Experiences from JapanCharity Law and the enabling legislationYoshiharu Shiraishi (JACO)Peer Learning Event, London2th July 2012

1. Recent changes of CSO legal system in Japan2. The issues on CSO legal environment3. Advocacy campaigns initiated by JACO4. Major advocacy campaigns and its achievement <Legislation>5. Major advocacy campaigns and its achievement <Taxation>6. Other processes of JACO’s advocacy campaigns

Main Issues2

1. Recent changes in Japanregarding CSO legal system

Japanese CSOs Basic Institutional StructureN

on p

rofit

For p

rofit

Mutual benefit Public Benefit

General Non-profit Corporation

Labour’s UnionsPublic Interest Corp.

Specified Non-profit Corporation

Approved SNPC

Private School Corp.Social Welfare Corp.Religious Corp. etc.The Relief and Rehabilitation Corp.

Medical Services Corporation

Consumers‘cooperative

Small business cooperative

Source: Ministry of Finance (website), National Tax Agency (2009)

Management Unionsof Condominium

4

5,293

232

22,141

44,291

46,510

7,884(since 1949)

182,601(since1951)18,537(since1951)

163(since 1995)

Public Charitable Trust

(Civil Code Org. +22,783)Since 1896Since 2008

Since 1923

Since 1998 Since 2002

Since 1950

Authorized byPIC Commission

Registration process of PIC

Public Interest Corporation(5,206)

General Non-profit Corporation (22,141)

Registered at Registry Office

Permitted byGovernment Authorities

Public Interest Corporation(22,783)

1896-2007 2008-present

Registered at Registry Office

Intermediate Corporation

2001-2007

5PIC legislation reform

Authorized byPrefectural Government

Registration process of SNPC

Approved SpecifiedNon-profit Corporation

(260)

Specified Non-profitCorporation (45,280)

Certified by Prefectural Gov.& Registered at Registry Office

Certified by Prefectural Gov.& Registered at Registry Office

Specified Non-profitCorporation

1998-2002 2002-present

1) Up until 2012 March, qualified by National Tax Agency

1)

6SNPC legislation reform

Authorized byCharity Commission

At present

Charitable organizations

Non-profit Organizations

7Next stage

Next step?

Authorized by PIC Commission

Public Interest Corporation

Registered at Registry Office

General Non-profit Corp.

Authorized by Prefectural Gov.

Approved SNPC

Certified by Prefectural Gov.& Registered at Registry Office

Specified Nonprofit Corp. Certified by Prefectural Gov.or Registered at Registry Office

Public Interest Corporation Approved SNPCGoverning law Act on Authorization of Public Interest

Incorporated Associations and Public Interest Incorporated Foundations

Act on Promotion of Specified Non-profit Activities

Authority Public Interest Corporation Commission Prefectural Governor

Type Association & Foundation Association

Necessity of extending status

Indefinite duration Once every 5 years

Activities 22 indicated 20 indicated

Political & Religious activities

Prohibited Prohibited

Profit making activities

Permitted to some extent Permitted to some extent

Residuary assets distribution

Cy-pres doctrine (It must be used for the charitable activities)

Cy-pres doctrine (It must be used for the charitable activities)

1) 1)

8Regulation for PIC & Approved SNPC - 1

1) Charitable activities and specified non-profit activities to be registered are shown on Page 8 and 10

Public Interest Corporation Approved SNPCThe least number of members

(Association)2 or more

10 or more

Qualification ofmembers

(Association)Unfair qualification constraint

(Association)Unfair qualification constraint

Amount of endowment

(Foundation)3 million yen or more

Not applicable

Decision-making body

Association ： General MeetingFoundation: Board of Councilors

General Meeting

Executive body Association ： Board of trustees Foundation: Board of trustees

Board of trustees

Supervising body

Auditors (more than1) Auditors (more than1)

Disclosure Required Required

9Regulation for PIC & Approved SNPC - 2

Public Interest Corporation Approved SNPCCorporation income tax

No tax on earning from business related to charitable activities.

No tax but impose a tax on 34 types of profit earning business, related or not related to charitable activities.

Withholding income tax of interest etc.

No tax Tax imposition

Deemed Contributions would be capped at…

50% of gross income (51% or more, depends on the condition)

50% of gross income or 2million yen, chose either larger one of the two.

Income/ dividends revenue Tax

Not levied deduction levied

Donation of bequest

Deductible from inheritance property Deductible from inheritance property

10Taxation for PIC & Approved SNPC - 1

Public Interest Corporation Approved SNPCDonation Tax Benefit for donors (private person)

Donors can choose either tax deduction, ie “deduction from income”, or tax credit, ie “ deduction from income tax”. If donors choose tax deduction, they can deduct their taxable income up to 40% of total income. If they choose tax credit, they can save their payable tax up to 25% of income tax and up to 10% of prefectural and municipal tax.

Donors can choose either tax deduction, ie “deduction from income”, or tax credit, ie “ deduction from income tax”. If donors choose tax deduction, they can deduct their taxable income up to 40% of total income. If they choose tax credit, they can save their payable tax up to 25% of income tax and up to 10% of prefectural and municipal tax.

Donation Tax Benefit for donors (Corporation)

Be given preferential taxation treatment Be given preferential taxation treatment to some extent

Expenditure (billion yen ） Employees Salary (billion yen ）

Public interest Corp. 20,338 3,679

Specified nonprofit Corp.

738 112

The size of expenditure and employees salary

11Taxation for PIC & Approved SNPC - 2

2. The issues onCSO legal environment

The most questionable of legal system at present is as follows;

In general1. CSO legal system is quite confused due to the existence of too

many different types of legal entities.

Related to PIC legal system2. Application procedures for initial registration, annual reporting

form and etc. are too much complicated and burdensome.3. Expenditure Ratio between program expenditure and general

administration costs on public interest activities is restricted.4. Regulation on idle assets is not flexible.

The issues on CSO legal environment - 113

Related to GNC legal system5. The operation of GNC covers non-profit activities, mutual

benefit activities and other activities.6. There is no limitation to the purposes of activities or their

specifics, except non-profit principle.7. GNC law has been too much affected by technical aspects of the

new Companies Law.

Related to legal system of SNPC approved & SNPC not approved8. Authorization requirement of Approved SNPC is restricted due

to the taxation breaks applicable to them.9. Taxation system of Approved SNPC is very similar to the one for

PIC, but legal basis of governance is not necessarily strong.10.The number of SNPC counts more than 45,000 but most of

them are grass root-type organizations.

The issues on CSO legal environment - 214

3. Advocacy campaignsinitiated by JACO

Advocacy related bodies in JACO16

Legislative Committee CSO legal system study panels

Taxation Committee

Compliance CommitteeResearch projects

Symposia / seminars

Questionnaire/public comments

Working group

PIC Commission

Government agencies

Accountancy Committee

Executive officeJACO

Department of Research

General public

Media

Advocacy on PIC legal system17

Legislative Committee15 members

CSO legal system study panels7 members

Executive OfficeAdvocacy team

Executive board members

Public Interest Corporation Commission

Executive office

JACO

National Government

Research projects

Symposia / seminars

Questionnaire/public comments

Department of Research

Executive office

Advocacy on PIC taxation system18

Taxation Committee15 members

Executive OfficeAdvocacy team

Executive board members

Public Interest Corporation Commission

Executive office

JACO

National Government

Research project

4. Major advocacy campaignsinitiated by JACO

<Legislation>

JACO’s advocacy on regulatory body initiated in 2004 towards PIC legal reform.1. Regulator: independent body2. Key functions: clearly identified public benefit, m

onitoring and compliance, supporting charities.3. Board members: academics and specialists from

the private sector

4.Executive office: recruit lawyer, accountant, practitioner, etc. in executive office

5. Council organization: setting up council organizations in each prefecture

Advocacy on regulatory body (2004)20

6. element for judgment: purpose, activity, governance, but not performance results.

7. charitable activities: suggested lists of charitable activities.

8. etc…

In fact, Japanese version ofCharity Commission has beenestablished in 2008

21

Advocacy on regulatory body (2004)

October 5, 2010

JACO held mass media round-table conference

On April 17, 2006, Mr. Ohta (President & CEO of JACO) testified his opinion on the coming charity law reform at the special legislation committee of the House of Commons (which was deliberating about the draft of new charity laws) on behalf of the charitable sector of Japan.In fact, his opinion wassupported by the majority of the committee membersand was reflected into thenew charity law.

22

Mr. Ohta’s testimony at the Diet (2006)

Mr. Ohta testified at the diet of Japan

April 17, 2006

1. Improve procedures more speedy and flexible.2. Disclosing regulatory cases.3. Reforming authorization law related to financial

criteria, authorization process and guideline.4. etc…

In fact, the Commission startedto improve the process ofauthorization. Also the PICCstarted to provide consultationservice for applicants with JACO.

23

Advocacy on PICC’s role & function (2010)

Democratic Party conducted hearingswith Mr. Ohta and other experts.

September 27, 2011

24

Changes in organization number

5. Major advocacy campaignsinitiated by JACO

<Taxation>

1. Review of tax deduction for capital gains on the assets donated to PICs.

2. Review of tax deduction for inheritance property donated to PICs.

3. Review of tax deduction for donors who provided PICs flow founds.

4. Tax deduction by introducing Planned Giving Trust.

5. Special tax relief related to charitable contributions for the Great East Japan Earthquake & Tsunami

Advocacy on taxation system (2010-2011)26

6. Introduction of new selective donation tax benefit (deduction from income or deduction from income tax) for individual donors.

7. Requested for repealing the public support test.8. etc…

In fact, items no. 4, 5 and 6 were materialized in the new taxation framework in 2011.

Advocacy on taxation system (2010-2011)27

6. Other processes of JACO’s advocacy campaigns

Relationship with policy makers29

New Public Commons Roundtable11 members including Mr. Ohta

(Making high level consensus)

National Government(Reflecting CSO legislation and taxation framework)

General Meeting19 members including Mr. Ohta

(Making high level consensus)

Multi-stakeholder Forum on SocialResponsibility for a Sustainable Future

Steering Committee6 members

(Support meetings andworking groups)

Working groups Working group on earthquake support system

6 members

New Public Commons Roundtable

Working group on disclosure and facility to offer information

14 members

The expert panel on public serviceagreements between government and CSO

10 members

Other relationship with policy makers30

Congressionalrepresentative

National Government(Reflecting CSO legislation and taxation framework)

JACO Advocacy Team

Thank you!