U.S corporations frequently establish a controlled private foundation to be charitably active in the foreign countries in which they do business.  A principal reason is often because they can deduct corporate contributions to a U.S.-based charity (and thus reduce their U.S. corporate income taxes) when they can’t get a deduction on their U.S. taxes, or a full deduction on their foreign taxes, for charitable gifts made directly by the corporation to charities in the foreign countries. 

A U.S. private foundation may make gifts for charitable purposes abroad if it gives to a U.S. charity working abroad, to foreign government, to a foreign organization for which it obtains an “equivalency certificate” stating that the foreign organization is the equivalent of a U.S. public charity, or to other foreign organizations if it exercises “expenditure responsibility” to assure that the gift is used solely for proper charitable purposes.  Some of these procedural requirements demand additional paperwork and can cause personal liability to the managers and the foundation if not done correctly, but they are routine for many foundations and allow significant U.S. charitable contribution deductions that would not be available if the business corporation sought to make gifts directly to the foreign organizations.

If the foundation wants to involve itself in direct charitable activity in the foreign countries, and not just fund others to do the work, it may want to form separate entities in some of the foreign countries to carry out the work.  But that would require a country-by-country analysis with potentially additional costs and likely more extensive exposure to risk of liability.  Most U.S. corporate foundations will probably be satisfied with giving the money to others.  You can check on the foundation’s philosophy and experience before you decide whether you want to take on this new role for yourself.

For more on the rules for private foundations, join our April Webinar “Understanding Private Foundations, DAFs and Other Forms of Philanthropy.”