This is unlikely to come as a surprise to anyone: you cannot deduct the taxes and duties you pay to the government from the income on which you pay income tax.
Gift
Still, if you look closely at the definition of the term ‘gift’, there may well be some leeway. You can find this definition in Article 6.33(a) of the Income Tax Act 2001. It reads: “benefits granted out of generosity and compulsory contributions for which there is no direct consideration.”. It’s clear that you don’t pay tax out of generosity. You do so because you’re required to by law.
However, taxes can be seen as compulsory contributions for which there is no direct consideration in return. Nevertheless, the Zeeland-West Brabant District Court that taxes and other levies imposed by local authorities are not regarded as compulsory contributions for the purposes of the charitable donation allowance. According to the court, it is clear from the legislative history that the charitable donation allowance is not intended to apply to taxes and levies.
ANBI
Another condition for donations to be tax-deductible is that they must be made to an ANBI, an organisation serving the public good. There is no doubt that the government aims to serve the public good. However, as far as we are aware, the government has not been officially designated as such. This issue was not raised during the proceedings. The court is therefore unable to rule on it.
Periodic donation
The party concerned in the proceedings has thoroughly researched the tax deduction for charitable donations. In order to avoid being affected by the deduction threshold (donations are deductible if and insofar as they exceed 1% of aggregate income in a year) and the deduction limit (insofar as the total of donations in a year exceeds 10% of aggregate income, the excess is not deductible), he argues that this constitutes a periodic donation. After all, you pay tax and levies every year. The court did not address this argument, given its ruling that no donation had been made.
Opportunities
Would you like to find out more about the tax benefits offered by the deduction for charitable donations? We discuss this in the articles below. Of course, you can also get in touch with one of our people.