© European Center for Not-for-Profit Law 2005. All rights reserved. International Practices...

© European Center for Not-for-Profit Law 2005. All rights reserved.

International International PracticesPractices

Relating toRelating toState SupervisionState Supervisionof Donor Activitiesof Donor Activities

David MooreDavid Moore

European Center for European Center for

Not-for-Profit LawNot-for-Profit Law


Can We Speak of Best Can We Speak of Best International Practices?International Practices?

There is NO consensus within the grant-There is NO consensus within the grant-making or donor community as to what making or donor community as to what constitutes “best practices”.constitutes “best practices”. But there are efforts to define best practicesBut there are efforts to define best practices

Different jurisdictions approach the Different jurisdictions approach the regulation of grant makers and donors regulation of grant makers and donors from different constitutional, legal, from different constitutional, legal, regulatory frameworks.regulatory frameworks.


Overview of PresentationOverview of Presentation

Principles Guiding Establishment of Best Principles Guiding Establishment of Best PracticesPractices

Why?: Purposes of SupervisionWhy?: Purposes of Supervision Who?: Supervisory BodiesWho?: Supervisory Bodies What?: Potential Areas of Regulatory ControlWhat?: Potential Areas of Regulatory Control

Registration / Certification thresholdRegistration / Certification threshold Tax treatment of grants/donations, donorsTax treatment of grants/donations, donors Accountability and transparency of donor Accountability and transparency of donor

organizationsorganizations Special Statements on RegulationSpecial Statements on Regulation


Guiding PrinciplesGuiding Principles Charitable sector as vital to social and Charitable sector as vital to social and

economic development economic development Oversight of donors/NGOs is cooperative Oversight of donors/NGOs is cooperative

undertaking undertaking Government oversight should be flexible, Government oversight should be flexible,

effective and proportional to risk of effective and proportional to risk of abuseabuse

Non-profit sector often has Non-profit sector often has representational, self-regulatory, representational, self-regulatory, watchdog, and accreditation watchdog, and accreditation organizations organizations


Why? Purposes of Why? Purposes of SupervisionSupervision

To encourage charitable activity To encourage charitable activity (donations/grants for public benefit (donations/grants for public benefit purposes)purposes)

To ensure government tax relief and To ensure government tax relief and benefits go to appropriate benefits go to appropriate organizationsorganizations

To maintain public confidence To maintain public confidence through combating waste and fraudthrough combating waste and fraud

To ensure compliance with the lawTo ensure compliance with the law


Purposes of SupervisionPurposes of Supervision

““I’m not looking for the big, bad I’m not looking for the big, bad monster of a government bureaucrat monster of a government bureaucrat coming down on a sector … but we coming down on a sector … but we need to make sure that money taken need to make sure that money taken in for charitable purposes is used for in for charitable purposes is used for charitable purposes.”charitable purposes.”

Senator GrassleySenator Grassley

Chair of US Senate Finance Chair of US Senate Finance CommitteeCommittee


Who? Supervisory BodiesWho? Supervisory Bodies Public administration (ministries, local Public administration (ministries, local

govt)govt) Law enforcement and security officialsLaw enforcement and security officials CourtsCourts Government bank, tax, financial Government bank, tax, financial

regulatory authoritiesregulatory authorities Specialized government regulatory Specialized government regulatory

bodiesbodies Internal self-regulationInternal self-regulation Third parties (watchdogs, the public)Third parties (watchdogs, the public)


What? Subject of What? Subject of SupervisionSupervision

Areas of Regulatory ControlAreas of Regulatory Control

Where state supervision impacts on Where state supervision impacts on donor activitydonor activity Certification threshold / prohibitionCertification threshold / prohibition Tax treatment of grants/donations, Tax treatment of grants/donations,

donorsdonors Accountability and transparency of Accountability and transparency of

donor organizationsdonor organizations


Certification ThresholdCertification Threshold

International Good Practice: In order for a International Good Practice: In order for a registered legal entity to act as a donor, registered legal entity to act as a donor, there should be NO additional registration / there should be NO additional registration / certification / accreditation procedure at all.certification / accreditation procedure at all. Donors should be free to provide support to Donors should be free to provide support to

beneficiaries without threshold requirement beneficiaries without threshold requirement specific to donorsspecific to donors

To prove the good regulatory practice, we will To prove the good regulatory practice, we will examine examples of bad regulatory practice – examine examples of bad regulatory practice – where the state seeks to burden donors /grant-where the state seeks to burden donors /grant-making processmaking process


Prior Government Prior Government ApprovalApproval

Belarus: Decree #8 (2001)Belarus: Decree #8 (2001) State permission required for use of State permission required for use of

funds received from international funds received from international organizationsorganizations

Turkey: Laws regulating foundationsTurkey: Laws regulating foundations Foundations seeking to “cooperate” Foundations seeking to “cooperate”

with foreign organizations must receive with foreign organizations must receive prior government approval.prior government approval.


Government ListsGovernment Lists

Lists of Foreign Grant MakersLists of Foreign Grant Makers KazakhstanKazakhstan RussiaRussia

List of Domestic Grant MakersList of Domestic Grant Makers Russia: tax code amendments proposed Russia: tax code amendments proposed

in July 2004, later rejected in April 2005in July 2004, later rejected in April 2005


Serbian Draft Law on Serbian Draft Law on DonationsDonations

Limited purposes donations can Limited purposes donations can supportsupport

Limited potential recipients of Limited potential recipients of donationsdonations

Mandatory donation agreementsMandatory donation agreements Submission of all donation Submission of all donation

agreements to Ministry of Foreign agreements to Ministry of Foreign Economic AffairsEconomic Affairs


Tax Treatment of Tax Treatment of Grants/DonationsGrants/Donations

Income from grants/donations is Income from grants/donations is typically exempt from tax in typically exempt from tax in European countries.European countries. In some countries (Bulgaria, Latvia, In some countries (Bulgaria, Latvia,

Lithuania, Poland), a full tax exemption Lithuania, Poland), a full tax exemption is prescribed only for public benefit is prescribed only for public benefit organizations.organizations.

Core issue affecting donor activity = Core issue affecting donor activity = classification of “public benefit” classification of “public benefit” activities.activities.


Tax Treatment of Tax Treatment of Grants/DonationsGrants/Donations

Income from grants/donations is Income from grants/donations is typically exempt from tax in NIS typically exempt from tax in NIS countries.countries. Some countries distinguish between Some countries distinguish between

treatment of local and foreign donors, treatment of local and foreign donors, providing greater scrutiny to foreign providing greater scrutiny to foreign donations.donations.

Tax-exempt contributions may be Tax-exempt contributions may be available only for narrow purposes.available only for narrow purposes.


Incentives for Corporate Incentives for Corporate DonorsDonors

All CEE Countries permit legal All CEE Countries permit legal entities (including businesses) to entities (including businesses) to claim benefits for certain donations claim benefits for certain donations to NGOs (except Macedonia)to NGOs (except Macedonia)

Most NIS Countries offer some tax Most NIS Countries offer some tax advantages for corporate giving advantages for corporate giving (except Azerbaijan, Belarus, Russia)(except Azerbaijan, Belarus, Russia)


Incentives for Individual Incentives for Individual DonorsDonors

About ½ of all CEE countries provide About ½ of all CEE countries provide incentives for individual donors. incentives for individual donors.

About ½ of all NIS countries provide About ½ of all NIS countries provide incentives for individual donors.incentives for individual donors.


Eligible RecipientsEligible Recipients

General rule: To be able to claim deduction, General rule: To be able to claim deduction, donor must give donation to organizations donor must give donation to organizations pursuing some enumerated “public benefit” pursuing some enumerated “public benefit” purpose.purpose.

Typical “PB” purposes: health, humanitarian, Typical “PB” purposes: health, humanitarian, cultural, educational, scientific or amateur cultural, educational, scientific or amateur sports purposesports purpose

Eligible recipients may include Eligible recipients may include municipalities (Bulgaria), individuals and municipalities (Bulgaria), individuals and businesses (Kosovo), but nearly always businesses (Kosovo), but nearly always include NGOs. include NGOs.


Accountability and Accountability and Transparency of Donor Transparency of Donor

OrganizationsOrganizations Law sets minimum legal standardsLaw sets minimum legal standards

Self-regulation should be encouragedSelf-regulation should be encouraged Legal supervision should be Legal supervision should be

proportionate to risk of abuseproportionate to risk of abuse Risk of excessive government interferenceRisk of excessive government interference

Subsequent monitoring regulation is Subsequent monitoring regulation is more effective in ensuring transparency more effective in ensuring transparency than preliminary threshold restrictionsthan preliminary threshold restrictions


Internal GovernanceInternal Governance

Governing instruments / Governing Governing instruments / Governing bodiesbodies

Prohibition on direct/indirect private Prohibition on direct/indirect private benefitbenefit

Prohibition against conflicts of interestProhibition against conflicts of interest Duties of directorsDuties of directors Internal reporting Internal reporting


Financial/Program Financial/Program TransparencyTransparency

Accounting / Record-keepingAccounting / Record-keeping ReportingReporting

To supervisory body and tax authoritiesTo supervisory body and tax authorities Graduated reporting frameworkGraduated reporting framework Special reporting requirements for Special reporting requirements for

donorsdonors Disclosure to PublicDisclosure to Public

Allows public to exercise oversightAllows public to exercise oversight


Financial/Program Financial/Program TransparencyTransparency

Audits and InspectionsAudits and Inspections By supervisory or tax authoritiesBy supervisory or tax authorities Procedural Safeguards?Procedural Safeguards?

Special SanctionsSpecial Sanctions FinesFines Loss of status, loss of tax benefitsLoss of status, loss of tax benefits TerminationTermination


Special Principles or Special Principles or GuidelinesGuidelines

US Treasury Department Anti-US Treasury Department Anti-Terrorist Financing Guidelines: Terrorist Financing Guidelines: Voluntary Best Practices for US-Voluntary Best Practices for US-based charitiesbased charities

Financial Action Task Force on Financial Action Task Force on Money Laundering: Combating the Money Laundering: Combating the Abuse of Non-profit Organizations: Abuse of Non-profit Organizations: International Best PracticesInternational Best Practices


ConclusionConclusion

How to find the correct balance How to find the correct balance between donor transparency and between donor transparency and freedom in grant making and freedom in grant making and philanthropy?philanthropy?

Ongoing struggleOngoing struggle Legal frameworkLegal framework Implementation of lawsImplementation of laws Self-regulation Self-regulation


Thank youThank you

David MooreDavid Moore

ECNLECNL

© European Center for Not-for-Profit Law 2005. All rights reserved. International Practices...

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