Seán Fleming (Laois-Offaly, Fianna Fail)
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Question 113: To ask the Minister for Finance the changes in legislation since 1997 in respect of tax treatment and reliefs and other improvements in respect of VAT and all other taxes for charities and donations to charities; the cost to the Exchequer each year in respect of these changes; if he is considering any additional changes in this area; and if he will make a statement on the matter. [32073/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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To be granted charitable tax exemption by the Revenue Commissioners a body must be established solely for charitable purposes and the exemption applies only in so far as the funds are applied for charitable purposes only. The tax exemptions are from income tax, corporation tax, capital gains tax, deposit interest retention tax, capital acquisitions tax, stamp duty, probate tax and dividend withholding tax. Many of these exemptions are of very long standing and none have been altered or extended in the period since 1997.

With regard to the issue of VAT, the position is governed by EU VAT law with which Irish VAT law must comply. Under the EU sixth VAT directive, where charities and non-profit organisations are engaged in non-commercial activities, they are exempt from charging VAT on the services they provide but cannot recover VAT on goods and services which they purchase. Essentially, only VAT registered businesses are able to recover VAT.

In addition to the above exemptions, a scheme of income and corporation tax relief for donations to approved bodies was introduced by my predecessor in 2001. The scheme, which replaced a number of existing reliefs, provides tax relief for donations made by either individuals or corporate bodies to eligible charities and other approved bodies including first and second level schools and third level institutions including universities. An eligible charity for the purposes of the scheme is any charity in the State which has been authorised by the Revenue Commissioners as an eligible charity and which holds charitable exempt status from the Revenue Commissioners for at least two years. Prior to the Finance Act 2005, this two-year waiting period had been three years. A further amendment to this tax relief was made in 2003 to restrict relief for donations by individuals to bodies of which they are members. In some cases, the individuals concerned were donating their entire salaries to such bodies and it was considered that the tax relief was not intended to cover such donations.

This scheme for donations not only consolidated a series of reliefs for donations which had existed previously, such as tax relief for donations to third world charities and corporate donations to charities, but also, for the first time, extended the tax relief to donations by individuals to domestic charities. It was widely welcomed at the time by the charitable sector.

No reliable estimates are available concerning the tax loss to the Exchequer of the principal exemptions from tax of charities as these bodies are not required to make tax returns.

The latest data from the Revenue Commissioners for the cost of the scheme of tax relief for donations to approved bodies, including charities are as follows:

As donations made by companies are aggregated with other expenses in corporate tax returns, it is not possible to extract a figure for donations.

As the Deputy is aware, the donations scheme is being examined as part of the overall review of tax reliefs currently being undertaken by my Department and the Revenue Commissioners. I will consider these reviews in the context of the budget. It is normal practice at this time of year to refrain from giving any indication as to what measures may or may not be contained in the budget.