In 2010 the UK government introduced measures dealing with “Payments to overseas bodies” by UK charities. The requirements seem common sense to me and I have reproduced them below. For Canadian charities interested in understanding their obligations when operating abroad may find CRA’s Guidance helpful at: http://www.globalphilanthropy.ca/index.php/blog/comments/cras_new_guidance_on_foreign_activities_by_canadian_charities/
“9. Payments to overseas bodies
9.1 When a payment is made or is to be made to a body outside the UK, this will only be considered charitable expenditure if the charity takes steps that the Commissioners for HMRC consider are reasonable in the circumstances to ensure that the payment is applied for charitable purposes. “Applied for charitable purposes” means applied for purposes, which are regarded as charitable within Section 2 of the Charities Act (England and Wales) 2006. It is not sufficient for the charity to establish that the overseas entity is a charity under the domestic law of the host country.
9.2 The charity trustees must be able to describe the steps they take, demonstrate that those steps were reasonable and produce evidence that the steps were, in fact, taken.
9.3 When considering whether the steps taken by the charity were “reasonable in the circumstances”, HMRC will have regard to:
the charity’s knowledge of the overseas body
previous relations with the overseas body and
past history of the overseas body.
9.4 Trustees are expected to make adequate enquiries to find out such information as is reasonably available about the overseas body, and establish what evidence will be provided by that body to show that the payment(s) will or have been applied for charitable purposes. The nature of the steps will depend upon the scale of operations and size of the sums involved.
9.5 In the case of small one-off payments, an exchange of correspondence between the charity and the overseas body will normally be sufficient. Where possible, the correspondence should be on headed paper and: It should:
give details of the payment and the purpose for which it was given, and
provide confirmation that the sum has or will be applied for the purpose given.
9.6 More thorough work by the trustees will be required where the sums involved are large or where a transfer of funds forms part of an ongoing commitment. This might include independent verification of the overseas body’s status and activities along with reporting and verification of the manner of application of resources provided. The steps required can be reviewed in the light of evidence of proper use of funds and resources from earlier involvement with a particular project.
9.7 The steps taken are to “ensure” that the payment to the overseas body will be applied for charitable purposes. If the recipient body is not bound by its own domestic law to apply all of its income for charitable purposes, then the trustees of the paying charity should consider seeking a legally binding agreement to ensure that their payment will be applied charitably. If the overseas body declines to enter into such an agreement, the trustees of the paying body may have difficulty ensuring that the payment is applied for charitable purposes. If an agreement is entered into the trustees will need to have a means of establishing whether the agreement has been complied with.
9.8 Where a charity makes a series of payments to the same overseas body for the same charitable purpose, it is not necessary for fresh enquiries to be made in respect of each new payment. If the trustees have just reviewed the bona fides of the overseas body and are satisfied that they are bound to apply payments from the charity for charitable purposes then, it is not unreasonable for them to rely on the results of this review for a payment shortly thereafter.
9.9 However, this reliability may diminish with the passing of time and the trustees should be able to demonstrate that they are making enquiries of a sufficiently searching nature at regular intervals.
9.10 When reviewing payments made to overseas bodies HMRC will generally ask the charity trustees to provide information about:
to whom the payment was given
for what charitable purpose it was given
what guarantees have been given by the overseas body that the payment will be applied for the purpose for which it was given
what steps the trustees took to ensure the payment will in fact be applied for charitable purposes
what follow-up action the trustees took to confirm that payments were applied properly.
The Commissioners for HMRC must be satisfied that the steps taken by the trustees are reasonable in the circumstances. If HMRC Charities is not provided with sufficient evidence of the steps taken it is unlikely that they will be able to accept the expenditure as charitable expenditure. This may give rise to a liability to tax.”
You can read more about the requirements for UK charities with respect to tax issues at:
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.