The International Journal of Not-for-Profit
Law - Volume 2, Issue 1
A quarterly publication from The
International Center for Not-for-Profit Law
|
|
|
WHY ADVANCE
THE LEGISLATION
ON PUBLIC BENEFIT ACTIVITIES IN THE UKRAINE? The Ukraine, like many other CEE and NIS countries, faces
a number of problems in the development
of a legal
framework for public benefit or charitable
activities (hereinafter PBAs). In general, the Ukrainian government is unwilling
to pay great attention to regulations governing PBAs because of the following
factors: ·
Historically, public services and redistribution in the Ukraine were
provided through government bodies or state-owned enterprises and
quasi-governmental institutions. The private channels of redistribution (family,
friend societies, neighbours, churches) were not institutionalised legally. In
terms of the drastic reduction of public services, the dominant social attitude
is apathy and discontent with government activities instead of self-reliance. ·
Private institutions are not commonly involved in PBAs. Instead, they
provide mutual benefit services for mutual benefit or participate in political
or advertising campaigns. The government perceives these entities and human
rights organizations as lobbying instruments for their competitors’
interests. ·
The focus on fiscal issues, such as which activities and organizations
should be tax-exempt, leads to an inconsistent definition of the types of tax-exempt
organizations and their PBAs as well as suspicions of tax avoidance. The tax
authorities are especially sensitive to eventual losses, so their regulations
are more restrictive than the legislation in effect. ·
The public is occasionally informed about goals and opportunities of PBAs in
the Ukraine. However, well-publicised cases of abuses in this field (especially
in the distribution of humanitarian aid) make public opinion indifferent or
suspicious. Thus, a large majority of Ukrainian NGOs “underenjoy” even the
relevant current legislation. This discourages legislators from development
of the legal framework for PBAs while many political and fiscal issues remain
unsolved. ·
The principal technical obstacle is a great disagreement regarding the general
legal basis of PBAs. Speaking frankly, this legal basis has yet to be defined in
such a way as to provide specific guidelines for drafting, enforcement and
control on enforcement of laws concerning PBAs. This idea is expressed more and
more clearly with the officials responsible for the PBAs legal framework. These factors prevent the development of advanced
legislation on PBAs and charities in the Ukraine. It is too difficult to modify
these patterns
while 130,000 (or half) of Ukrainian enterprises have shown losses, an average
wage is about $40 per month and the budget deficit is drastically increasing. In
1998, 2,000 Ukranian tax-exempt charities earned about $25 million. (0.002% of
GNP or 50 cents per capita), and practically 80% of their expenditures were
funded with Western grants. However, tax authorities have tried to freeze even
the inconsistent income tax exemptions in effect, notwithstanding eventual
greater losses in tax revenues from the VAT, payroll taxes and hard currency
exchange. The functions of PBAs are complementary to securing
individual rights from the government. The principal differences are that
private institutions are not funded
with budget (or obligatory fees and charges) and do not provide public
services on the basis of legislative entitlement. They may enter contracts with
their customers (beneficiaries), and are free to make decisions
concerning: 1) entering the
contracts; 2) choosing the counterparts; 3) the contents of the contracts; 4)
the form of
the contracts; 5) changing their terms; 6) or deceasing the contracts. Because
general criteria of PBAs is not clearly expressed in the laws, the emerging civic
society in the Ukraine (and many other societies in transition) must pay close
attention to the bureaucracy’s case studies. Even experienced lawyers are
confused in distinguishing “charitable,” “not-for-profit,” “public
benefit” and “related” activities in accordance with current legislation.
PBAs may be interpreted as “businesslike,” “profitable,” or
“unrelated,” as “sales” of goods and services or “intangible
revenues”, like Ukrainian law on corporation income tax argues. This confusion
in terms is unacceptable in itself, but it also hides a conceptual ambivalence. Current
Ukrainian legislation concerning PBAs contains only inconsistent lists of types
of tax-exempt organizations, of their revenues and activities. The civil code
draft pays no attention to not-for-profit activities or Public Benefit
Organizations. The other possible approach is to regulate the legal status of
the subjects of
PBAs (their
right to tax credit and other fiscal privileges) in an eventual tax code without
classifying Public Benefit Organizations as a subgroup of legal entities. The
legal concept of PBAs needs more formal advancement in logical and technical
aspects of law. The principal
components of such aspects are object, subjects and matters of PBAs. The
object of PBAs is to secure individual rights. Every
individual or legal entity acquires rights upon formal registration or other
acknowledgement of legal status. Such registration is necessary to make clear
the scope of subjects: for example, should a fetus or animal be recognized as an
individual or not? The example of euthanasia may be too controversial, but is
nevertheless illustrative: nobody may make the decision to commit suicide on
behalf of another individual, just as nobody may exercise the right of another
individual to commit suicide, even under the power of attorney. Nobody may enjoy
rights to education, medical care or marriage on behalf of another person. There
is no exhaustive list used to define individual rights. Equal
individual rights belong to everybody despite personal circumstances (origin,
civil status, beliefs, etc.). Administrative regulations or contracts may not
restrict the manner by which individual rights are exercised. Only laws may
make such restrictions. Individuals decide whether to exercise their rights and
exercise them personally. The
exercise of individual rights should be secured with legal means, in particular,
through contracts on PBAS. These contracts may provide for transfers of assets,
title in or usage of property free of charge and are always personal. This
approach allows for the examination of some key standards in the regulation of
the objects of PBAs. Legislation shall not include an exhaustive list of
individual rights to be considered the object of PBAs.
Instead, legislation must provide general guidelines which merely state that
individual rights are the object. Because PBAs belong to individuals equally, they
aim at securing the individual rights of an indefinite circle of persons and
entities. Public services funded from budgets are a separate legal issue.
Securing individual rights is the principal task of governments. So public money
for such services is levied via fees and charges or tax distribution. Public and
semi-public entities may act on contractual basis, unless the services are
provided with budget credits or subventions. Private institutions that receive
budget money or holding contracts with government bodies should have special
legal and fiscal status. They may be representatives of national or local
governments as well as international organizations funded by the Ukrainian
government. I should note that PBAs neither secure one’s own
individual rights nor exercise these rights with third parties, such as
representatives of disabled persons. If someone makes a gift for a public orphan
school, the object of PBAs are rights of orphans, not the entity taking care of
them. The participation of the school is limited to the party in the contract on
PBAs. PBAs aim at
securing individual rights. Securing certain rights for individuals leads to
discrimination on other grounds than that of securing the chances to exercise one’s
individual rights. Another cause of confusion is that individual
rights are somewhat related to property rights. Thus, the right to life is
hardly to be secured without minimal standards of living. If the government
fails to provide these standards of living, transfers up to the sum at which the
standards may be deemed to have been met should be interpreted as PBAs.
The amount in excess of this sum may be taxable under a regular income or
gift tax. Similarly, it is nearly impossible to secure rights to ambulance
services, compulsory education or legal aid without reimbursement of expenses
related to exercising them. Thus, the highest priority is the object of PBAs,
not the matter itself. PBAs do not concern themselves with the environment, natural
resources, historical places or any material objects. In any case,
the matter is securing individual rights of access to such objects (e.g.,
general enjoyment of health environment). Thus, restoration of an architectural
monument (access limited with the proprietor) or cleaning the pond in a private site may not be recognized as
PBAs, regardless of the importance of these material objects. The matter of PBAs is
not tangible things, but the obligation of transferring assets or titles or
usage in property to non-specified circle of persons. The
beneficiary may be obliged to reimburse the costs of PBAs subjects related to
providing public services (taxes, customs and fees, insurance, payments to third
parties etc.). Although benefits from PBAs are principally the taxable income of the beneficiaries, the fiscal regulations shall not prevent the owners from disposing their assets via refusal of them. The concept of animus donandi (will to reduce one’s assets in favor of another person, well-known in Roman law) and the formality of PBAs contracts (transfer of things by written contracts) allows one to conclude that things become ownerless and the actual beneficiary is presumed to receive unjust enrichment. Obligations
fulfilled under administrative or court decisions on personal torts shall not be
considered PBAs, even if a breach of individual rights was the cause of
action. But legal protection of
individual rights by government shall not substitute totally the implementation
with other persons. Otherwise centralization of public services would
become excessive and non-effective. The subjects of PBAs may
be any individual or legal entity. Everyone
is entitled to secure the individual rights of other entities. Organizations
with special legal status are subject to legal formalities only if they receive
funding through the budget, contract or via specific tax exemptions. This legal
status is such that the organizations may enter contracts in favor of third
parties (to raise unconditional funds, to dispose the revenue derived from the
donations, etc.). Legal
restrictions may concern only the disposal of the matter of PBAs. Thus,
disabled persons may transfer the property titles only via their
representatives; licensed services (even those provided free of charge, e.g.
health care or legal aid) should be provided only with the required licenses and
permissions; and assets may not be disposed of for other objectives, unless their
owner decides otherwise. Advocacy
of individual rights may be considered as a PBA: moral damage may be remodeled
as an unlawful restriction of individual rights instead of subjective tests on
personal sufferers. PBAs
are regulated under the law of obligation (concept, parties, fulfillment,
securing, rights of third parties, responsibilities, winding up). The
unregulated issues are subject to contracts and court decisions. The
importance of PBAs in public law (constitutional and fiscal) is based on their
instrumental role in securing individual rights declared by the state. The
subject of PBAs may not get privileges and immunities from the state (neither
indirectly through fiscal mechanisms, nor direct contractual or administrative)
if it secures the individual rights of its beneficiaries on the basis of their
race, origin, religious or political beliefs. Beneficiaries should be identified
under any non-discriminative ground: all people in City A, may attend Museum
B free of charge, if the costs are paid by a subject of PBAs. Thus,
there are two proposed key tests to find out whether the activities are of
public benefit: 1.
Objective
Transfer
the titles of property or usage in order to secure individual rights of an
indefinite circle of people in non-discriminatory way. 2.
Parties
Subject/principal
(individual or corporation); personal beneficiary;
trustee; beneficiary’s representative.
For more information, please, contact Alexander
Vinnikov, legal counsel for Counterpart Alliance for Partnership (CAP). His
e-mail: vinnikov@counterpart.org.ua |
Send mail to datiken@icnl.org with
questions or comments about this web site.
|
