tax, but if used well, they can help encourage people to support the non-governmental organisations that do so much to improve communities and the lives of vulnerable people around the world.”

Kris Stegall, NFP International’s Assistant Vice President of Research and Development, added, “This report provides factual support for the argument of expanding tax incentives for philanthropic tendencies. With wealth and anticipated intergenerational wealth transfers at all-time highs, the time is right to have a broad discussion on the tax incentives that may help shape legacies and benefit generations to come.  This study provides the roadmap for those conversations across the globe, from the individual and corporate level all the way to the legislative level.”

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Notes for editors

Nexus formulated seven questions around philanthropy in 2012, then partnered with McDermott Will & Emery to conduct research on the tax codes and laws in all 193 UN Member States regarding these questions. The information gathered is presented in the Rules to Give By Country Reports.

Charities Aid Foundation joined in 2013 to develop an informative indexing method and collaborate on analysis. A weighted scoring method was developed (explained in the report) to reflect the importance of certain legal infrastructure for charitable giving. The index does not attempt to assess the implementation of laws or to assess the size/value of tax incentives as differences in rates of tax levied on income and in the way incentives are offered (credit or deduction) would make comparison unworkable. Rather, the index assesses whether the legal instruments are technically in place. Further information about this can be found in the "Scope and Limitations" section of the report.

About Nexus

Nexus is a global movement of 2,000+ young people from over 70 countries working to increase and improve philanthropy and impact investing by bridging communities of wealth and social entrepreneurship. Founded in 2011, Nexus puts the hope and promise of young people on the world stage by bringing young leaders together at Nexus Summits around the world for dialogue, education, and collaborative problem solving.

About McDermott Will & Emery

McDermott Will & Emery is a premier international law firm with a diversified business practice. Numbering more than 1,100 lawyers, we have offices in Boston, Brussels, Chicago, Düsseldorf, Frankfurt, Houston, London, Los Angeles, Miami, Milan, Munich, New York, Orange County, Paris, Rome, Seoul, Silicon Valley and Washington, D.C. Further extending our reach into Asia, we have a strategic alliance with MWE China Law Offices in Shanghai.

About Charities Aid Foundation

Charities Aid Foundation (CAF) is a leading international charity registered in the United Kingdom with nine offices  covering six continents. Our mission is to motivate society to give ever more effectively and help transform lives and communities around the world. We work to stimulate philanthropy, social investment and the effective use of charitable funds by offering a range of specialist financial services to charities and donors, and through advocating for a favourable public policy environment.

About NFP

NFP (National Financial Partners Corp) is a leading insurance broker and consultant that provides employee benefits, property & casualty, retirement, and individual wealth and insurance solutions for high net worth individuals, corporate clients and non-profit organizations around the globe. NFP companies work in partnership with clients to help maximize the potential of their legacies through asset protection, diversification, and wealth transfer.

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