A possible tax efficient swap mechanism for charity

by blogospheroid 2 min read5th Oct 201415 comments

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I had an idea a while ago, which sounded simple to me, but searching with certain keywords did not yield appropriate results, so am presenting it for discussion to LW . Please inform me if something like this is already in existence. Please inform if I need to cross post it on effective altruism forum also, or they share enough users with LW and it need not be repeated.

Introduction

Two persons A, B living in different tax jurisdictions I and J respectively, want to contribute to organizations M and N qualifying for tax exemption in the other person's jurisdiction. i.e. M qualifies in J and N qualifies in I.  For the purpose of this demo, lets consider they intend to contribute the same amounts.

They "swap" their charities and produce receipts to the effect from the respective organizations.i.e. A contributes to N and B contributes to M. 

This helps them gain 10% to 20% more money when compared to contributing to their preferred charities which do not qualify.

So, the idea is to create a website where people can post such an intent, to contribute to cross-national charities and can  reliably present receipts that will be acceptable to all concerned. 

The main uses i envisage for such swaps would be science supporters in the developing world wanting to contribute to research happening in the developed world swapping with EA's wanting to gain a bigger bang for their buck in the developing world. This potentially reduces the need for a lot of charities to seek out tax exemption in multiple jurisdictions. 

Avenues for further research

Question on the basic idea

 

  • Do both charities have to be acceptable to both donors or are neutral and maybe even "hostile" swaps possible? How much does that complicate matters
  • A certain cut of the proceeds seems to be the simplest for the website to operate, but will it be acceptable to the users?
  • Might this be construed as being illegal in certain jurisdictions, after all, it is a tax avoidance scheme, to be honest.

 

Logistics questions

 

  • The 1:1:1:1 case for person to jurisdictions to causes to "the time of swap" is the simplest. There are many possible complications which can allow more charity to be funneled, but require the website hosts to be exposed to non-trivial amounts of risk. Example in one exchange, more dollars are offered for charity than euro-equivalents while in another swap, more euro-equivalents are offered compared to dollars. This can balance, but it is more complicated.
  • Do the accounts need to "balance"? Will a non 1:1 ratio be acceptable for certain supporters of causes?
  • Foreign exchange fluctuations affect amounts of money donated and may cause some unnecessary heartburn in some cases.
  • Times of feeling charitable may wary and may prevent markets from clearing. Christians may feel more charitable near Christmas or Easter and Muslims during Ramadan.
  • Might this require all charities to get themselves a digital signature? What are the other avenues to getting a reliable receipt from charities?
  • If both payments are routed through the website/entity, then might unnecessary forex changes remove a lot of value? Could crypto-currency style atomic swaps help or would they introduce unnecessary complexity that people would rather not be bothered with.
  • Might it complicate the relationship of donors with charities to the extent that the gain is lost in extra cost to reach out?
Conclusion

If such an institution is not already there, then after legal considerations, I think supporting such a website could be a high value investment for effective altruists as it would lead to a 10% to 20% boost to the charity kitty.

[EDIT : edited a little for clarity and grammar. added one more doubt]

 

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