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Public Benefit Status of NGOs: Basic Questions
Nilda BullainEuropean Center for Not-for-Profit Law
(ECNL)
Public Benefit Status
• What is the purpose?
• How is it regulated?
• What does it mean?
• What are the benefits?
• Who decides?
• What are criteria?
• What are accountability requirements?
Goals of PBO legislation• Basic goal: ensure consistency of tax benefits
and accountability - PBO is an issue of fiscal regulation.
Further possible goals:• Encourage flow of resources to NGOs – e.g.
private giving (Hungary)• Facilitate state-NGO relationship – e.g.
contracting (Hungary, Poland)• Facilitate relationship between NGOs and public
– image building for sector (Poland)
Regulatory context
• Tax legislation (e.g. Germany, Netherlands)
• Law/s on foundations & associations (e.g. Bulgaria)
• Specific laws (e.g. Hungary, Poland, Latvia)
Public Benefit Status
• 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.
Definition of “Public Benefit”
• Enumeration of types of activities that benefit the public
• A “catch-all” category (open ended list)• Criteria related to beneficiaries
– Public at large– The needy– Non-exclusive services (in case of associations)
• Non-profit distribution constraint and possibly further financial restrictions (e.g. level of salary of staff)
Benefits Afforded to PBOs• Tax Benefits
– Exemptions from income, profits, property, gift, inheritance, and value-added taxes
– Customs duties exemptions– Tax-benefited donations (tax deductions for
donors who give to PBOs)
• Preferred status for Government funding and contracting
• Use of public property• Other benefits
– alternative military service, free media air time, recognition of volunteers
Decision Making
• Tax authorities (Finland, Germany, Greece)
• One ministry (Slovakia, Bulgaria)
• Several ministries (Romania, Slovenia)
• Courts (Hungary, Poland)
• Public Benefit Commission (UK, Moldova)
• Government decree (Belgium, France)
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• centralized access
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
Special Problems of PBO Regulation
• Problems associated with beneficiaries– Who is entitled to benefit -- the public at large or some
segment of it?– How to ensure that organizations obtain public benefit status
for serving only classes of “deserving” beneficiaries?– What to do about services that by definition benefit all
regardless of individual need (i.e., vaccination programs, schools)?
– Is public benefit status appropriate for certain activities that benefit only organization members (i.e., associations of pensioners, associations of persons suffering from a particular disease)?
Special Problems of PBO Regulation
• Problems associated with activities– For activities that do not in all circumstances
benefit the public (i.e., health care, education, economic development, culture), how to define “public benefit?”
• Health: Cosmetic surgery, laser eye surgery?• Education: Specialized training, e.g., language school?• Economic Development: commercial properties?• Culture: Popular music v. symphony? Commercial v.
Art films?
Accountability Requirements
• To whom? (Supervision)
• On what? (Extent of supervision)
• How? (Forms of reporting)
• Public Access
• Balancing Bureaucracy
Supervisory Bodies
• Internal Accountability (Boards – Supervisory Boards)
• Supervising Agency (same or different from registration agency)
• Tax Authorities
• Donors (government / private)
• Other agencies (e.g.licensing, labor)
Extent of Supervision
• Reporting on Activities and Finances
• Transparency: how do we do things?
• Accountability: what do we achieve by doing things?
• Self-declaration or inspection?
Forms of Supervision
• Regular (annual) written reports
• Audit requirements
• Monitoring activities
• On-site inspection
• Cost-benefit analysis needed!
Public Access
• Record keeping
• Publishing reports
• Limits: – Protection of business interests– Privacy considerations
• Financial burden on PBO
Balancing Bureaucracy
• Reasonable level of detail (comparable to requirements from business companies)
• Differentiation by size (income level)
• Minimized financial burden on NGO