Public-benefit foundations make significant contributions to society in EU Member States (MS). In recent years many have expanded, to operate across borders. However, the lack of harmonised rules has caused problems of legal recognition in other MS and threatens to limit the potential value of the sector. The Commission has brought forward a proposal to tackle the issue.
Foundations play a prominent role in key policy sectors such as education and research, arts and culture and the environment. They are often defined as independent, separately constituted, non-profit organisations with their own established and reliable sources of income.
At the beginning of 2012 there were approximately 110 000 public-benefit foundations in the EU with estimated assets of at least €350 billion. Recent years have seen a large increase, with one 2008 study indicating that in nine MS, 43% of all foundations had been set up within the previous decade.
Foundations in MS are usually created for an indefinite period, exist under the oversight of public authorities and are not permitted to distribute profits received amongst their founders or between members of their executive bodies. However, there are also several differences in treatment between MS.
All MS provide some form of tax relief for public-benefit foundations. However there is neither a common approach nor a common definition of what constitutes a public benefit. Procedures for tax privileges also vary. Foreign-based foundations receive the same tax breaks as domestic foundations in only half of MS. In some MS, foundations risk losing their privileges if they operate mainly outside their home country. Whilst most MS grant tax relief, there are differences in scope and conditions.
Legal and administrative burden
In addition to multiple sets of running costs, foundations operating in more than one MS are required to register in each, and in some cases must fulfil special recognition requirements. In this, and in other respects, additional costs are expended on legal advice both during initial establishment and to stay on top of legal changes. Foundations must also adapt their rules to the governance of the host MS, which, in some MS, requires a supervisory board in addition to a governing board.
The Commission published its proposal for a Statute for a European Foundation (FE) in February 2012. It argued that the statute would not only reduce costs and uncertainty but allow foundations to benefit from greater visibility and increased funding via a “European label”.
An FE could be set up from scratch, or by converting an existing foundation or by merging national foundations. After having proved its “public benefit” purpose, cross-border dimension and minimum founding assets, the FE would have legal personality and legal capacity in all MS. FE would also enjoy equal tax treatment with domestic foundations.
Stakeholder response to the proposal has been generally positive, but concerns have been raised about the inclusion of tax elements. A legal analysis, by the European Foundation Centre noted that if the proposed automatic equal tax treatment of FEs and resident tax-exempt, public-benefit organisations is to be retained, additional rules may be needed to take account of MS tax laws. The Commission, itself has noted that several MS governments may have concerns in this respect.
As the proposal (under Article 352 TFEU) is subject to the consent procedure, the Legal Affairs Committee (rapporteur Evelyn Regner S&D, Austria) has prepared an interim report calling for modifications to the proposal.