The Giving Australia 2016 team would like to thank Natalie Silver, PhD candidate at ACPNS, for this blog post.
We live in a world where people are financially and socially more connected than ever before. In the same way that economic globalisation transformed the global economy in the 20th century, the dramatic rise in international philanthropy in the 21st century has significantly altered the global philanthropic landscape. From 1991 to 2011, the OECD estimated that cross-border philanthropy from donor countries to the developing world grew from approximately US$5 billion to US$32 billion. If private donations combined were a country, they would constitute the world’s largest donor.
The global philanthropic landscape has been altered not only in terms of the amount of international philanthropy, but also the form that giving takes. New web-based technologies such as e-philanthropy and online giving and an array of social media have provided the infrastructure for a global philanthropic marketplace. A rise in international migration and an increasingly mobile international workforce has generated significant diaspora giving and remittances to home countries. New forms of social investment have also emerged, employing nonprofit, for-profit and hybrid structures. These financing mechanisms have been introduced by a new breed of global philanthropists giving large amounts of their wealth to tackle contemporary social problems and long-term global challenges that governments have been unable, or unwilling, to solve.
The United States has been at the forefront of the globalisation of philanthropy, with OECD figures showing that US private philanthropy to developing countries in 2013 was almost US$23 billion, a nearly tenfold increase from 1990. From the architects of modern philanthropy, Andrew Carnegie and John D. Rockefeller, who demonstrated a strong commitment to international causes, to Chuck Feeney and George Soros who established multi-billion-dollar philanthropic foundations serving as vehicles for large-scale cross-border giving, the US has been an engine of international philanthropy powered by its wealthiest citizens. No where is this more evident than the Bill and Melinda Gates Foundation. According to the OECD’s official aid data, the Gates Foundation is now the largest funder in the global health arena outside the US and UK governments, spending more annually on global health than the World Health Organisation.
The transformation of the philanthropic landscape has brought widespread benefits to global society, while enabling individuals and organisations to provide needed support throughout the world. At the same time, it has raised fiscal and regulatory concerns for governments. Particularly since the September 11 terrorist attacks, governments have been concerned with the potential for international philanthropy – like other cross-border transactions – to be diverted for the purposes of terrorism and money laundering. Due to domestic fiscal pressures, governments are also concerned with limiting the consequences for the public purse, by ensuring that any taxpayer-funded concessions are being applied for the benefit of the taxpaying public. As a result, many donor countries, including Australia, have put in place legal and regulatory barriers to restrict international philanthropy.
Other donor countries, notably in Europe, have responded to philanthropic globalisation by liberalising the tax incentives for international giving and allowing tax deductible cross-border donations. The practical effect of this policy was demonstrated in a 2015 study by the Center for Global Prosperity at the Hudson Institute measuring the state of “philanthropic freedom” around the world, including the ease of sending and receiving cross-border donations. The 64-country study found that low barriers to international giving existed in most nations in Western Europe. Of the 16 OECD donor countries included in the study, Australia was found to have the highest barriers to cross-border philanthropy.
Australia’s barriers to international giving derive from its domestic tax laws and policies. Australia allows a tax deduction for donations to qualified domestic organisations and charitable activities. However, there is no tax deduction for donations directed overseas – whether directly to a foreign charity or indirectly through an Australian charity operating overseas – other than limited exceptions for certain overseas aid, disaster relief and environmental organisations. While it is possible for Australian donors to make tax deductible gifts abroad using a suitably qualified Australian organisation as an intermediary, this is difficult and costly. Recent judicial decisions have specifically addressed the use of these giving intermediaries to channel funds overseas and in doing so have challenged the geographic restrictions surrounding the tax deduction for charitable gifts. Following these decisions the ATO updated its taxation guide and website, and recently announced that it would issue a public ruling on the provisions applying geographic limitations on gift deductibility.
Australia’s restrictive tax laws and policies for international giving have important practical implications. They have affected the ability of many domestic charitable organisations operating overseas that are reliant on private donations to obtain tax deductible status. They have also significantly limited the options available to Australian donors who wish to make tax effective gifts overseas. In an increasingly interconnected world Australia needs to find the appropriate balance between protecting its national interests, while enabling its citizens to fully and effectively contribute to philanthropy’s globalisation.
The views and opinions expressed in this blog post are those of the author and do not necessarily reflect the position of QUT or ACPNS.