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Brussels, 27 November 2008

Direct taxation: The European Commission requests Estonia to end discrimination of foreign charities

The European Commission has sent Estonia a formal request to end the discriminatory treatment of donations to foreign non-profit organisations and foundations (charities). Estonia allows tax relief for donations to charities, but only if they are established in Estonia. Donations to foreign charities are excluded from any relief. The Commission's request takes the form of a ‘reasoned opinion’ (second step of the infringement procedure of Article 226 of the EC Treaty). If Estonia does not reply satisfactorily to the reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

Estonia offers various forms of tax relief for donations to charities by resident individuals and resident companies. However, this favourable tax treatment is only granted if the charity is established in Estonia and is included in a special list. The beneficial treatment of donations is also extended to certain bodies established by Estonian governmental institutions and to religious organisations registered in Estonia. No relief is granted in respect of donations to similar foreign bodies and organisations.

The difference in treatment between donations made to charities in Estonia and charities in other Member States constitutes an obstacle to the free movement of capital. Cross-border donations are mentioned in Council Directive 88/361/EEC, which provides for a Community definition of capital movements.

The Estonian rules are also contrary to the freedom of establishment, as foreign charities are forced to set up branches in Estonia in order to enable Estonian residents making donations to such charities to benefit from the favourable tax treatment.

Estonia may use the Mutual Assistance Directive (77/799/EEC) to ensure that charities established in other Member States use their assets and income only for charitable purposes.

The Commission's case reference number is 2007/2103.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

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