Public Benefit Status of NGOs: A comparative perspective Nilda Bullain European Center for...
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Transcript of Public Benefit Status of NGOs: A comparative perspective Nilda Bullain European Center for...
Public Benefit Status of NGOs: A comparative perspective
Nilda BullainEuropean Center for Not-for-Profit Law
(ECNL)
Goals of PBO legislation
• Original rationale:– Prevent abuse of public funding (Charities Act, UK)– Ensure protection of private funds dedicated to the
public (concept from German foundation law)
• Modern day rationale:– Provide tax benefits to public benefit purposes as part
of the welfare economics – social policy goals with economic incentives
• Basic goal: ensure consistency of tax benefits and accountability - PBO is an issue of fiscal regulation.
Goals of PBO legislation
Further possible goals:• Increase transparency and accountability in
the sector (Netherlands + everywhere)• Encourage flow of resources to NGOs – e.g.
private giving (Hungary)• Facilitate state-NGO relationship – e.g.
contracting (Hungary, Poland, Italy)• Facilitate relationship between NGOs and public
– image building for sector (Poland)• Prestige (Phillipines, Turkey)
Regulatory context
• Tax legislation (e.g. Germany, Netherlands, Estonia, Slovakia)
• Law/s on foundations & associations (e.g. Bulgaria, Bosnia, Romania, Kosovo)
• Specific laws (e.g. UK, Italy, Hungary, Poland, Latvia)
Definition of “Public Benefit”
• Usually no single succinct definition– The concept itself consists of several
interrelated elements: activity types, beneficiaries, financial conditions etc.
– Political concept - would leave too much discretionary room for implementers.
– Social-cultural concept – evolves over time, public sentiments and expectations change.
Definition of “Public Benefit”
• Enumeration of types of activities that benefit the public– A “catch-all” category (open ended list)– “Principal” or exclusive engagement in PB activities
• Criteria related to beneficiaries – Public at large– The needy– Non-exclusive services (e.g. in case of associations)
• Non-profit distribution constraint and possibly further financial restrictions (e.g. all income used for PBO purposes, unrelated economic activities not allowed)
Two approaches
• Common Law: “charity concept”– Charitable organizations = “sector”– Legal form doesn’t matter– Unified treatment of exemptions
• Continental Law: “public benefit status”– PBOs = “elite” of the sector– Applicable (usually) to nonprofit legal forms– Builds on other exemptions
What is Public Benefit? Charities Act 2006 (England)
• the prevention or relief of poverty; • the advancement of education; • the advancement of religion; • the advancement of health or the saving of lives; • the advancement of citizenship or community
development; • the advancement of the arts, culture, heritage or
science; • the advancement of amateur sport; • the advancement of human rights, conflict resolution
or reconciliation, or the promotion of religious or racial harmony or equality and diversity;
What is Public Benefit? Charities Act 2006 (England)
• the advancement of environmental protection or improvement;
• the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
• the advancement of animal welfare; • the promotion of the efficiency of the armed forces of
the Crown, or of the efficiency of the police, fire and rescue services or ambulance services; and
• other purposes that are currently recognised as charitable or are in the spirit of any purposes currently recognised as charitable.
Public Benefit Tests
Government
Sports
Political
Exclusive Activities
Arts
Religious
Profit Making
PublicBenefit
Organisations
Fixed or
flexible definitions
Who applies the
test? (not always government)
When does an organisation merit PBO status?
Informal Formal
PBO Life Cycle
Written Constitution
Legally Incorporated
Opens Bank Account
Starts Public Fund-raising Income
exceeds US$10,000
Gets Overseas funding
Trigger P
oint
Achieves Best
Practice Standards
When does an organisation merit PBO status?
Informal Formal
PBO Life Cycle
Written Constitution
Legally Incorporated
Opens Bank Account
Starts Public Fund-raising Income
exceeds US$10,000
Gets Overseas funding
Accredited
Achieves Best
Practice Standards
Com
puls
ory
Voluntary
PBOs in Hungary
• PBOs can be all nonprofit organizational forms existing in Hungary– Associations (not parties, trade unions and
employers’ associations)– Foundations– Public benefit companies– Public associations (e.g. chambers) if the establishing
law allows– National sports federations
PBO criteria (Hungary)
• Should conduct public benefit activities (PBA).• Should provide services beyond membership.• If it engages in economic activities, those should
be related to PBA and should not jeopardize PBA.• Its profits should support the PBA and should not
be distributed.• Does not conduct direct political activities, is
independent from political parties and does not support such.
All of this should be included in the founding statutes.
PBO criteria (Hungary)
• Outstanding PBOs should in addition include that:– It conducts a public task, the provision of
which is according to law or regulation the duty of the central or local government.
– It publishes the most important data of its operations and finances in the local or national media.
PBO obligations (Hungary)
• Openness in decision-making (board meetings, registry of decisions etc.)
• Conflict of interest rules in governance and management
• Supervisory board above a certain budget (5 million HUF)
• Publication of any governmental support through media
• Should prepare investment policy and other financial control provisions
PBO obligations (Hungary)
• Needs to prepare annual public benefit report– Including activity and financial report;– Report on any budgetary support;– Report on any grants given;– Value or amount of compensation provided to
leading officials (privacy issues!);– Report on assets management.
PBO benefits (Hungary)
• Most significant benefit: ability to receive tax deductible donations
• Additional benefits for long-term donations• Ability to provide income-tax free support
to individuals• Increased benefits for economic activities
compared to non-PBO NGOs• Outstanding category of PBOs even
higher benefits• Profit tax, customs and charges
exemptions are available for all NGOs
Decision-making (Hungary)
• Application to the courts at the time of registration or any time later.
• Court has to check whether statutes contain required provisions.
• In case of outstanding PBOs it usually asks for an actual contract to provide the public task.
• There is no monitoring of fulfillment of the requirements other than the “usual” check-up of the public prosecutor.
Decision-making (Hungary)
• Practical experience shows that PBO registration is cumbersome
• Courts require copy-pasting of legal provisions in the statutes
• Courts often require contracts or other supporting documents not stipulated in any law
• Court practice differs widely in the country
Impact and learning points (Hungary)
• About 52% of NGOs are now registered PBOs (36% by 2000)
• Private and corporate donations have not increased significantly
• On the other hand, state funding became increasingly directed towards PBOs only
• NGOs regard PBO status good for two reasons: – Gives a certain prestige in the eyes of the public if
they read “public benefit” in the name of the NGO.– Provides them with increased opportunities to apply
for government funding.
ANBI Status (Netherlands)
ANBI status criteria include: • (1) the NPO should not have any intention to make a
profit; • (2) the NPO has to demonstrate its charitable character; • (3) it should be clear that a natural person/legal entity
cannot have control over the assets of the institution as if it were his/its own capital;
• (4) the institution is not allowed to have more assets than reasonably necessary for the continuity of the institution;
• 5) the members of the ultimate policymaking body are only entitled to receive an allowance for expenses and a reasonable fee for attendance. However a reasonable compensation paid to such a member who carries out daily activities, is allowed;
ANBI Status (Netherlands)
• (6) NPO has to give an insight into the foundation’s activities, fundraising, and administration of funds and expenditures, it is necessary to have a current policy plan.
• (7) costs of fundraising and administration should be in reasonable proportion to the charitable expenditures;
• (8) all proceeds from liquidation of the charitable institution should accrue to a similar institution;
• (9) the books and records of the charitable institution must be transparent with regard to the points mentioned above.
PBO obligations (Netherlands)
• NPOs with ANBI status must submit a financial statement to the tax authorities each year.
• Larger associations and foundations with an enterprise have to publish their financial statements at the Commercial Register if they have obtained ANBI status.
• For other associations and foundations there are no obligations to publish their financial statements externally.
• The Netherlands Tax Service conducts individual inspections of organisations with ANBI status, as well as inspection campaigns on a national scale.
• The Names of qualifying organisations are available on the Ministry of Finance website.
Dilemmas, options
• How much it will be tax oriented or include other goals?
• How low or high the threshold will be? (I.e. how easy or difficult it will be to become a PBO?) – “Elite” or “minimum standard” approach?
• How formal or substantial it will be? (I.e. check papers only or look at what you do?)
Dilemmas, options
• “Easy access” or “club of excellence”?– Conditions for PBO status is easier or more
difficult to achieve? – Granting and maintaining of PBO status is
more formal or more substantial?– Tax benefits (actual benefits) are serious or
less significant?
Dilemmas, options
• Principles in answering dilemmas:– Keep the main goals in mind– Keep proportionality (balance) between
benefits and criteria + obligations– Keep existing entitlements unless
contradicts the goal– Keep balance of public vs. private interests– May introduce levels of public benefit
(Hungary) as long as proportionality is kept