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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


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


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:

Latin America and the Caribbean:

Middle East and North Africa:

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:

Central and Eastern Europe:
| Bulgaria

Latin America and the Caribbean:

Middle East and North Africa:

Newly Independent States:
| Ukraine

North America:
| Mexico | the United States

South Asia:
India | Pakistan

Sub-Saharan Africa:
| South Africa

Western Europe:
Regional | Italy | Turkey


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

Country Reports: Newly Independent States


Public Benefit Organizations in Moldova

By Piotr Gorbunenko
President of BIOTICA Ecological Society and Member of the Moldovan Certification Commission

Not-for-profit organizations carry out activities which benefit either the public at large (so called “public benefit” (PBO) or “charitable” organizations) or a defined group of beneficiaries, (as is the case with mutual benefit organizations, which benefit their members or founders). In many countries, including Moldova, public benefit organizations are clearly distinct from other NGOs for the purposes of taxation.

PBOs are recognized and encouraged by the state through the granting of tax and other privileges. The reason of such support is clear: PBOs help the state to carry out its obligations while economizing state financial and human resources and providing more effective and inexpensive services. Beneficial tax treatment and other forms of support of PBOs on the side of the state in exchange for efficient services, as well as the transparency and accountability of PBOs helps to establish trusting relations between the government and PBOs. This constructive relationship directly translates to the development of civil society in the country and an improved social services system.

We understand the term PBO to refer to “an entity organized and operated primarily for the benefit of the public or some segment thereof”.[1] This definition is used in many laws, with slight modification from country to country. While the definition reflects the “classic” criteria for public benefit organizations, it is very broad and insufficient for providing benefits based on it. Many laws regulating the status of public benefit organizations, which are eligible for tax benefits based on this status, provide (1) additional criteria to distinguish PBOs from other NGOs, and/or (2) a special mechanism to identify organizations that are eligible for benefits. For example, the law might list areas of activities which shall be primarily carried by the organization in order for it to be recognized as of public benefit and thus tax exempt. Certification (charitable) commissions are an example of a mechanism that is in charge of certifying organizations eligible for tax benefits (PBOs).

Under the Tax Code [2] all not-for-profit organizations, including PBOs should satisfy the following criteria:

  1. it should be a legal person;
  2. it should be engaged in an activity not for deriving income;
  3. it should not distribute the received income among its founders, members and participants.

In addition to meeting the general criteria for not-for-profit organizations, PBOs shall not be involved in political activities in order to get the PBO status.

Under the Moldovan Law On Citizens’ Associations[3] an organization is recognized as a PBO if it engages in a public benefit activity. Such activity includes:

  1. Protection of human rights;
  2. Promotion of education, training, skills development, knowledge dissemination;
  3. Health care;
  4. Social care;
  5. Promotion of culture;
  6. Support of art;
  7. Promotion of amateur sports;
  8. Alleviating the consequences of natural disasters;
  9. Protection of the environment; and
  10. other public benefit activities.

The list of public benefit activities provided by the law is not exclusive. Other activities may be recognized as being of public benefit at the discretion of the Moldovan Certification Commission. An organization will be recognized as a PBO if it primarily carries out one or more of the activities listed above. This does not exclude their right to carry out other (including entrepreneurial) activities. While these criteria allow identifying “pure” PBOs, the reality is much more complex and Moldovan legislation sometimes fails to clearly distinguish between public and mutual benefit organizations in these cases. For example, some organizations, which may not normally qualify for PBOs status because they distribute benefits to their members, receive preferential treatment in the Tax Code. Examples of such organizations include those established for the benefit of disabled and other vulnerable groups. These groups are listed in the Tax Code.

Another complication is the openness of the list of public benefit activities. On the one hand, the list is broad enough to cover all possible activities which should enjoy preferential treatment. On the other hand, it might be too broad in allowing benefits to too many organizations- which could be a burden on the state budget. For example, shall tax benefits be provided to an organization which is trying to help the Odessa Zoo to purchase a $1,000 crocodile? Isn’t this a nature preservation activity? But can the Moldovan state budget bear to exempt such activities from tax?

This and similar issues are left to the discretion of the Certification Commission, which is established based on the provisions of the Law On Citizens’ Associations. Article 34 of the Law On Citizens’ Associations states that “(1) According to the present Law the certification of Citizens’ Associations is the procedure of checking and proving the public benefit and non-profit characteristics of their activity, as well the neutrality of the association, as well as of legal entities created by association, in supporting political parties, social-political organizations, electoral blocs and independent candidates during the elections of state power bodies. The goal of the certification is to provide state support for Citizens’ Associations in their activities” [3].

The authority of the Commission has been expanded to certifying foundations by the 1999 Law On Foundations[4].

Article 19 of the Law On Foundations states that ”(1) For the purpose of receiving partial or full exemptions from specified taxes, dues and other payments for the benefit of the State as well as privileges provided in conformity with this Law and other legislations, foundations - in order to confirm the public benefit character of their activities - shall have the right to the certification according to the Articles 34-37 of the Law On Citizens’ Associations”.

Some internal procedures for the Certification Commission are set up by the Certification Commission Regulation. Such a minimal legislative regulation, on one hand, allows a broad authority of the Commission decide which organizations will receive benefits. On the other hand, the vague nature of such legislation also makes the work of the Commission extremely difficult. Study of the experience of commissions similar to the Moldovan Certification Commission, such as the Charity Commission in the UK, might help to provide guidance regarding this type of legislation.

The Certification Commission is operating based on the “facts and circumstances” principle. The Commission must take all available facts and circumstances into account in determining whether the organization is operating primarily for public benefit purposes. Currently, the Commission is makes decisions based on an analysis of the information provided to the Commission by applying organizations at the discretion of the organizations. This is often insufficient. It leads to a strong necessity to develop clear procedures and questionnaires that the Commission can use to request more complete information relevant to the certification process from applicants. Sufficient questionnaires and report forms would help the commission to minimize the bureaucracy and to receive all the necessary information.

There are different types of reports in different countries. As a rule all legal entities, including PBOs, have to file finance reports with the tax authorities. Such is the case in Moldova. However, such reports don’t solve all of the Commission’s problems. This type of report does not address issues relevant to determining public benefit status. Another type of commonly used reports is an activities report. This report is usually required for the purposes of status certification, including PBO status, and for the licensing of activities.

It might be reasonable in Moldova to set up requirements for special report forms which would contain some finance information and the relevant information on activities. Such reports shall require disclosure of all transactions and benefits by the organization provided to its officers, directors, employees, members, or their family members, or with affiliated organizations of the organization. In addition, the activities report should include a statement of mission and statutory purpose of the organization with identification of major programs, and the activities designed to implement those programs.

Existing Moldovan legislation states the criteria required for certification. In order to be certified, the applicant should sufficiently demonstrate in its report how the organization fulfills its public benefit purposes through its activities. The report must also contain a statement of key program achievements. If the organization undertakes other activities in addition to the public benefit activities as defined in mission statement, a statement describing those activities must be added. In order to fulfill the political neutrality criteria, the report should contain a certification that the organization, as well as legal entities created by organization, have not undertaken any activities to support political parties, social-political organizations, electoral blocs and independent candidates during the elections of state power bodies, during the reporting period.

However, the list of criteria is insufficient. In addition, there are no clear procedures and rules for the certification process. It is sometimes a complicated task to distinguish between public (charitable) and mutual benefit organizations and businesses. In the experience of the Commission, particularly problematic areas of activities are health, education, and social services. The Commission should request information from the applying organization engaged such activities information indicating which groups of beneficiaries it is serving, and at what cost its services are provided. This would allow the Commission to grant benefits to organizations (such as those which for example, provide free of charge or low-cost services to their members who are a vulnerable part of the population, such as orphans, elderly with a low income, etc.) when these services are replacing or add to social services provided to such groups by the government.

The criterion of engaging in an activity not for deriving income leaves the Commission an enormous space for discussions and investigations. The following additional clarifying criteria could be used in determining whether an organization is engaging in public benefit activities:

  1. Services and benefits are provided free of charge or at less than fair market value;
  2. Services and benefits are provided for disadvantaged individuals or groups.

Both criteria refer us back to the starting point of terminology where we ponder the true meaning of the term “charity”.

Increasing demands on reporting might seem like an increase of bureaucracy. However, reasonable reporting requirements are essential to a fair granting of tax benefits to PBOs. The Certification Commission is a body, which serves both the needs of the state and not-for-profit sector, the purpose of which is to insure that the population receives effective social services and the immerging needs of the society are met. The Certification Commission represents the needs and demands of the “third sector”, and promotes further legislative development. The organizational structure of the Certification Commission, which requires that at least three of the members of the Commission represent a citizens’ association and not be state employees, guarantees that the interests of both the state and “third sector” are represented in the decision-making and protects against state bureaucracy.

From the other side, the Certification Commission takes the responsibility to promote the positive image of public benefit organizations and ensures that tax-exempted activities are genuinely for the public benefit and correspond with the state needs.

Currently, only a limited number of NGOs are interested in obtaining PBO status. This is due to the limited amount of tax benefits granted to certified PBOs. More tax and other benefits should be provided to increase interest of organizations in obtaining the PBO status. Only one clear advantage for PBOs currently exists: they are permitted to obtain tax deductible donations from local donors [5]. In addition, a major stimulus for certification could be tax exemptions on income generated from related business activities on the portion of income utilized for public benefit purposes. Appropriate amendments shall be made to the tax code to clarify the law in this regard.

It is a fact that public benefit activity in Moldova today is financed mainly by western donors. Input from the local business sector is quite small, and self-financing is practically absent. An analysis of financial policy and activity shows that among the three main sources of financing for PBOs, income from entrepreneurial activity counts for about 30% of total income in developed countries.

In order to create real mechanisms of survival and encourage the further development of PBOs in Moldova, the following tasks must be achieved:

  1. Legislation must contain clear and sufficient definitions of all legal terminology related to NGOs and PBOs.
  2. The procedure of granting PBO status must be spelled out in detail to guarantee that a certified PBO eligible for tax benefits meets all necessary criteria and carries out its activity with accountability and transparency.
  3. The Certification Commission together with the State Tax Service must elaborate the Annual Financial Report Form and Annual Activity Report Form in order to avoid creating different reporting systems and to guarantee compatibility of information.
  4. PBO status must provide a truly favorable tax regime. PBOs must have equal maximal tax exemptions from the income tax, VAT, and social security payments. No preferences can be done on personal or group level.


[1] Guidelines for Laws Affecting Civic Organizations / Edited by: Leon Irish and Karla Simon (ICNL) and Rob Kushen (OSI) // Open Society Institute, 1997. P. 99

[2] The Tax Code of the Republic of Moldova

[3] The Law of the Republic of Moldova on Citizens’ Associations

[4] The Law of the Republic of Moldova on Foundations

[5] Decision of the Government of Moldova N 489 on May 04, 1998 On Approval of Regulations On Mode of Confirmation of Donations for Charity Purposes.


International Scientific and Technical Conference: "The Social Technologies" (Odessa, Ukraine)

By Yuri Dimitrov
NGO Legal Advisor
Counterpart Alliance for Partnership (CAP), a USAID funded Program
Ukraine, Kyiv

The political changes that have occurred in the former Soviet republics during the last ten years have led to the appearance of numerous problems- not only in political and economic life, but also in the social sector. For ten years the Newly Independent States have been involved in a complex, lengthy, and often painful process of defining the principles of development of the social sphere and, in particular, of the nonprofit sector that has begun to form.

What is the role of the state? How should local communities participate in the formation of social policy? What are the principles of NGOs’ participation in such processes? Should NGOs and business structure be treated equally if they participate in forming social policy?

These and some other questions were addressed at the International Scientific and Technical Conference “Social Technologies” held on September 14-15 in Odessa, Ukraine. The conference was attended by local government representatives, scientists working in the field of social policy, and active nonprofit organizations representing different regions of Ukraine, Russia, USA, Estonia, Moldova, and Belarus.

The most important issue addressed by the conference participants was the mechanism of inter-sectoral cooperation between the government, nonprofit organizations, and business structures. It was recognized that the mechanism of social order can be most efficient and adequate under conditions of post-totalitarian social system. The main idea of this mechanism at the conceptual level can be described as establishment of common criteria and links both inside and outside of the state system for the purposes of identifying the main needs of the society and of separate territorial communities. Many sociological studies in the CIS countries have shown that the state, as a rule, takes a paternalistic position (position of a custodian) towards its population. Unfortunately, the population of Ukraine and other CIS countries takes a passive position towards social processes, hoping for the state’s help and support. Social links, of course, cannot exclude this type of relationship between society and the state, but such relationship should not prevail. Moreover, the population, represented by NGOs and other active social participants, should have an opportunity to share responsibility for the processes occurring in social life. Only relations of partnership between the state and noncommercial sector can serve as the basis for this mechanism.

The technical aspect of this mechanism can be described as follows: national or local governments issue orders to NGOs for provision of certain social services at local, regional, or national level. This approach significantly differs from the current practice in Ukraine and other CIS countries, where the state directly allocates budget funds for specific projects and specific organizations. This leads to the situation under which only a limited number of organizations have access to budgetary funding. As a result, a competitive environment cannot develop in the Third Sector nor does the market of social services develop. Many participants at the conference agreed that competition in the social sector has its peculiarities, but overall, such competition should foster improvement of the quality of services and enhance the professionalism of service providers.

While most of the participants agreed on a conceptual approach to the nature and structure of social partnerships, there was no single opinion on the technical aspect of the mechanism

For example, a big discussion was caused by the question whether it was necessary to legally separate the concepts of public procurement and social order. The problem is that in many CIS countries there are separate legislative acts regulating the general principles of state order for provision of certain services and for commercial needs only. The most important stage of such a state order is a tender (competition) for its participants. However, in Ukraine, there is no separate legislative regulation of the mechanism according to which governmental institutions could order the implementation of social projects to noncommercial organizations. As a result, some local governmental bodies have started to adopt legislative acts regulating those issues at the local level within the limits of their authority. An example of such a legislative act is the decree “On Social Order in Odessa”.

Great interest was drawn to the discussion of the issue of legislative classification of state orders into two categories: state order and state support (grant). In this case state order will target the implementation of commercial projects, the purpose of which is the derivation of profit by the customer and the contractor, while state support will be targeted at solving a specific social problem, in which case derivation of profit is not a priority.

The question about the basic principles which should be under construction, relations between the state and NGOs in the small cities, was discussed separately.

It is necessary to take into account that in cities with the small population the practice of the social orders essentially differs from practice of large cities. Serious circumstances hindering in it are the small financial possibilities for business structures for charity and the low level of professionalism in NGOs.

Where the amount of NGOs in small cities is insignificant, the system of the tender can reduce in unreasonable diminution of an amount really capable to decide social problems on the given territory. More effective would be creation of a system of community foundations.

The experience of Russia was interesting, where the mechanism of the social contract has received broad distribution. At the same time, it is necessary to note, the use of this mechanism at the municipal level is being accepted more quickly and effectively than at the regional level.

One of the variants of cooperation between NGOs and state organs is the conclusion of agreements at the state level between "umbrella" NGOs and Government. The experience of Estonia was useful in this regard, as this issue has already developed in draft laws.

The participants also noted the main defects and errors meeting in the realization of the social order.

It is, first of all, a weak theoretical, methodological basis which does not agree with actual practice. One serious problem is the absence of a system of complex expert evaluation of expectations and outcomes of realization of the social order.

Besides the reasons of the often conflicting situations is the absence of detailed development of procedure points of the social order. For example, the legal provision of the creation and election of a competition commission, definition of a winner, and signing of the contract.

The large complexities can be caused by the discordance of financial positions of the social order to the budget legislation of the state.

The problem of the role of international donor structures in development of social technologies in countries of CIS has attracted much attention. Certainly, it is necessary to recognize that contribution, which is introduced by mention of a structure of development of a social field.

Some scientists expressed the opinion that as concerns the influence of donor organizations, their activity should be socially responsible irrespective of the level of development of the state. On the other hand, any regulation of activity of international donor organizations will be illogical and unreasonable, since it will reduce the receipt of social capital in countries of the CIS.

Summing up the results of the conference, the participants noted that the basis of positive development of a noncommercial sector is multipurpose, multifunctional cooperation between the state and NGOs. The challenge presented is the construction of relations between the two spheres. The social sphere is closely interconnected with the development of the economic life of the society. The noncommercial sector cannot fully develop in the weak economic system of the state

Today, in the countries of the former Soviet Union, new and not always predictable processes are unfolding. Some of these processes have a destructive character. At the same time, the active search of the new forms of the resolution of social problems in transition from the relations of the post-totalitarian system to a developed democracy is observed.



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ISSN: 1556-5157