Donating cash and goods for Ukraine – tax issues
The current humanitarian disaster in Ukraine has confronted us all with images and concerns that we in Europe have not had to deal with for many years. However, many people are helping with compassion and humanity, providing support where they can. It is not only individuals who have demonstrated a willingness to help – many companies have made substantial donations of money and goods, provided accommodation to refugees, or helped with transportation to and from the border.
A relevant question – albeit not one of primary importance – is the tax treatment of financial and in-kind donations, as well as of expenditure on the transportation of supplies and accommodation of refugees.
Charitable donations from business assets
Financial donations from business assets are deductible if they are made to certain eligible organisations under Section 4a Austrian Income Tax Act (EStG) or for advertising purposes in connection with catastrophes under Section 4 para 4 subpara 9 EStG. In both instances, deductibility is linked to prerequisites that need to be checked on a case-by-case basis. In the case of donations to eligible organisations, it is important to note that there is a cap on the amount that can be deducted. For sole traders, it may be possible in certain circumstances to claim any surplus amount as special personal expenses.
If the recognition of donations of goods is to result in a tax reduction, it is necessary to calculate the market value at which a business expense may be claimed. When performing this calculation, the partially contradictory views of the Austrian tax authorities and the Supreme Administrative Court need to be taken into account. In addition, questions may arise in connection with any residual value or the subsequent taxation of undisclosed reserves.
Beyond the income tax effects, VAT also needs to be considered for donations of goods. Own consumption, and therefore also the donation of goods, should be treated like the supply of goods and is subject to VAT – provided that the goods were previously at least partially eligible for input VAT deduction. This VAT on donations can, in certain exceptional cases, subsequently be deducted as a business expense. The assessment base for VAT purposes is the purchase price (or the cost price) of the donated goods at the time of the transaction, although the condition of the goods also needs to be considered when calculating the replacement price.
The issue of the place of supply and the associated VAT impacts should be assessed on a case-by-case basis. However, imports of specific donations of goods from third countries may be exempt from customs tariffs and import VAT if these are imported by recognised organisations in order to be distributed free of charge to the victims of disasters.
Private charitable donations
Private individuals are able to deduct donations as special personal expenses to achieve a tax reduction under Section 18 EStG. This tax relief covers financial donations to eligible organisations, but not donations of goods. It should be verified on case-by-case basis if donations made on the request of the employee, but which are directly made by the employer using a portion of the salary, can also be claimed as special personal expenses or whether they reduce the salary and thus have wage tax or social security impacts.
Overall, several questions relating to tax can arise in the context of financial donations, but particularly of donations of goods. In such a complex and constantly changing situation, it is only to be expected that special circumstances will arise beyond the fundamental issues mentioned here, such as customs impacts that are contingent on supply routes. We would be glad to help you address any relevant tax issues.
Authors: Martin Jann / Yasmin Lawson