The role and model of public benefit organizations Public benefit and foundations June 8 th, 2009 | Zielna Conference Centre I Warsaw Dr. Burkhard Küstermann, LL. M. Initiative Bürgerstiftungen | Haus Deutscher Stiftungen | Mauerstraße 93 | 10117 Berlin
Public Benefit – definition and understanding • roughly 535, 000 associations, of which around half are non-profit. • of the more than 15, 000 legal foundations, around 95 per cent of them have a non-profit status. in 2007 and 2008 more than 1. 000 foundations were established per year non-profit organisations are in particular foundations and associations. In exceptional cases, other types of company (e. g. public limited companies or corporations) can exist in non-profit form.
Public benefit – definitions and understanding the conditions which an organisation needs to fulfil in order to be recognised as non-profit, are clearly defined by law. These are based exclusively on tax law regulations which are found in the General Fiscal Law, the fundamental tax law. The tax law was reformed in 2007, so since then it is even more attractive to establish a foundation
The procedure of acquiring public benefit status Conditions an organisation can be considered as non-profit when it supports tax-privileged purposes according to its statutes and its actual business operations responsible: tax office 1. 2. Material conditions Formal requirements for tax privileges
1. Material conditions • • • Tax-privileged purposes Serve the common good Prinicple of Selflessness Immediacy principle Principle of exclusivity The principle of timely use of resources
a) Tax-privileged purposes According to the General Fiscal Law, tax privileged purposes are: • Non-profit purposes • Charitable purposes • Ecclesiastical purposes
examples of non-profit purposes: Supporting science and research, national and vocational training, education, art and culture, religion, understanding among nations, development assistance, protection of the environment, historical buildings and monuments, local heritage and local history; supporting work with young people and the elderly; public health systems, general support of the democratic political system in Germany; supporting the breeding of livestock and plants, gardening and traditional customs even purposes may be recognised as non-profit if they are not listet in law, BUT in reality, however, this possibility has never been made use of yet.
b) The “common good” an organisation is classed as a non-profit entity: “when its function is oriented towards selflessly supporting the common good in the material, spiritual or moral field. ” an organisation doesn’t serve the common good: - the group of those being supported is fully enclosed (exclusive support of family members or company staff) - the group of those being supported will remain small long-term, purely due to spatial or occupational restrictions.
c) Principle of selflessness organization does not primarily pursue own economic interests if you only want to increase your individual income or asset you cannot be considered as noprofit the principle allows a corporation to make profits the entirety of business operations should not be oriented primarliy on increasing assets
d) Immediacy principle The foundation must itself implement its purpose but: the foundation’s purposes may also be implemented by auxiliary staff; their involvement can be seen as the foundation's own action. counter-example: The running of a hospital pharmacy only indirectly serves towards promoting health. The primary goal is the realisation of profits.
e) Principle of exclusivity the foundation may only pursue its purpose as laid out in its statutes resources must not be mobilised for other goals. exceptions: - a foundation can use a proportion of its income, at the most a third, towards supporting the livelihood of the founder and his/her dependents. - this also includes caring for the grave of the founder and his/her dependents, as well as honouring his/her memory.
f) The principle of timely use of resources non-profit organisations are strictly obliged to use all yields on assets immediately for tax-privileged purposes. exceptions: – foundations can place a specific proportion of resources into the available reserves fund or route them directly to their assets to constitute an adjustment due to inflation – if donors consent, foundations can direct grants as capital to the assets of the foundation. – the project reserve fund allows foundations having to forgo spending a complete or partial amount of its resources until a project has been completed
2. Formal requirements for tax privileges Necessary conditions have to been created in the statutes: - the purposes which an organisation pursues must be clearly defined in the statues - it must be clear who decides upon whether or not the organisation can be disbanded - the decision must be made to appoint a legal person who should be entitled to use the remaining foundation assets for tax-privileged purposes
3. Procedure newly established organisations can apply for a provisional certificate confirming the fulfillment of the statutory conditions for a tax-privileged status at the end of the calendar year, the tax office checks whether actual business operations correspond to the legal non-profit requirements.
Pracitcal implications of public charity statuts • the financial authorities check whether actual business operations orient towards the exclusive and immediate fulfilment of the statute’s purpose • on principle, tax-privileged organisations are obliged to submit tax declarations on an annual basis • the relevant tax office always requests the organisation to submit an income/expenditure balance sheet and/or an annual financial statement together with the tax declaration. • the organisation’s figures should be accompanied by a business or activity report
Tax advantages for non-profit foundations For donors Donations a donation has to be spent in a timely manner for its statutory purposes donations are tax-deductable by up to 20% of the total amount of the donor’s income Endowment contribution donations, which are channeled into the capital of a nonprofit foundation can be deducted in the year of the donation and in the following nine years up to a total amount of Euro 1 million
II. Tax advantages for non-profit foundations For the foundation • Non profit foundations are exempt from paying corporate and commercial tax. This tax exemption can be rescinded if the foundation is commercially active, i. e. operates a profit-making business where the income or surpluses exceed the tax exempt amounts. • Tax-privileged operations are exempt from capital gains tax • Should tax-privileged foundations have landed property at their disposal and use this directly and exclusively for the realising of their statutory purposes, they are then also exempt from paying property tax
Thank you for your attention! Dr. Burkhard Kuestermann Initiative Buergerstiftungen Bundesverband Deutscher Stiftungen Mauerstraße 93 10117 Berlin
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