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The International Journal
of Not-for-Profit Law

Volume 3, Issue 1, September 2000

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Articles

The Relationship Between the Governmental and Civil Sectors in Hungary
By István Csóka

Tax Incentives for Nonprofit Institutions: Analysis of International Experience
By Ignacio Irarrázaval and Julio Guzmán

The Definition of Religion in Charity Law in the Age of Fundamental Human Rights
By Kathryn Bromley

The Taxation of NPOs in South Africa
By Karen Nelson

The Aarhus Convention and its Practical Impact on NGOs Examples of CEE and NIS Countries
By Czelaw Walek

Negative Freedom of Association: Article 11 of the European Convention for the Protection of Human Rights and Fundamental Freedoms
By Wino Van Veen

Creation of a Special Legal Framework for NGOs [Spanish]
By Maria Beatriz Parodi Luna

Reviews

Charity Law
By Kerry O'Halloran
Reviewed by ICNL Staff

Cross-Border Philanthropy: An Exploratory Study of International Giving in the United Kingdom, United States, Germany and Japan
Edited by Helmut K. Anheier and Regina List
Reviewed by ICNL Staff

Case Notes

Central and Eastern Europe:
Serbia

Latin America and the Caribbean:
Venezuela

Middle East and North Africa:
Egypt

Western Europe:
Negative Freedom of Association: Article 11 of the European Convention for the Protection of Human Rights and Fundamental Freedoms

Country Reports

Asia Pacific:
Australia

Central and Eastern Europe:
Regional
| Bulgaria

Latin America and the Caribbean:
Venezuela

Middle East and North Africa:
Regional

Newly Independent States:
Moldova
| Ukraine

North America:
Canada
| Mexico | the United States

South Asia:
India | Pakistan

Sub-Saharan Africa:
Ethiopia
| South Africa

Western Europe:
Regional | Italy | Turkey

International

International Grantmaking

Program-Related Investments: Domestic and International
By David S. Chernoff

New International Grantmaking Website Unveiled
By Rob Buchanan

Review of a New International Grantmaking Website
By Peter deCourcy Hero

- - - - - - - - - -

Editorial Board

Creation of a Special Legal Framework for NGOs

By Maria Beatriz Parodi Luna 

Introduction

The so-called Third Sector is composed of diverse organizations that, in general terms, are characterized for their nonprofit purpose; at the same time, these organizations work to distinguish themselves from the other two sectors of society: state and enterprise (profit or mercantile organizations). Consequently, the Third Sector is characterized by its diversity which contributes to its richness, but this same factor also contributes to the Third Sector’s difficulty in reaching its own identity and institutional strength.

Within this universe of organizations, we find the Non Governmental Organizations for Development (NGOs), with which no uniformity exists in relation to their definition, but, in spite of that, they are recognized as important and dynamic social actors that are an expression of citizen participation in society. At the same time, they interact with the State and/or enterprises to obtain “social objectives” or “public interests” through cooperative efforts, vertical links or service contracts.

In this way, a duality is presented between social and/or economic realities which makes clear the importance of the role of the NGOs and, on the other hand, the existence of formal rules, specifically the legal framework which looks like it does not reflect adequately the dynamic of these types of organizations. At this level, it is usually indicated that the lack of an adequate legal identification of NGOs, in other words, the absence of a special or particular legal treatment, which includes promotional norms (like those referred to taxation, as a mechanism to promote or stimulate philanthropy), does not help to develop and strengthen this type of organization.

Within this context, the present work tries to analyze the convenience and/or necessity of recognizing NGOs own legal identity or, in general terms, the importance of creating a special legal framework for NGOs

The main thematic areas of the present work are as follows:

  1. Identity of NGOs within the Third Sector.
  2. Why is it necessary and/or convenient to concede NGOs their proper legal identity or create a special legal framework for NGOs?.
  3. Role of the State in the regulations of NGOs vs Self-regulation.
  4. Legal aspects to consider in a special legal framework for NGOs.
  5. Conclusions and recommendations.

1. Identity of NGOs within the Third Sector

1.1. In general, NGOs or Non Governmental Organizations for Development are incorporated within the wide universe of nonprofit organizations (or also named Third Sector). Classically, NGOs have been defined in terms of what they are not or in relation to those organizations from which they are easily distinguished. They are characterized as not to belonging to the State and not profitable; at the same time, NGOs act within the private sector for the satisfaction of "public and social interests".

Different concepts arise from this perspective of NGOs. Thus, it is said, among other things: that they are promotional agents for changes or development (others prefer to say that "they accompany changes for development"); that their fundamental mission is to complement or make up for the deficiencies of the State in the accomplishment of activities of social interest through the fulfillment of programs and projects of development in favor of the population (it is important to point out that in accordance with the institutional level or legitimacy of an NGO, the sum of projects or programs reaches farther); and that NGOs are both an expression and vehicle for citizen participation.

The World Bank has identified them as "groups and institutions that are totally, or greatly independent from the governments and are characterized for their human and cooperative objectives, more than commercial", so they are defined as "private organizations that carry out activities to ease suffering, promote the interests of the poor, protect the environment, promote basic social services or accomplish activities for community development.”

There does not exist a uniform definition for “NGOs.” Also, a great quantity of important different opinions exists regarding the role of NGOs and the effects of their action. In spite of this, we can conclude that the term “NGO” goes wider than the mere legal context, poses a very rich problem of social character and also has a political nature (traditionally, the term “NGO” in Latin America has been linked with political ideas of social transformation).

1.2. Linked with the problem of defining NGOs is the aspect of the evolution and new forms of NGOs within the actual economic and social international context. Also, the redefinition of the traditional roles assigned to the three sectors of society (State, enterprises and non profit organizations or civil society organizations, where we put NGOs) has given rise to a different model of action by NGOs, an aspect that we will develop in sub-section 1.3.

In relation to the first aspect, we find that usually a difference is made between basic NGOs, formed by members that get together to promote their own interests, and NGOs that are “intermediaries”, or those that are geared mainly toward the execution of projects and receiving sources from a third party (cooperated sources, especially of International Technical Cooperation) in favor of other third parties (“beneficiary population”: health sector, micro and small enterprise, peasants, gender, etc.).

Another classification that is used is operational NGOs versus advocacy NG0s. Within the first type are the NGOs that have as their principal objective carrying out projects, while in the second we can find the ones that are looking for the defense or promotion of a specific cause and/or have influence in politics and public practices in general. It is important to emphasize that in the type of operational NGOs that reach a national level and are more than the sum of their projects, we can also observe advocacy practices based on the legitimacy that they have been able to develop within the society where they have been involved, including the private and public sector.

1.3. On the other hand, now in Peru and generally in many Latin American countries, the deep changes in the world economy derived from predominance of the neoliberal and globalization wave have given rise to: the reduction of the State apparatus and the privatization of public services; formulation of strategies for the sustainable development of enterprises (where the theme of the business for social responsibility has appeared); and reorientation of the terms of International Technical Cooperation to the interior of the Non Profit Sector which state that NGOs must increase their possibility of self-financing through establishing cooperative links or service contracts (consultancy, legal advice, subcontracts, participation in public competition) with state entities, enterprises and third parties in general.

Effectively, from a general point of view, an evolution can be observed in the terms of action of NGOs and, consequently, a new form of interrelation with the other two sectors. At first, NGOs were presented as antagonistic to the other two sectors and their fundamental objective was to remedy the most immediate necessities of certain groups or populations of very limited resources; within this context, the donation component in “favor of the beneficiary population” and the resources that were received by NGOs were the center axle of their finance. Afterwards (end of the seventies and beginning of the eighties), many NGOs realized that their activities solved temporal problems, but the problem of development (especially in Latin America) should be faced in a different way; in this context of the mission of NGOs to the “less favored sectors”, they focused on sustainable community development activities. This attitude implied new topics linked with micro and small enterprise, agro-industry, environment, remedy of pollution, housing, and conformation of networks of economical investigation, among others. To this end, components or activities linked with credit support (an alternative to the classic donation), generation of income and employment, productive development, institutional strength, support and transference of technology, economical and technical consultancy in enterprise matters, and organization of enterprises, among others, are incorporated in the respective projects or programs. In other words, we pass from the classic philanthropy or social assistance to looking forward to consolidation and sustainable development of the population within which the NGOs work.

On the other hand, the logic of the market (joined with the shortage and reorientation of the resources that come from International Technical Cooperation in the case of Latin America) brings along a process of “mercantilism” of NGOs, which today are adopting “enterprise practices” not only at the level of creation of the mechanisms of auto financing as we indicated before, but also in the terms of their performance. These practices include:

  1. Incorporation of enterprise criteria in their management: evaluations, measurement of impact, quality control, cost/benefit evaluation, and process of reengineering, designed to improve the efficiency and the effectiveness of projects that NGOs execute.
  2. Creation of enterprises (independent mercantile societies), as a way to generate their own resources. At the same time, these enterprises are associated with the work area of their projects.
  3. Creation of joint ventures (as independent legal entities or joint venture contracts in Peru) to strengthen the capacity of the NGOs involved. In the case of Peru, for example, it is worth pointing out the joint venture (as an independent association) created to support micro and small enterprise, specifically regarding the credit aspect (COPEME) and economic investigation organizations- linked by contracts or cooperative agreements (in which universities also participate).

Finally, we can start to talk about a "third generation" of NGOs, whose objectives are to go beyond individual actions and to achieve an articulated action with other agents of society, so as to achieve the support of the changes that they demand. Within this context, we can observe a certain participation or intention to participate, in accordance with government policies in relation to NGOs, through the elaboration of public policies and collaboration with the government in the execution of certain programs to relieve poverty. Nevertheless, it is important to point out that in this respect the "third generation" is complementary and does not exclude the execution of projects, as indicated before.

1.4. The context described above has also brought as a consequence the redefinition of the traditional roles assigned for the three sectors of society (state, enterprises and non profit organizations), which do not present themselves as antagonistic. Instead, they are moving toward complementing one another through complementary interaction mechanisms (for example, execution of projects or programs promoted by the state or realization of consultancies in favor of the state or enterprises by NGOs) or horizontal participation (cooperation agreements or alliances).

In effect, we can appreciate a change in the relationship between NGOs and the State, which has evolved from conflicting processes to new forms of interaction, which go from establishing cooperative links (horizontal terms of relation), especially in the Peruvian case with local governments (municipalities), the establishment of complementary participation or functional links, in relation with summon actions and direction from the state (like in FONCODES, in the Peruvian case) up to the participation in public contests for the execution of consultancy activities (for example health sector, infrastructure, promotion of micro and small enterprise). The processes of democratization, privatization and reduction of the State in Latin America are opening spaces in terms of cooperation (vertical or horizontal) between the state and the NGOs; nevertheless, the option to do a mutual strategic planning and participate in public policy programs in certain sectors in which NGOs have developed a special know-how (micro credit, housing, health) is a bit more complex and depends on the attitude and will of the government of the moment to involve other actors, especially NGOs, that are in some cases looked on with suspicion.

On the other hand, in the relationship between NGOs and Enterprise we can see links of participation on the horizontal level (collaboration agreements) and on the vertical level, through consultancy contracts on specialized topics (housing, environment, health, technical assistance, within others), as well as other links of complementary participation (for example, financial programs for micro and small enterprises that are channeled through banks). This new relationship, in part, comes from a change of philosophy and way of performance of enterprises that are striving for sustainable development (which goes further than the generation and sharing of utilities) and where the theme of corporate social responsibility will, in the future, become a fundamental axle of the new enterprise dynamic.

As a consequence of what was previously said, we can observe a new model of acting, denominated “flexible specialization”, in which NGOs combine their public interest or social objectives and, at the same time, act under an “enterprise logic”, developing their own initiatives and/or participating in public initiatives (state) or private actions of the enterprise type.

1.5. Regarding the legal identity of NGOs, in Peru (as in the majority of other Latin American countries), the legal environment does not give NGOs status as a special type of legal entity. In order to acquire their own legal personality (this means to be a legal entity with patrimonial autonomy and responsibility), NGOs adopt the classic form of the civil association. Very few NGOs are established as foundations. This is due to the flexible character of the association and the fact that there is less State interference with ssociations than in the case of foundations.

The denomination of NGOs in Peru has a legal recognition at the level of International Technical Cooperation (Decree Law No. 719). In particular, the Peruvian legislation has created an administrative register named the Register of Non Government Organizations for Development Beneficiaries of International Technical Cooperation-NGOD-PERU which is carried by the Executive Secretariat of International Technical Cooperation-SECTI (actually it is part of the Minister Council Presidency).

Non-profit legal entities established in Peru that have as purpose the realization of developing actions which involve International Technical Cooperation are registered in the said record.[1]

Does the register of NGOD-PERU have a constitutive character in relation to the actions that NGOs develop in Peru? In accordance with the enabling law of International Technical Cooperation, the Register has a constitutive ”character” in spite of the fact that that the field of application of the norms of cooperation is referred to those that are canalized by the “state resorts”, we consider that the obligation to register does not apply to have access to International Technical Cooperation (for example, to receive a donation that will be ruled by the parties in the respective agreement, in accordance with their freedom of contracting) that will not be canalized through the state resorts. However, in practice, a great quantity of financial sources or “cooperation sources” demand, as a part of their requirements, that NGOs are included with the said Register (in addition to their formalization as legal entities in the Public Registers). This is because to be registered in the SECTI first gives them “a major legal cover” to have a certain “recognition” from the State, and at the same time establishes the obligation of those organizations to inform the State of the execution of their programs and projects, which is perceived by third parties (cooperative source) as an element of more transparency and visibility in their actions.

On the other hand, the inscription has been established by the Peruvian Legislation (Decree Law No. 783) as a previously obligated requirement, with the purpose of having access to the benefit of devolution of taxes (sales tax) for the local acquisition of goods and services that are done by NGOs in the execution of the financed projects with International Technical Cooperation not refundable (donations).

The derived obligations of the inscription in the said Register are essentially related to the presentation of information about the activities of NGOs and financial sources and application of funds. Throughout the SECTI are established guidelines for NGOs activities, for example: having to comply with a model or frame statute, ways of executing their projects, and a policy of remuneration of their associates which exercise administrative managing. In recent years, because of the inscription or renovation in the referred Register, the SECTI has had a more direct supervisory role over the projects that are done by NGOs through requirements for more information and proof of the well-being of those who receive the resources in relation to the economic activities that are done (specifically in relation to the participation in mercantile societies).

On the other hand, it should be emphasized that the information and the reports in general that are presented by NGOs to SECTI are not for public access or information.

1.6. In conclusion, NGOs confrontation of new challenges and withstanding tests to their institutional strength and professionalism should be appreciated, as well as their passage from mere philanthropy or the conflictive political activity in relation to the State to searching for sustainable development activities and working as a complement to the State and the enterprises. In accordance with this, the legal framework should try to give NGOs their own space so as to be more transparent and have more flexibility to act at the level of their organization and manage their own resources.

2. Why is it Necessary and/or Convenient to Concede NGOs Their Proper Legal Identity or Create a Special Legal ramework for NGOs?

2.1. Within the context described above, the present work postulates the convenience and/or the necessity of recognizing the legal identity of NGOs or, in general terms, creating a legal framework for NGOs, considering the following basic guidelines:

  1. NGOs are an authentic expression of constitutional freedom of association and an expression of the will of individuals to satisfy their own interests in an organized and transcendental way within both the third and private sectors.
  2. NGOs act in a particular and relevant way in society, which is why it is necessary to emphasize or strengthen the terms of their form of acting; on the other hand, society demands more transparency and visibility of NGO action.

2.2. In effect, the lack of an adequate legal classification for NGOs, which would give legal cover to this type of organization and, in general, diverse entities whose final purpose is not lucrative, has given rise to some kind of “overcrowding” of the term “civil association.”

From our point of view, the fundamental elements that distinguish NGOs from other types of legal entities (specifically in relation with associations, considering that NGOs in Peru use this term to cover a broad range of organizations) are the following:

2.2.1. The NGOs’ members do not necessarily have to adapt themselves to the idea of associates of a civil association, which implies the establishment of a minimum of two organs that the Peruvian Civil Code requires, the General Assembly of Associates and the Directive Board. In the case of small or medium-sized NGOs, this could be an unnecessary redundancy.

In reality, members or participants of NGOs mostly fill a role as “promoters” of social initiatives, directing their acts in favor of a third party. Consequently, the recommendation could be to establish, at the legal level, only one mandatory organ that gathers members and gives them the necessary competence, so they have the authority to guide the destiny of the NGO (modification of the bylaws, dissolution an social liquidation) rather than only be allowed to perform administrative tasks, because NGOs respond mostly to the association form. The NGO should be allowed, without detriment, to voluntarily establish (via self-regulation) additional organs, as need be.

2.2.2. The structure of assets is not based on shareholders equity but basically on International Technical Cooperation finance for their use in the execution of projects or social interest programs.

At this point, the special structure of assets that comes from third sources (cooperation sources) leads us to a discussion on the necessity of establishing legal mechanisms of supervision or control (be them external by the State or internal ones) over the use of the resources by NGOs.

2.2.3. NGOs’ purposes are focused on social interest or social promotion; at the same time, in the practice, the economic activities done by NGOs are growing as a mechanism for obtaining their own resources or as part of the realization of their programs, in a direct way (credit assistance, for example) or in an indirect way (structure of mercantile societies with participation of NGOs or of the "beneficiary population", within the component of managerial strengthening or support of their projects in favor of micro and small enterprises, such as agriculture) .

With attention to the above, the legislature could establish basic guidelines for the development of such economic activities (with the aim of avoiding the existing criticisms of such economic activities), allowing them as part of the execution of their programs or projects of social interest or as a means (instrument) of generating resources to meet their social objectives ("mandatory legal reinvestment") and maintain their "principal mission".

2.2.4. There is an important presence of third parties ("population"), toward which the work of NGOs is oriented.

This presents the convenience of establishing within the legal framework, as an obligation in charge of NGOs, the participation of the population in those projects (in which at the same time there is the problem of the “representative” of the population) in relation to the execution and/or realization of periodical evaluations; the use of social instruments of measurement; the publicity or forms of public access to the information of NGOs, related to the activities and resources that they manage.

2.2.5. The members participate as executives or chiefs of programs or projects that are done by the NGO, receiving a remuneration for the realization of such services. In our opinion, this does not contradict the non-profit purpose of an NGO, but in order to avoid criticisms derived from an indirect distribution of utilities, the establishment of general guidelines designed to solve interest conflicts would be ideal. One such guideline could require that the remuneration corresponds to an execution of an effective service, required by the organization and paid as established by the market standards.

2.3. In accordance with the previous paragraph, the creation of their own legal regime could be an important instrument to consolidate the institutionalization of NGOs and obtain a fair and more transparent representation in the mechanism of articulation or gathering of the social actors involved. If we consider the case of NGOs, we can see the criticism of more visibility and adequate mechanisms for the supervision of public or third party funds that are received by NGOs for the execution of "social or public interest projects”.

3. Role of the State in the Regulations of NGO's vs Self-Regulation

3.1. Balance between Legal Regulation and Self-Regulation

  1. In general terms, the legal system is usually recognized as an objective conditioner or of context (to which has to be added subjective conditioners as important as the cultural, diffusion or promotional factors, within others) that fulfills a "facilitator role", "of promotion" or a "favorable environment" for the development of new models of organizations of free and voluntary adhesion by the actors involved (there is where the subjective ingredient comes in).

    This means, in the specific case of NGOs, we can generally conclude that a special uniform regulation that gives NGOs a legal identity or regulates their functioning does not exist, and instead is dispersed throughout various administrative registers that refer to NGOs. On the other hand, certain empty spaces linked with a special legal treatment in favor of the celebration of cooperation agreements, delimitation of their special form of organization, and public access to the information that they provide do exist. Also, the existence of empty spaces and/or deficiencies at the legal level could influence NGOs functioning and their terms of relation with the State, enterprises and other social actors. In this way, these empty spaces are an obstruction “by omission”, permitting, at the same time, an arbitrary interpretation of the legal norms with which they count.

  2. In this context, we can pose the discussion related to the form to achieve an adequate balance between the convenience of obtaining more transparency in relation with their own identity and/or acts of NGOs, in a distinctive way in relation with the disperse universe of organizations that comprise the Third Sector, which will generate more visibility of their objectives by the different actors involved, especially partnership sources and third parties that will “receive benefits” with their activity, for which should be issue the legal dispositions that regulate the acts of these organizations; and at the same time promote a legal framework and, in general, a flexible environment for the development of NGOs’ interests, because they are private entities’ expression of pluralism and citizen participation and, from a legal point of view, an expression of constitutional rights of freedom of expression and association guaranteed in a common way in Latin American legislation.

  3. The indicated balance specifically brings to debate the convenience between promoting a policy of legal regulation (including ingredients of supervision by the State, with attention to the “public interest” that is pursued by NGOs) and, on the other hand, moving toward strengthening the mechanisms of self-regulation. In the first case, the role of the State is privileged at different levels, for example: establishment of legislation that portends to delimit the range of action and organization of NGOs, strengthening the participation of the State in relation to the concession of legal personality, realization of supervision and control of activities by the State, establishment of inspections and/or administrative registers to have access to tax benefits, and programs or projects promoted by the State, among others.

    Under the self-regulation option, the creation of general guidelines emerged from the social actors or members of the organization, having as a base the constitutional right of freedom of association. This implies looking for the determination, administration, application of guidelines or codes of conduct, as well as the supervision and, if necessary, eventual punishment of general courses of action. At the same time, this implies looking for the promotion of alternative mechanisms for the resolution of conflicts for both the parties involved and subsequent voluntary followers. In this sense, the self-regulation mechanisms have as a fundamental partner the second level organizations or networks.

    From our point of view, a special regulation for NGOs should be established. This regulation could be contained in a specific law (usually it is easier to approve a special law than to introduce modifications in macro laws such as the Civil Code), that establishes general guidelines to delimit this figure, configuring it as a special type of legal entity (different from the classic association or foundation), and at the same time, gives the necessary flexibility in attention to the different objectives that the NGOs pursue and their needs of administrative functioning, that usually are referred to in the execution of programs and/or projects. The result would be space for the spontaneous creation of self-regulation mechanisms.

    Because of the above, it is viable –and even recommendable- “to combine” both options, resulting in the following parameters.

    b.1. It is necessary that the State participate by establishing the guidelines or general lines that will mark, in the first place, the legal type of organizations within the non profit sector (specifically the creation of legal entities with their own organization regime) and, in second place, that will offer equal and transparent rules to the social actors. In this way, clearer rules will also help to reduce the transaction costs and, at the same time, will inform the different actors about the minimum legal requirements necessary to identify when this type of organization is regularly functioning; and

    b.2. It is also necessary that the social actors, based on their needs and following a legal basic standard, establish mechanisms of functioning and organization for the better satisfaction of their interests.

  4. In this sense, the legal framework should work to obtain the creation of its own organizational models within the denominated Third Sector, in which we find the social phenomenon of NGOs, giving answers to the basic needs for their functioning. In this way, we can identify the following special subjects which will be developed in Chapter 4 of the present work: definition of the social object; organization regime (delimitation of basic social organs, competence and composition, regime for taking decisions, and minimum or special quorums for assistance and vote, in accordance with the type of decision involved); conditions, rights and obligations of members; particular situations of conflict of interest; refute of agreements; internal controls (vigilance committees or audits) or external controls (supervision or remission of informs or balances to the State), without which there is implied an undesirable interference with the internal dynamic of this type of private organization; and modification of the statutes, dissolution and liquidation regime.

On the other hand, the self-regulation mechanisms should result in the creation of the necessary spaces for NGOs to design complementary mechanisms linked with their dynamic of functioning, for example: organization regime (additional organs, different from those that are mandatory by law), social instruments for measurement, relation with their financial or cooperative sources and “beneficiary population”, ways to execute projects and/or programs, and establishment of networks or second grade organizations.

3.2. Ways to Approach a Special Legislation for NGOs - Some Latin American Experiences

  1. In the first place, it is important to point out that in the search for a proper legal framework for NGOs, it is necessary to create spaces for coordination or agreement, not only with the sectors involved (in relation to the State, for example), but also among NGOs and other groups of the Third Sector (for example, grassroots organizations, universities).

    In many Latin American countries, the difficulty of finding a solid organization (especially of second grade) that can “represent” the interests of the different NGOs involved with special consideration for the diversity of objectives that they pursue is a common reality in many Latin American countries.[2]This lack of an adequate agreement among NGOs is an important factor that weakens their proposals and their position in relation to the State, especially if the State has an attitude of suspicion toward or a position of control over them.

    In this sense, it is necessary to create spaces for NGOs networks (second grade organizations) that are representative of the interests of this type of organization, and at the same time could generate, in a rapid way, alternative proposals to those that the State presents and also serve as “intermediaries” in relation to the State (Executive and Legislative Authority). A good example of this is the Mexican Project about the “Law for the Promotion of Social Development Activities of Civil Organizations”, which was the result of the work of over 3000 nonprofit civil organizations of that country, channeled through a second grade entity “Convergencia”, as well as the “Mexican Center for Philanthropy”-CEMEFI and the Mutual Support Forum and Foundation “Miguel Alemán”.

    On the other hand, besides the integration of NGOs in order to formulate coherent and united proposals, it is necessary that the State create open spaces designed to foster the dialogue on and understanding of the dynamic of this type of organization, considering as a reference the constitutional right of association. The State should consider that NGOs provide substitute assistance and promotion of social tasks, especially in a context where the State is attempting to reduce its apparatus and public expenses in order to promote their development (for example, creating tax benefits in favor of NGOs would be an indirect finance for social support activities). Unfortunately, on many occasions, as has been said, States have a mistrustful or “closed” posture to generating a consultation or participation process for the formulation of flexible regulatory policies for the Sector (in the case of Central America, for example).

    It is also important to rescue the role of the finance agencies or cooperating international sources, that in many cases have supported and promoted the development of the NGOs movement in different countries of Latin America, not only through financial support (even though a rationalization and prioritization of the International Technical Cooperation resources, in accordance with the situation of each country, actually exists), but also by giving institutional support and technical assistance on the matter.

  2. The legal way to approach NGOs own regulatory framework ranges from propositions destined to create a special legal framework (even giving them their own legal identity, as is our proposal) up to the expedition of diverse specific norms that modify or complement the present legislation in search of a “more favorable or propitious environment” for NGOs labor (in concrete modifications in the income tax in order to extend the exemptions and modification of budgetary laws to channel public resources in favor of NGOs).

    Which is the more favorable position? The answer depends on the reality of each country and the existence of a “favorable environment” to give space to a total and wide legal reform or, at least, a partial reform. It is important to point out the capacity and necessity of representation, coordination and legitimacy of NGOs within their own social and political context.

  3. At the Latin America level, we find in general that the term “NGO” is more used as a sociological term than a legal one. This means that it does not constitute a special legal type of organization within the Non Profit Sector; including in many cases, as has been indicated, its denomination within the legal field complies with an administrative register in which associations or foundations that develop social interest actions are registered, as in the case of Peru or Panama.[3]

    In this way, we find different experiences related to the present topic, from those that are looking for an improvement and/or total modification of NGO legislation, through special projects of an association and foundation law (the case of San Salvador, where the new law of Associations and Foundations was approved in 1996) up to specific projects linked to this subgroup of NGOs of development. The latter is exemplified by a project in Nicaragua, where there is a strong State control, that attempts to distinguish this type of organizations from the classic figures of civil association and foundation. In the case of Panama, a group of Panamanian organizations under the coordination of the Popular Legal Assistance Center (CEALP) and with the support of the Arias Foundation, elaborated on a law project for the creation of a legal framework for the Human Rights and Integral Social Development Associations.[4] In the case of the Dominican Republic, there is actually a project of law of “Non Profit Social Assistance Associations” (in the text of the project they also use the term of nonprofit civil associations for services to thirds), that is seeking to create a special regime of this type of association as a “private entity”, containing promotional norms in tax matters, as well as special norms about the presentation of information and other administrative aspects.

    On the other hand, there are special cases, such as the Mexican project “Law for the Promotion of Social Development Activities of Civil Organizations”, that do not create a special legal identity for NGOs, but that fundamentally seek to establish the field of relations between the denominated “Civil Organizations” (that are not a new special type of legal entity) and the State; in this context, civil organizations are those that are legally constituted whose activities are for social welfare and development inspired by the principles and goals of social responsibility, solidarity, philanthropy, welfare and assistance. It is indicated that “the definition of civil organizations is not a wide concept of NGO, it is only applicable to those that are complementary to the government but excludes those that could be competitive”.[5][6]

    Also with a specific character, we can find the Law No. 9790 of Brasil that creates the administrative classification of Civil Society Organizations of Public Interest. This law is oriented to regulate, in a special and promotional way, the phenomenon of alliances or “parcerías”, in order to: i) distinguish them from the classic public service contracts, and ii) permit the access to public sources to this type of entity. To that effect, a special register was created in the Ministry of Justice that gives them the correspondent classification as a previous condition to celebrating cooperation agreements with the State.

    Finally, we can mention the case of Argentina that actually, through the Commission of Cooperated Affairs, Mutuals and NGOs of the Congress, has opened to the public the discussion of diverse draft laws related to the legal framework for NGOs and Volunteering, which goes from general norms as the draft “Law for the Promotion and Strengthen of the Civil Society Organizations and Volunteering”, [7] up to a group of specific norms referring to tax benefits (special or preferential rates in the case of public services, execution of commercial activities by foundations or civil associations)

  4. In short, in discussing the creation of a specific legal framework for Non Governmental Organizations for Development (there is a wide debate about their definition) we find different alternatives that express the macro subject referred to as the relation of the State with private organizations.

    In general terms, we postulate the convenience of creating a specific and specialized legislation for NGOs, the goal of which is to distinguish them from the classic association and foundation without reducing them to the creation of administrative registers or classifications. This approximation does not reject the convenience and/or necessity of making modifications to the pertinent legislation about other non profit organizations, for example: the improvement of tax benefits, reduction of State control for the concession of legal personality in favor of nonprofit organizations (as in the case of Central America), the creation of their own spaces for the access to public resources and participation in the integral formulation of public policies, among others.

    As part of this integral proposal, even though it is not in the specific field of NGOs (but in the case of nonprofit organizations), we learn from the Bolivian experience about Base Territorial Organizations (Law No. 1551 of April 20th, 1994: Popular Participation Law), which defines the legal subject of this kind of organization as emerging from peasant communities, native villages and neighborhood assemblies, creating agile mechanisms for the registration of “legal entities”, including rights and obligations to participate in the formulation of policies and public resources (executor institutions of certain funds for development), among others. The positive aspects of this proposal are derived from the proper mechanisms created in the law of recognition of legal entity and the creation of forms of participation with the State (municipal level); nevertheless, it is important to point out that the negative aspects are related to the lack of adequate procedures of training and communication, as well as the subsistence of administrative corruption practices within the rural sector.

3.3. Supervision of the State

  1. At this point, we are going to analyze, in a general way, the topic of State supervision, within the context of the role of the State in the regulation of different kinds of organizations that are part of the so-called Third Sector, particularly Non Governmental Organizations (NGOs).

    This subject represents a wide problem that exceeds the legal field; in effect, this subject encompasses an analysis of the problem referred to as the relationship or identity between the State and the Non Profit Sector.

    The State has the duty to preserve the public interest and the adequate functioning of the different social agents in society in accordance with the legal system. Nevertheless, we must point out the necessity of promoting the citizen participation, considering as support the constitutional right of freedom of association, including the opening of spaces to self-regulation as an expression of that right.

    How does one obtain an adequate balance between both aspects, especially considering that the society demands more transparency and visibility with respect to the diverse organizations that are part of the Third Sector and NGOs? The answer or solution is difficult and unique. The experiences of many Latin American countries reveal that whenever there have been intentions or projects to establish special norms in order to regulate NGOs, the tendency is to establish undesirable mechanisms of strong power or interference by the State. This topic has been closely linked with the policies of the executive authority or power that was governing at that time that usually had a distrustful attitude toward NGOs, perceiving them on certain occasions as “competitor entities” of resources from the International Technical Cooperation.[8] In the past (consider the case of Central America), NGOs were looked on with special distrust because of ideological-political considerations, that is to say because the work of NGOs has been traditionally linked with popular sectors and the political positions of the “left side or point of view”. This has implied in certain cases an extremist position adopted by some representatives of NGOs who consider it more convenient not to have any state control, because of the possible threat to their free functioning as private and nonprofit organizations (based on the freedom of association).

    In the case of Perú, the criticisms to NGOs have been in the following areas: a) tax exemptions (income tax)- the existence of associations or foundations that in practice do not execute social projects or something similar, and at the same time, do not adequately use the benefit of donations (credit in favor of the donors with respect to the income tax); b) reception of donations with tax exemptions and resources from the International Technical Cooperation (especially financing) in favor of NGOs, without the existence of an adequate control by the State and without any transparency in the application of those resources to “social purposes or activities”; and c) perceptions of wages or other economic benefits received by members and directors of these organizations. The consequence, as indicated before, has been the intention of the State (expressed in different draft laws for NGOs in the past) not to create a promotional legal framework for NGOs or to establish a new kind of organization, but to establish legal norms oriented toward controlling the labor of NGOs (for example, one draft established the existence of a new administrative authority similar to a superintendence) that also violate constitutional rights such as freedom of contracting (by establishing limits to wages) and privacy .

    It is important to point out the experience of El Salvador and its proposal of a special legal project in favor of NGOs (1996). The State participated in this project through the Ministry of Interior. In this case there were different perspectives related to the way of approaching a special regulation for NGOs. “In the opinion of the Ministry of Interior, there was a necessity for a regulation because NGOs could serve to ‘wash dollars’, NGOs could serve to divert resources for political campaigns and that must be avoided. . .”[9] Finally, in El Salvador there is no specific legal framework for NGOs; there is a new Law of Non Profit Associations and Foundations (December 1996) that replaced the old legal norms of the Civil Code, but at the same time, this new law established a strong state control through the Ministry of Interior, which it is not the most technical and adequate entity to qualify the legal personality of these kind of organizations.

  2. When is the supervision or control by the State in the context described above necessary?

    With regard to this topic, we can find two “varieties”:

    b.1. General state supervision. Because NGOs manage resources of third parties (International Technical Cooperation and donors in general) and their activity is oriented toward the execution of projects/programs in favor of third persons (population), there are important reasons to “take care of the adequate execution of these social interest activities”. This is so because it is of interest to society in general and for the adequate functioning of NGOs. This supervision also allows attainment of greater transparency of NGOs activities and purposes (not only in a formal meaning: objectives declared in their statutes, but also in the real meaning: practice). In this context, the lack or absence of total mechanisms of control (internal or external: State or auditors) is not useful for NGOs in practice (for example, for sources from International Technical Cooperation or potential donors that want to guarantee the correct application of the sources that they give).

    With regard to the mechanisms of supervision, in a general way, we can identify them as internal or external mechanisms. The internal mechanisms are those that emerged from within the organizations (for example, establishment of vigilance committees, accounting councils or similar social organs). These organs could be voluntary or mandatory (established in the law). The external mechanisms are those that are not part of the internal organization structure for decision-making, for example, external auditors (voluntary or mandatory) and especially the supervision of the State through different mechanisms.

    The convenience of inscription in a special administrative register that could organize an information system related to NGOs and execute the follow-up of the adequate functioning of NGOs in accordance with the legal norms and not be subject to discretionary, arbitrary or interventionist faculties is related to the external state mechanisms. In the case of Perú, it could be the Register of NGOD-PERU (nongovernmental organizations for development) in charge of the Executive Secretariat of International Technical Cooperation (SECTI) and in the case of the project of México, the Secretariat of Social Development.

    Another topic is the system for the concession of legal personality that is carried out by the State through a specialized administrative authority. This system must be oriented toward a legal control (not an arbitrary concession system) of the legal documents of the constitution of an NGO- the system of Public Register through a technical authority specializing in registration matters (not a political authority such as the Ministry of Interior in the case of El Salvador, for instance). At the same time, it is healthy to have a general mechanism of “supervision a posteriori” or faculty of the State to request in a judicial process the dissolution of an NGO (and also all kind of legal entities) if its purposes or activities are against the public order or good customs. This is different from the imposition of administrative sanctions (fines, cancellation of the register) that depend on the activity (health, education) or the resources involved (International Technical Cooperation, public programs).

    b.2. A special supervision over NGOs’ access to certain resources or benefits from the State, such as: tax exemptions (income tax, devolution of taxes related to the acquisition of goods and services inside the execution of social programs or projects, preferential regime for the import of donations) and executions of projects or programs promoted by the State that imply the use of public resources.

    Nevertheless, it is necessary to avoid the existence of diverse and disperse administrative registers, considering the general mechanism of supervision that we have indicated above (item b.1.), seeking specialization and administrative simplification (see item 4.2.9. about regime of external controls).

    In any of the “varieties” indicated above, it is both important and difficult to seek a balance between the necessity of establishing adequate mechanisms that guarantee the claimed transparency of NGOs, without going against their private field of action and the regime of constitutional freedom of association (that also implies the freedom of self-regulation). In this sense, it constitutes a fundamental aspect of promoting a culture or attitude of social responsibility and a mutual respect between the State and the organizations of the Third Sector. Consequently, it is important to promote the informational and training aspects of the rights and duties involved in each Sector.

  3. We must point out that generally there is a fertile theme of the linking of two transcendental matters: concrete mechanisms for the control or supervision of the State and the position of the state entity in charge of that action.

    c.1. About the Concrete Mechanisms for the State Supervision or Control

    With regard to this topic, there is an analysis referred to which involves the concrete forms of obtaining an adequate supervision and, as a part of this, the existence of available information (and if this information could be open to the public and to what extent). In general terms, we can distinguish the following forms: inscription in special administrative registers, periodical presentation of information (extension of this information: reports, financial statements and so on), publication or public access of the information, obligation to have external auditors, and establishment of special committees or something similar (state or mixed ones: public and private participation) for the approval of certain projects/programs that have benefits (tax exemptions for cultural donations, as in the case of Chile for example).[10]

    c.2. Position or Legal Nature of the Entity in Charge of the Supervision

    We can distinguish three types:

    • Executive Power or Authority, that is in the case of special organs of a Ministry, even though they can have patrimonial and organizational autonomy (that is the case of the Supervigilance Council of Foundations in Perú which is part of the Ministry of Justice; the Executive Secretariat of International Technical Cooperation-SECTI for NGOs, recently incorporated to the Minister Council Presidency);
    • Legislative Power or Authority; and
    • Special mixed organization, with representatives of the State and the Nonprofit Sector (also enterprise sector), in this type, the problem is finding an organization that is sufficiently “representative” of the Nonprofit and Private Sector. This issue involves the grade of strengthening and legitimacy of the so-called “networks”.[11]
  4. Finally, related to this topic and the issue of defining the weight of the supervision of the State in terms of the functioning of NGOs is the discussion of the role of self-regulation of the performance of these organizations. Concretely, this involves the promotion and, especially, the grade of legitimacy (which depends on the reality of each country and the level of “institutionality” of the actors involved) of the creation and transparent application of internal mechanisms of supervision.

    In effect, in practice we can observe that the lack of mechanisms of supervision or control of NGOs does not really imply a favorable element or aspect. Two examples can illustrate what has been said before: a) the use of resources from the International Technical Cooperation for the execution of projects of social interest[12], and b) the use of donations that have tax benefits (credit in favor of the donor referred to in the income tax).[13]In both cases, because of the lack of adequate controls and/or available information, the potential donors (such as enterprises or sources from International Technical Cooperation) are not “attracted” or “motivated” to make donations in favor of nonprofit organizations.

    In accordance with what has said before-- considering the necessity of strengthening and promoting the private initiative and at the same time obtaining more transparency related to the functioning and activities of NGOs-- the space for self-regulation through internal voluntary controls is particularly relevant.

    How can these mechanisms be established? Should the State establish the guidelines or should they emerge from the social actors involved? In our opinion, the legal system should establish the supervision or control mechanisms (general or specific ones) whenever socially relevant reasons or “public interests” are involved (that is the case of tax exemptions or access to public resources). In other cases, “additional legal obligations” should not be created, meaning that NGOs should voluntarily adopt these mechanisms (internal or external ones) because they are convinced that is better and more efficient in order to obtain their results (for example, impact in the “beneficiary population”, access to new sources of financing).

    The field of the internal mechanisms of supervision, emerging from self-regulation, is a fertile and novel field in practice. In this sense, we can mention two levels:

    d.1. The role of the second level organizations or “networks”, through the establishment of code of conducts, faculties of supervision and follow up of the activities of their members (NGOs), sanction faculties and so on. Nevertheless, the impact of these activities carried out by “networks” will depend on the grade of “institutionality” and the legitimacy of them with respect to their members as well as society in general.

    d.2. The internal space for each organization to: establish special organs such as vigilance committees or auditing councils; publish social performance information and financial statements and provide public access to and dissemination of such information; the adoption of special measurement instruments, such as social auditing or balance; and the execution of periodic evaluations with the participation of the “beneficiary population” or representative organizations in the communities into which NGOs insert themselves.

    In any case, we can consider these levels complementary, because they are not antagonistic. For example, through the “networks”, it is possible to establish guidelines to carry out a social auditing by the own NGO member of the network or the network could act as an “auditing or certifying entity”; through the “networks” it is possible to channel, in a centralized and uniform way, the public access or circulation of relevant information related to NGOs (database system).

4. Legal Aspects to Consider in a Special Legal Framework for NGOs

4.1. In accordance with what has been previously developed, establishing a legal regulatory scheme for NGOs should not be interpreted as taking a controlling attitude over their activity. On the contrary, what it is trying to be accomplished is the promotion of their adequate organizational identity at the legal level, with the aim to obtain a wider visibility and distinction of the vast spectrum of the nonprofit private sector.

On the other hand, in the interest of obtaining their own legislation, the scattering of the norms that are applied to them should be avoided, consolidating into one legal body the pertinent dispositions. As was commented before, it is difficult for only one legal body to gather all the different aspects involved in the acts of an NGO since there are specific norms in tax matters (in this case, a special legislation for NGOs could consider a specific chapter related to a promotional tax regime, this regime could make some modifications that are related to income tax, sales tax, and so on), budget law, and administrative aspects related to certain sectors (in accordance with the type of activity that could require additional registers, equipment, or special information, as is the case in the health or education sector). Furthermore, there is a general legal framework (or common civil law) concerning all legal entities and persons in general contained in the Civil Code (acquisition of legal personality, legal dissolution, patrimonial and personality autonomy, within others).

4.2. The issues to consider in a special regulation for NGOs, (in order to avoid creating empty spaces and/or in deficiencies that will make such a regulation unappreciable or not useful to the social actors involved, as is the case of grassroots organizations in Peru), could combine elements of private and administrative or public law (including taxation and participation in public projects or policies), oriented toward the following subjects:

4.2.1. Identification of NGOs as legal entities, which implies the creation of a new legal model of organization (legal subject), different from the classic figure of the civil association. As has been said before, the definition of their social object should be sufficiently comprehensive and not limited of the rich social dynamic of these entities. At the level of other legislation in Latin America, we can observe the use of terms like “services in favor of third parties” (Project of Dominican Republic of Non Profit Associations of Social Assistance) or Civil Society Organizations of Public Interest (Brasil: Law Nro. 9790). In addition, it is common to identify NGOs with the term “social promotion or development”<![endif]>

In the case of Brasil (Law Nro. 9790), it is possible to exclude through the law certain activities or social objectives, such as: syndicates or similar organizations, political parties, credit organizations of the National Financial System, religious institutions and churches, and so on.

4.2.2. The possibility of realization of economic activities derived from their social objective or as a means (complementary character) to achieve their social objective (for example, realization of consultancies in subjects in which NGOs have a special “expertise”, sales of database, among others).

With regard to this point, we do not consider advisable the establishment of legal limits or parameters for the realization of this economic activities at the legal level, but rather that the law should have a general character of a guide. In this context, the practice (also the interpretation of the judicial or administrative authorities in each case) will determine, with flexible criteria the possible parameters of this type of economic activity by NGOs.[14]

4.2.3. Form of acquisition of legal personality. We find it is important to follow the common legislation applied to legal entities in general to acquire the status of a legal entity, especially the system of inscription by the Public Register. The system must be agile, transparent, of low cost and it also must offer the mechanisms of administrative refute (double petition). On this point the legislation must avoid stating that the acquisition of legal personality derives from governmental and discretionary concession or administrative decision. The competent authority should be a specialized one and its public function must be oriented to “objective and impartial legal qualification”, such as a Public Register.

The legislation must consider in a precise and clear way the necessary documents to constitute an NGO, establishing a minimum and mandatory content of the statute that could be complemented by the particular dynamic of each organization.

With regard to this topic, it is necessary to distinguish the form of acquisition of legal personality (as an independent legal subject) from the existence of diverse administrative registers related to specific purposes that could have a special regime of supervision by the State, when there is a special benefit (tax exemptions, participation in public projects or use of resources of International Technical Cooperation). These administrative registers are different from the Public Register of legal personality and they depend on the activities that NGOs could execute and on their interest in accessing some kind of benefit. It is possible that a special legal framework for NGOs could not recognize them as a special kind of legal entity (different from the classic association), but at the same time this legislation could set out a special qualification considering their purposes (promotional) and, in accordance with this, the establishment of a special administrative register.[15]

The registers must be open to the public; they must bring the pertinent and adequate information in accordance with the purpose of each register.

4.2.4. Fundamental rights and obligations of members. It is important to ensure an active participation of the members in decision-making, especially considering the “social labor” that is done by NGOs. In this case, legal regulations should include an open list of rights and obligations for the members/promoters, leaving to an internal bylaw (typical for each NGO) the establishment of specific conditions for: a) requirements for admission, b) causes of expulsion and social organs for the adoption and/or review of the decision and c) specific obligations and rights.

The legislation must foresee in an clear way the possibility of participation of natural and/or legal entities and, in general, organizations with legal identity even though they do not have the legal status of legal entities (for instance, grassroots organizations that have municipal recognition). Furthermore, it must foresee with flexible criteria a way of representing “institutional” members of NGOs (legal entities or non-registered organizations), because many times it is difficult to achieve the participation of these “institutional members” because of the representative legal aspect.

4.2.5. Regime of Organization. It is important to establish minimum mandatory social organs, competence, composition and basic rules for making decisions (minimum quorums for participation and voting, and specific quorums for certain important decisions such as: modification of the bylaws, dissolution). Through the statutes of each NGO or more flexible internal norms, each NGO could establish their own administrative regime, considering functional management (general manager, finances, and human resources, among others) and special programs that respond to their specific institutional functional necessities.

On the other hand, it is necessary to establish at the legal level, in a general way, the regime of corporate responsibility of directives and representatives (such as in the mercantile law in Perú), establishing at the same time specific duties related to loyalty, diligence and confidentiality.

The legislation must establish impediments (initial or subsequent ones) to exercise directive functions, which could also be applied to members. This topic contributes to obtaining more transparency in favor of NGOs, especially in the management of their resources by directives and/or members.

Finally, another topic related to this item, is the regime of challenging social decisions, establishing a prior internal procedure, after which the legislation could establish an adaptable judicial mechanism of dispute resolution or alternative mechanisms of resolution (mediation, arbitration).

4.2.6. System for the modification of the bylaws, dissolution and social liquidation. The legislation must establish general norms (competence and special quorums) related to these topics, allowing each NGO to decide these matters whenever they consider it convenient for their social purposes. In the specific case of dissolution, considering the nonprofit purpose of NGOs, the legislation must establish that the net patrimonial remainder could not be distributed among the members.

It is also important to establish in a clear and precise way involuntary termination, which should not depend on the decision of administrative authorities. These topics must be judicially reviewable in certain cases: activities or purposes against the public order, good customs and infraction of the law, distinction of the cases that are related with administrative sanctions or infractions (not obtaining an administrative or municipal license), and saved reiterative infringement.

The legislation must foresee situations related to forms of reorganization of NGOs, specifically mergers and transformation to another type of legal entity (nonprofit organizations).

4.2.7. General guidelines for the regulation of conflicts of interest. On this point, it is relevant to regulate the following topics: a) perception of retributions by the members/promoters, establishing general criteria about market standards on retributions and effective and necessary realization of activities related to the organizational structure of NGOs; b) celebration of contracts by members/directors of NGOs, (in these cases it would be advisable to establish that the members/directors will not vote at the moment that the decision will be adopted by the competent social organ (this system exists in the General Society Law in Perú); and c) impediments to participating as a member and/or director in special circumstances that might cause damage to the NGO, which could include either a definitive solution (not acceptance or resignation) or an abstention to participate in a certain decision (with the obligation to communicate the impediment to the NGO).

In our opinion, the following circumstances constitute definitive impediments to exercising directorial functions in an NGO (and also in any kind of legal entity): when a person exercise functions at the same time in NGOs that are in permanent competition or have permanent opposite and conflictive interests; persons that have an unsettled trial with the NGO involved; or a situation where a certain director is elected to an important public function that has a relationship (even though in an indirect way) to the activities of the NGO where he participates. This last point is very important because it has to do directly with a transparent and fair performance of the NGO involved, avoiding in this way damage to its “public and social image and prestige” through rumors or comments of “political favors”.

4.2.8. Internal control regime. A legal obligation to have a complete accounting, that is, an obligation to have record books and registration of the members could be established. On the other hand, considering that NGOs manage resources of third persons and carry out activities on behalf of third persons too, the legislation should establish, as a mandatory internal social organ (in addition to the general assembly) an auditing or vigilance committee with competence to give opinions related to accounting and financial matters. Without this, there is the implication of a duplicity of functions by the general assembly which has competence over the approval of financial statements.[16]

4.2.9. Basic external control rules by the State that permit a major transparency in the realization of activities and use of resources by NGOs without being controlled in an undesirable way by the State, for example: establishing the inscription of NGOs in a special administrative register, presentation of relevant information and financial statements to the competent authority, and public access to such information through the said authority.

In this topic it is necessary to point out that the Tax or Fiscal Administration usually has its special and specific registers related to nonprofit organizations that enjoy tax exemptions (income tax exemption and tax benefits in favor of donations made by enterprises to NGOs or other kinds of nonprofit organizations are separated in Perú into different registers in charge of the National Tax Superintendence and they have different obligations related to the presentation of financial and social information). In this way, the administrative registers that are related to the execution of social or public interest activities are different from those related to tax issues. Those registers are more linked with the application of funds and fulfillment of the social activities that NGOs carry out, so the purpose of such administrative registers is to assure the adequate use and application of funds to social purposes; that is the case in Perú with the Executive Secretariat of International Technical Cooperation-SECTI (Register of NGOD: Non Governmental Organizations for Development) and the Register of Civil Society Organizations of Public Interest in charge of the Ministry of Justice in Brasil related to alliances (“parcerías”). On this point, following the principles of administrative simplification, it is advisable to avoid the establishment of diverse and disperse administrative registers for NGOs, thus, it is important to emphasize and maintain the most relevant registers by unifying these different registers (for example, unifying the different administrative registers in Peru related to the reception, use and application of resources from International Technical Cooperation or donations in general that must be applied to social programs or projects).

One alternative to be considered is the creation of a unique and specialized institution (public, private or a mixed one) that acts as a support or promotion organization for NGOs (that could also function as an administrative register, as we have said before). This institution could have the following functions: a) organize and administer a national database system of public access, which would bring more transparency in favor of the existence and performance of NGOs to interested third parties (potential donors or sponsors) and the general public, b) bring recommendations of administrative character related to the functioning of NGOs (this regulatory function depends on the type of institution; if it is a public institution it can issue administrative mandatory resolutions, but if it is a private or mixed institution, its recommendations are of voluntary adherence by mechanisms of self-regulation); c) have initiative for the formulation of regulatory frameworks related to NGOs and the Third Sector in general; d) follow up on the completion of the submission of the informs required by the State; e) bring recognition or “social guarantees” to potential donors (national or international, private or public); f) be a vehicle or intermediary link between NGOs and the State for the participation in the formulation of public policies or regulatory frameworks related to the Sector; g) promote programs or projects related to the Sector; h) fulfill sanction functions, (this topic depends on the character of the institution proposed, that is, if it is a public regulatory institution or only a Support Commission or something similar (private or mixed)).[17]

4.2.10. Special tax or labor norms. It is common that favorable tax legislation for organizations of the Third Sector (nonprofit organizations) is used as a mechanism of social redistribution that benefits all the social actors involved, including the State as NGOs collaborate or support the social task of the State. This is especially true considering the present social and economic context of several countries in Latin America in which the State has reduced its intervention in the economy, privatizing traditional “social services” such as health or education. In this sense, the participation of the State is expressed in some kind of “indirect financing” in favor of different organizations of social and private character or mission, through mechanisms of partial waiver of its expectation of tax collection with distributive effects.

In accordance with has been said above, a special tax legislation for NGOs could refer to “key aspects” related to the following taxes:

  1. Income Tax: exemption of from this tax if the incomes (including the commercial ones) are designated to the activities or social or public interest that are specified in the law (health, social promotion, education, environment, housing and so on) and the incomes are not distributed, in a direct or indirect way, among the members of an NGO; tax benefits (through the mechanism of a credit directly applied to the tax or deduction as an expense of the general income of an NGO) in favor of donations made to NGOs as a stimulus for the channeling of resources in favor of these organizations (business philanthropy or corporate social responsibility).
  2. Sales Tax: exemption of the donations made to NGOs as part of their projects (it could be possible or convenient to establish the obligation to register the project as a prerequisite to accessing this tax benefit) or of the donations that are made to third parties in favor of NGOs.
  3. Import Taxes (sales tax, customs duty and others): exemption from these taxes for the import of goods done by NGOs if they are linked with the execution of social projects or are goods donated by third persons for the execution of social interest projects. It could be advisable to establish a special register for the adequate supervision of these imports.
  4. Exemption or preferential rates related to municipal taxes: real state taxes, basic public services.[18]
  5. Refund of taxes (such as the sales tax) that have been “economically assumed” by NGOs in the acquisition of goods and services derived from the execution of their social projects or programs, among others.[19]

In the present economic context in which there is a general reduction of tax benefits and a necessity to expand the states’ income (especially through tax collection), we believe that it is difficult to obtain a wide tax exemption; it is more feasible to obtain the extension of certain taxes in certain aspects (for example, activities of nonprofit organizations that could enjoy the exemption of income tax).

Depending on the form of regulation of the taxes involved, special legislation for NGOs could remit or modify/specify the pertinent general tax legislation.

With regard to labor issues, a special regime could be established for temporary personnel contracting for the execution of projects.

4.2.11. Participation of NGOs in special programs promoted by the State or establishment of (in the case of a norm with the rank of a law) a special and more flexible format for channeling public resources, guaranteeing its adequate use in attending to the nature of such resources, and creating to that effect the correspondent mechanisms of supervision: rending of accounts, special administrative registers, and submission of information related to the activities/projects.

This participation could be established in a general way as a “preferential right” to access public funds and resources to execute social interest activities (health, housing, environment, support to micro and small enterprises), as well as participation in the formulation, follow-up and evaluation of social development programs (such is the case of the Mexican project of law of Promotion of Social Development Activities of Civil Organizations or the project of law of Argentina related to “Promotion and Strengthening of Civil Society Organizations and Volunteering”); another alternative is to establish specific mechanisms of participation for certain projects or programs. Related to this topic is the argument that legislation could be a vehicle or instrument to establishing open spaces for the co-participation in the formulation of public policies or strategies. Even though the participation of NGOs at this general level as a mechanism of citizen participation in “public policies” is desirable, it is important to point out the difficulty in identifying a representative organization or institution of NGOs and also in identifying the area or field of participation (the specific public sector involved); in addition, there is a political factor related to the reality of each nation, which, in practice, affects the degree of approach between the State and the NGO sector, which, in turn, determines the feasibility of obtaining favorable legislation for the active participation of NGOs with the State or in social actions promoted by the State.

Finally, the present legislation could create an interesting arena to delimit the structure of cooperation agreements between NGOs and the State in a way that is different from the classic service contracts or project execution or public concessions or contests, as in the case of the new entity of “parcerías” in a special law in Brasil.

4.3. Through mechanisms of self-regulation that are based on the principle of recognition of autonomy of the will in contract matters (supported by the constitutional rights of freedom of association and of contracting), NGOs could establish, among others: voluntary norms for the execution, following-up and evaluation of their projects; additional organs and, in general, an internal administrative regime; participation of the beneficiary population in their projects; public access to information to third parties (these are in addition to those mechanisms established by the law, see the previous item 4.2.9.) be it directly or through a second level organization (“network”); legal forms of linkage (donation contracts, cooperation agreements or just atypical agreements) and control of resources with their cooperative sources (creation of internal organs of co-execution, and periodical rendering of accounts and special auditors, among others, the establishment of which is constantly observed in the cooperation or donation agreements that are celebrated by NGOs with sources of International Technical Cooperation).

A special mention within the area of self-regulation in the case of NGOs, is the subject referred to as the “beneficiary population” or third parties which the programs and/or projects of NGOs benefit. Here we find that it is not the role of the legal framework to establish additional obligations or mandatory organizations in which the third parties must participate, but rather, the link should be generated spontaneously between NGOs and the population involved in their actions, because: a) it is a private relationship, not precisely a legal one; and b) the participation of the population should arise voluntarily because of the necessity of NGOs to insert themselves in a more effective and transparent way in the community in which they integrate and/or act (as is the case of corporate social responsibility and enterprises). This means that the participation of the population involved should derive from a “way of acting or performance of the NGOs” rather than from the fulfillment of a legal obligation.

On the other hand, with reference to the topic referred to as access to information linked with the execution of NGOs projects, even though more transparency of NGOs is desirable, increasing access to information creates problems in compiling the additional information which would affect the nature and the efficiency (results) of NGOs activities, as well as the possibility of indiscriminate disclosure of information carrying the risks of manipulation or utilization of it by a third parties, which may become very delicate in adverse political contexts. With reference to the previous paragraph, an intermediate formula could be made by sending such information to a special entity (be it the State in charge of the register of NGOs and/or a private entity of second level or network NGOs), which could combine the publication of relevant and condensed information in relation to the NGOs involved (global actions, sources of finance, obtained results) and the possibility of public access to the interested parties (not only the “beneficiary population” but eventually enterprises that desire to make donations or consolidate alliances with NGOs), at the request and identification of the interested party.

5. Conclusions and Recommendations

Generally, we can conclude that the present problem presents the interrelation of the State (“responsible for public interest”) and NGOs (“expression of citizen participation”) or, in other words, the identity of these organizations in relation to the State.

In this context, it can be also concluded that civil society demands space from the State, and so the desirable option within a State that is truly (not only formally) democratic is to encourage citizen participation. Consequently, the State not only should make things easier, but should promote, recognize and guarantee adequate actions by the organizations that are part of the Nonprofit Sector (also called Third Sector), within a legal framework that seeks to consolidate and strengthen free, as well as responsible, private initiative.

Within this panorama, the Non-Governmental Organizations for Development or NGOs constitute associations that act in a transcendental way in society, and at the same time represent an important way for citizens to participate in actions and/or policies of “social interest”. This implies the necessity and/or convenience of creating their own legal framework, striking a balance between: a) the necessity of endowing them with more transparency and responsibility (accountability) to society in general; and b) the necessity of achieving an adequate independence from governmental organizations or authorities, sustained by the argument that NGOs are an authentic expression of the exercise of the constitutional freedom of association.

The experiences in many Latin American countries regarding this subject have shown the intention of the State to use the legal framework as a formula or instrument to establish undesirable mechanisms of supervision or control (which also interferes with constitutional rights, such as freedom of association, freedom to contract and privacy).

In accordance with what has said above, in order to move toward the achievement of a real identity for NGOs and in order to strengthen their institutionalization, such organizations should seek their own legislation within the legal framework, which delimits the general guidelines for their actions and, at the same time, establishes clear rules regarding the rights and obligations of such organizations, with the objective of contributing to their visibility and transparency. At the same time, it is important to strengthen the mechanisms of self-regulation in the establishment of NGOs own institutional dynamic both at the internal (execution of programs or projects) and external (financing sources, community within which they insert themselves and/or direct their activities) level.

Bibliography

ANTEZANA, PAULA. “Establishing a context.- Some considerations about a revision of the legal framework that regulates NGO´s”. Published in the Memories of the II Regional Workshop “Towards seeking l egislation that strengthens the participation and action of Civil Society”. 25-27 January, 1996. San Salvador. Organized by the Arias Foundation for the Peace and Human Progress of Costa Rica.

BEAUMONT, MARTIN. “Something of the State, something of enterprises…. NGO´s of the 90´s in Perú”. Published in the compilation “The Challenges of the Cooperation”. DESCO. 1996. Peru.

MARTELL, ELENA and IGLESIAS, RICARDO. “Guaranteeing the right of association, avoiding the political control. The experience of El Salvador”. Published in the Memories of the II Regional Workshop entitled “Towards seeking legislation that strengthens the participation and action of Civil Society”. 25-27 January, 1996. San Salvador. Organized by the Arias Foundation for the Peace and Human Progress of Costa Rica.

PEREZ-YARAHUAN, GABRIELA and GARCIA-JUNCO, DAVID. “A Law for Non-Governmental Organizations in México? Analysis of a Proposal”. Published in the compilation “Civil Organizations and Public Policies in Mexico and Centro América”. José Luis Méndez, coordinator. International Society for Third Sector Research-ISTR and Mexican Academy of Investigation in Public Policies. 1998. México.

TORRES, BLANCA. “The Non-Governmental Organizations: Advances in the Investigation of Their Characteristics and Actuation”. Published in the compilation “Civil Organizations and Public Policies in Mexico and Centro América”. José Luis Méndez, coordinator. International Society for Third Sector Research-ISTR and Mexican Academy of Investigation in Political Policies”. 1998. México.

“Legal Framework that Regulates Non-Profit Organizations in Centro América”. 1998. Costa Rica. Arias Foundation for the Peace and Human Progress of Costa Rica.

“Legal Framework for Civil Society Organizations in South América”. Anna Cynthia Oliveira, coordinator. International Center for Not-for-Profit Law and Esquel Group Foundation. 1997. USA.

“Handbook on Good Practices for Laws Relating to Non-Governmental Organizations (Discussion Draft)”. May 1997. USA. Prepared for World Bank by the International Center for Not-for-Profit Law.

JUNE 2000

Notes

[1] Private foreign institutions of International Technical Cooperation (constituted abroad as legal entities, in accordance to the legislation of their country) are registered in another administrative register of which the Ministry of Foreign Relations is in charge, named “Register of Entities and Institutions of International Technical Cooperation” – ENIEX.

[2] In Peru there are second grade organizations like National Center Association (ANC) that, on certain occasions, have made statements about projects and laws linked to the Sector; but in reality, in our opinion, have not brought about a result that is sufficiently representative of the whole Peruvian Sector of NGOs. In the case of NGOs that support micro and small enterprises, we can find an interesting case in COPEME, but it is more oriented toward coordination and/or execution of assistance/support projects, than toward the promotion of regulation frameworks or the establishment of Conduct Codes for their members .

[3] In Panama, there isn’t uniformity about the terminology that is used in relation to nonprofit organizations. The term Non Governmental Organizations corresponds to an administrative resolution, Resolve (Resuelto) Nro. 18 of March 5 th, 1991 of the Ministry of Planing and Economic Policy, where the Department of Coordination and Act Promotion in Margin Areas-COPRAM exists, in which civil associations and foundations are registered with finality to promote integral development and are classified as NGOs.

[4] In Nicaragua, there is a special Preliminary Law for Non Governmental Organisms for Development- ONGD, which, without the modification of the existing legislation, is seeking the creation of a special legal system for this type of nonprofit organization. The fundamental aspects are: conceptualization of this type of organization, special register, special tax benefits for NGOs and a special register, tax benefits for donors, realization of mercantile and credit activities, accounting and administrative auto regulations, and with regard to NGO-State relation the definition of sector policies.

In the case of Panama, they have the project for Human Rights and Integral Social Development Associations, the conception of which was greatly debated. Finally, they adopted the name indicated above. The most important aspects of the project are: acquisition of legal personality without previous authorization of the executive power but through register inscription; widening of their goals; tax incentives; access to public resources; and the creation of a National Board of Associations whose finality is the elaboration and negotiation of common policies. Also the said Board could constitute ethic commissions for evaluations.

[5] PEREZ-YARAHUAN, Gabriela y GARCIA-JUNCO, David. “A Law for Non Governmental Organizations in México? Analysis of a Proposal”. Article published in the compilation of “Civil Organizations and Public Policies in Mexico and Centro América”. José Luis Méndez, coordinator. International Society for Third Sector Research-ISTR and Mexican Academy of Investigation in Public Policies”. 1998. México.

[6] The Mexican draft Law picks up as fundamental aspects: creation of an Special Register of Civil Organizations in the Social Development Secretariat that imposes administrative sanctions; regime of rights and obligations; access to public resources; exoneration of taxes, deductible contributions of taxes; status as beneficiaries of international agreements; participation in public programs and services; and within the framework of obligations, that civil organizations should make public the information of their activities and funds, transfer their resources and properties in case of dissolution to another registered registered, and inform the register of any change in the statutes.

[7] The said norm does not create the Civil Society Organizations as a new type of legal entity , but recognizes the legal types that already exist, looking forward to identify their characteristics and forms (classification), at the same time establishes tax benefits, rights and obligations; and relations with the State.

[8] In the case of Perú, it is important to point out that the actual Government does not have a policy of promoting NGOs, especially in the taxation field (exemptions). In this way, the Government tries to consolidate and strengthen the collection of resources from the International Technical Cooperation through state organisms; that is why, for example, the tax exemptions related to the sales tax in favor of donations are only applied to donations that are done in favor of the State and they must be approved by an administrative decree.

[9] MARTELL, Elena and IGLESIAS, Ricardo. “Guaranteeing the right of association, avoiding the political control. The experience of El Salvador”. Published in the Memories of the II Regional Workshop titled “Towards the searching of a legislation that strengthen the participation and action of the Civil Society”. 25-27 January, 1996. San Salvador. Organized by the Arias Foundation for Peace and Human Progress of Costa Rica.

[10]In the case of Perú, it is established that to access the special regime of devolution of taxes (sales tax) the following are required: acquisition of goods and services done in the territory of Perú for the execution of social interest projects financed with sources from International Technical Cooperation (not refundable) and that the project or program involved must be authorized (“officialized”) by the State.

[11] In the case of the project of Law of Social Assistance Associations of the Dominican Republic, a Support Commission that integrates representatives of associations and representatives of the State is proposed.

[12] It is important to point out that in the cooperation or donation agreements, supervision mechanisms such as periodical reports, accounting reports, presentation of audited financial statements, and possibility of inspection or audits by the source or donor are usually established by the donors or sources from International Technical Cooperation.

On the other hand, in Perú, the Executive Secretariat of International Technical Cooperation-SECTI has reinforced its supervision and follow-up task, with the opportunity for the inscription or renewal of the registrations of NGOs; at the same time, SECTI is more strict with the presentation of the annual reports that NGO´s must submit.

[13] In the case of Perú, the administrative register of exempted entities of the income tax is permanent and it is only mandatory to inform the changes in the statute. In the case of the administrative registration of beneficiary entities of donations (income tax), the renewal of the register is every three years and it is only mandatory to submit general information once a year.

[14] The project of law of the Dominican Republic related to Social Assistance Associations has a special chapter referring to the execution of services, allowing the execution of technical services and consultancy in general through contracts, contests and public concessions with the condition that the incomes that these contracts could generate must be designated to meeting the objective of the institution. At the same time, in the chapter related to tax regime, it is established that these kind of associations can issue bonds, credit papers and borrow money, but this income must be invested in accordance with their social objectives. The income tax exemption includes this kind of income if it is designated to meeting the social objectives of the association.

[15] T his is the case of Brasil (Law Nro. 9790, March 1999) which created a new qualification inside the nonprofit and private sector titled “Civil Society Organizations of Public Interest”, that is registered in an administrative register overseen by the Ministry of Justice. The benefit of this register for these kinds of organizations is access to public funds or, said in another way, to participation in alliances or cooperative agreements (“parcerías”) in order to carry out projects of the public interest.

In the case of Mexico, the draft law of Promotion of Social Development Activities of Civil Organizations has as its purpose promoting these kinds of organizations by establishing an administrative register under the direction of the Secretariat of Social Development. This register creates a mechanism whereby designated organizations access public funds and resources, receive donations with the tax benefit of deduction from income tax and other benefits.

[16]This is the case of Law Nro. 9790 (March 1999) of Brasil of Civil Society Organizations of Public Interest which establishes that in the bylaws the constitution of a fiscal committee or similar social and internal organ must be determined.

 [17] In the case of the Mexican draft law of Promotion of Social Development Activities of Civil Organizations, a special administrative register for this kind of organization is created and is overseen by the Secretariat of Social Development. This register has administrative functions of inscription and sanction, at the same time it organizes and administers a national database system and public recognition of Civil Organizations that could be distinguished by the execution of their social activities.

In the case of the draft law of the Dominican Republic related to Social Assistance Associations, there is a distinction between the administrative authorities of register and recognition and a special Support Commission (integrating three representatives of associations, one representative of the Executive Power designed by the President, a representative of the Dominican Municipal League and a representative of the enterprise sector elected by the organization of enterprises) that has functions related to promotion, organizational aspects (database), “public guarantee” to donors and follow-up.

In the case of Argentina, there is a draft related to “Promotion and Strengthening of Civil Society Organizations and Volunteering” that creates an organization of promotion and development titled “National Center of Community Organizations” (CENOC), which has administrative functions such as managing a Unique Register of Civil Society Organizations.

 [18] In Argentina, there is an specific project of law related to a “creation of a special regime for public service rates in favor of nonprofit and public interest entities”.

[19] In Perú, there is a special regime for the devolution of taxes in favor of NGO´s (national) and foreign institutions of International Technical Cooperation (ENIEX) when those taxes are related to the acquisition of goods and services executed in Perú with resources of International Technical Cooperation. In order to access this regime, NGO´s must be previously registered in different general administrative registers (NGOD Register carried by the Secretariat of International Technical Cooperation-SECTI and the Register of Income Tax Exemption carried by the National Tax Superintendent), but there is also a specific register for this regime and NGO´s must register their programs or projects that are involved in the acquisition of goods and services and submit special information

 

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