Public Benefit Status of NGOs: Basic Questions

1
Public Benefit Status of NGOs Basic Questions

• Nilda Bullain
• European Center for Not-for-Profit Law
• (ECNL)

2
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?

3
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)

4
Regulatory context

• Tax legislation (e.g. Germany, Netherlands)
• Law/s on foundations associations (e.g.
  Bulgaria)
• Specific laws (e.g. Hungary, Poland, Latvia)

5
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.

6
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)

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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

8
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)

9
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

10
One ministry

• ADVANTAGES
• consistency
• specialized expertise if separate department

• DISADVANTAGES
• centralized access
• potential for discretionary / political decisions

11
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

12
Courts

• ADVANTAGES
• politically independent
• accessible for NGOs across the country

• DISADVANTAGES
• overburdened - slow processing
• takes time to develop special expertise

13
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

14
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)?

15
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?

16
Accountability Requirements

• To whom? (Supervision)
• On what? (Extent of supervision)
• How? (Forms of reporting)
• Public Access
• Balancing Bureaucracy

17
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)

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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?

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Forms of Supervision

• Regular (annual) written reports
• Audit requirements
• Monitoring activities
• On-site inspection
• Cost-benefit analysis needed!

20
Public Access

• Record keeping
• Publishing reports
• Limits
• Protection of business interests
• Privacy considerations
• Financial burden on PBO

21
Balancing Bureaucracy

• Reasonable level of detail (comparable to
  requirements from business companies)
• Differentiation by size (income level)
• Minimized financial burden on NGO