Public Benefit Status of NGOs: A comparative perspective International Center for Not-for-Profit Law...
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Transcript of Public Benefit Status of NGOs: A comparative perspective International Center for Not-for-Profit Law...
Public Benefit Status of NGOs: A comparative perspective
International Center for Not-for-Profit Law(ICNL)
Q: Getting Started
• Does the law in your country define a public benefit or charitable status for NGOs?
• Is there a reform initiative relating to PB or charitable status?
• What question do you have relating to the topic?
Public Benefit Status Issues
• Rationale for PB Status
• Context of Regulatory Approaches
• Definition and Qualifying Criteria
• Decision-making Body
• Benefits and Obligations
Q: Why?
• Is it necessary for legal system to recognize public benefit status?
• How might public benefit status strengthen civil society? Benefit the state?
• The notion of public benefit has been criticized for providing the state with opportunity to control those activities it deems to be public benefit. How would you respond?
Rationale for Public Benefit Status
• Ancient Roots– Code of Charitable Giving to protect “widows, orphans
and the poor” (1760 BC)
• Links to Fiscal Privileges– Tax-exemptions available for priests, religious
organizations (Genesis, Rosetta stone, Greeks)
• Statute of Charitable Uses (1601 A.D.)– To specify charitable purposes– To ensure funds applied to uses specified by donors
Rationale for Public Benefit Status
• TO PROMOTE PUBLIC BENEFIT ACTIVITY• To ensure consistency of tax benefits with
public benefit purposes and activities • To encourage flow of resources to NGOs – e.g.
private giving (Hungary)• To facilitate state-NGO relationship – e.g.
contracting (Hungary, Poland, Italy)• To strengthen relationship between NGOs and
public – image building for sector (Poland)
Regulatory Context: Principles• Public benefit status should be voluntary.• Public benefit status should not be mandatory
to conduct public benefit activities.• Certain benefits, i.e., tax and fiscal benefits,
are usually granted to public benefit organizations.
• Public benefit organizations have a corresponding obligation to comply with accountability rules.
• Benefits and obligations are related to purposes and criteria and not to legal form.
Regulatory Context: Alternative Approaches
• Tax legislation (e.g. Germany, Netherlands, Estonia)
• Law/s on foundations & associations (e.g. Bulgaria, Bosnia, Romania)
• Specific laws (e.g. UK, Italy, Hungary, Poland, Latvia)
Q: Definition of Public Benefit
1) What qualifying activities? 2) Open or closed list of activities?3) To what extent must PBOs engage in PB
activities?- Partially? Primarily? Exclusively?- How to measure?
4) Can membership organizations whose activities only benefit their members be able to qualify as PBO?
Definition of “Public Benefit”
• No single succinct definition
• Must be rooted to social-cultural context
• Concept embraces several elements– Public benefit activity types– Principal Purpose Test (beneficiaries)– Financial restrictions / conditions– Governing requirements
1: Public Benefit Activity Types
• Enumeration of types of activities that benefit the public– Examples from European legislation– Exclusions from PB activities– Open or Closed List of Activities?
2: Principal Purpose Test
• Organized and operated “principally” for public benefit
• “Organized”: governing docs.• “Operated”: annual reports, tax filings• “Principally”: How to measure?
– More than 50% / Exclusively– Circle of beneficiaries, portion of
expenditures and/or staff time
2A: Circle of Beneficiaries
• Public at large– Large, undefined group of individuals– Large enough group to be considered the public or sufficient
section of community
• Targeted class of beneficiaries– Group in particularly difficult living situation in relation to rest
of society
• Related Issues: – Can NGOs that benefit only members be PBOs?– Example of Kosovar NGO providing housing
Q: Restrictions and requirements?
• Required duration of existence?
• Asset requirement?
• Independent audit?
• Supervisory body?
• Economic activity?
• Political activity?
3: Financial Conditions
• Non-profit distribution constraint
• Restrictions regarding engagement in unrelated commercial activities
• “Entire income” is dedicated to its public benefit activities
• Appropriate salary levels, at-cost services
4: Internal Governance
• Collective governing body– General assembly– Board of directors
• Supervisory body / auditing committee– To ensure legal compliance
• Accurate books and records• Safeguards against CoI, self-dealing• Subject to audit requirement
– For PBOs of certain size– For PBOs receiving state budgetary support
Application for PB Certification
• Proof of registration as NGO
• Proof of compliance with PB definition (activities, principal purpose test)
• Compliance with financial conditions
• Compliance with internal governance requirements
Q: Decision-maker
• Who should decide in your country?
• Advantages / Disadvantages of each model?
Decision Making
• Tax authorities (Finland, Germany, Holland)
• One ministry (Bulgaria)
• Several ministries (Romania)
• Courts (Hungary)
• Public Benefit Commission (England & Wales,
Moldova)
Tax authorities
ADVANTAGES
• administrative convenience
• special expertise if there is separate department
• consistency
DISADVANTAGES
• conflict between duty to maximize budget revenue and to grant exemptions
• lack of expertise if overburdened
One ministry
ADVANTAGES
• consistency • specialized
expertise if separate department
DISADVANTAGES
• centralized access• potential for
discretionary / political decisions
Line ministries
ADVANTAGES
• specialized expertise
• good for practical arrangements (e.g. contracts)
DISADVANTAGES
• inconsistent case handling
• potential for discretionary / political decisions
• gaps in the jurisdiction
Courts
ADVANTAGES
• politically independent
• accessible for NGOs across the country
DISADVANTAGES
• overburdened - slow processing
• takes time to develop special expertise
Public Benefit Commission
ADVANTAGES• NGO representation • specialized
expertise• consistency• easier
communication with NGOs
DISADVANTAGES• challenge of proper
mechanism to delegate or elect NGO representatives
• can be politically sensitive (legitimacy)
• expensive• centralized access
Commission of E&W
• Non-ministerial government department – Part of Civil Service– Independent of ministerial influence
• Consists of Chair and 4-8 members– Member qualifications– Must include 2 qualified lawyers and 1 from Wales
• Members appointed by Minister for the Third Sector
Moldovan Commission
• 9 members, of whom …– 3 are appointed by President– 3 are appointed by Parliament– 3 are appointed by Government
• One of each group of 3 should represent an association and not also be a civil servant
• No additional criteria specified
Latvia Commission
• Advisory body to Ministry of Finance regarding conformity of NGOs to PB status
• Consists of gov’t officials and NGO representatives in equal numbers
• Procedures for selecting members are not defined by law, but reserved for Cabinet to decide
Polish Council for PB Activities
• An opinion, advising and supporting body for Ministry of Social Security
Potential Benefits • Tax Benefits
– Exemptions from income, profits, property, gift, inheritance taxes (and VAT)
– Tax allowances on income from economic activities, investments
– Customs duties exemptions– Tax-benefited donations (tax deductions
for donors who give to PBOs)– Tax-exempt payments to beneficiaries– Entitlement for receiving income tax
designations
Potential Benefits
Non-tax benefits
• Preferred status for Government funding and contracting
• Use of public property
• Free media air time
• Public employment opportunities
• Recognition and support of volunteers
Q: Accountability
• Who ensures PBOs are accountable?
• What tools are available?
• What information should be disclosed?
• Dissolution – transfer of assets?
Obligations
• Reporting – financial, programmatic
• Transparency, openness – make reports publicly available
• Record keeping – e.g. register of decisions
• Subject to audits and inspections – due process important
Public Benefit Status of NGOs: A comparative perspective
For more information, visit
www.icnl.org
www.ecnl.org.hu