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The International Journal
of Not-for-Profit Law

Volume 3, Issue 3, March 2001

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

Table of Contents

Letter from the Editor

Articles

The State, Laws and Nongovernmental Organizations in Bangladesh
By Mokbul Morshed Ahmad

China's Nongovernmental Organizations: Status, Government Policies, and Prospects for Further Development
By Guangyao Chen

The Czech Government and NGOs in 2001
By Petr Pajas

The Italian Legal System Relating to Not-for-Profit Organizations: A Historical and Evolutionary Overview
By Alceste Santuari

Reviews

The Legal System Between the State and Civil Society
By Jurgen Nautz, Emil Brix, and Gerhard Luf
Reviewed by Thomas Notter

Foundations of Charity
By Charles Mitchell and Susan R. Moody
Reviewed by Karla Simon

Case Notes

Middle East and North Africa:
Egypt

North America:
the United States

Country Reports

Asia Pacific:
Regional
| Australia | Cambodia | Indonesia | Japan

Central and Eastern Europe:
Regional | Albania | Lithuania

Latin America and the Caribbean:
Brazil | Chile | Venezuela

Middle East and North Africa:
Yemen

Newly Independent States:
Belarus

North America:
the United States

South Asia:
India

Sub-Saharan Africa:
Botswana
| Ghana | South Africa

Western Europe:
France | Germany

Self-Regulation Reports

Northern NGO Guidelines and Codes of Conduct: Conflicting Rights and Responsibilities?
By Julie Gale

Building Trust in NGOs
By Simon Heap

Nigeria: Draft Code of Standard Practice for NGOs

Switzerland: New Accounting Rules for Not-for-Profit Organizations (NPOs)

International Grantmaking

Bar Association Task Force Revisits Private Foundation Rules: Implication for Foreign Grantmaking
By Richard S. Gallagher

Donating to U.S. Charities
By Arthur B.C. Drache, Q.C.

The Council on Foundations Secures Information Letter that Permits Use of Expenditure Responsibility for Most International Grants

 

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Editorial Board

Country Reports: Asia Pacific

Regional

NGO Capacity Building in the Pacific Region-- Towards Greater Inter-Agency Cooperation

Regional Stakeholders Workshop
6-8 November 2000, Port Vila, Vanuatu

A November 2000 workshop on NGO capacity building in the Pacific Islands made a particularly significant contribution to increased awareness and understanding of the needs, complexities, and importance of civil society in the region. The workshop was organized by a broad coalition of interested groups, represented by a Steering Committee comprised of representatives of the Pacific Island Association of NGOs (PIANGO), CIDA/UNDP, AusAID, Asian Development Bank, NZODA, the Council for International Development (NZ), ICNL, and the European Centre for Study, Issues and Education on the Pacific. The Steering Committee sought to bring together NGOs, government, and intergovernmental body representatives from the region, as well as leading donors, scholars, and experts.

Participants focused on vital issues affecting the capacity of NGOs to undertake important roles in developing civil society, providing services, and promoting good governance, human rights, and resolution of local conflicts. They also shared information on current plans, initiatives, and activities, and sought to develop a more strategic and coordinated approach to encouraging the development of NGO capacity in the region.

At the conference three important papers were presented:

The paper dealing with the legal framework, entitled The Enabling Environment – Legal and Regulatory Frameworks Affecting Civil Society in the Pacific, surveyed laws governing and directly affecting civil society organizations, including NGOs, in the Pacific Island nations.[1] It emphasized the importance of an enabling legal framework for assuring the sector’s health, as a vehicle for safeguarding and encouraging civil society, even within the context of a nascent concept of nation state, as in the Pacific Island region. The paper also stressed the dichotomy between laws “introduced” by colonial regimes (and even those prepared by Western countries on behalf of new states in the region) and “traditional” laws, practices and norms recognized by the population generally, particularly in communities outside of urban centers. Because of the relative importance of traditional regulatory practices, the written, “introduced” laws are both less well-known and less influential in terms of everyday life in most of the new island states.

Another barrier to the application of the “rule of law” as understood in many other countries is the widely dispersed lands comprising most of the countries in the region – most are made up of numerous small islands spread over a wide expanse of sea, where communications are difficult and sporadic. Moreover, population groupings within the countries are often complex and segmented. Even a significant legal development in a country, like the adoption of Fiji’s 1997 constitution, may never be explained to the public in any meaningful way, although the public is legally empowered to accept or reject it. Accordingly, the utility and de facto applicability of the written laws is questionable at best, and at worst may be viewed by the public as something mysterious, dangerous, foreign, or even conspiratorial.

The paper noted that in the island states stakeholders interested in capacity building for societal strengthening in the region must regard both legal entities (as defined by “introduced laws”) and community organizations (recognized traditionally) as civil society organizations. However, in so doing, stakeholders also must recognize the inconsistency between certain “universal” norms and “traditional” norms in the island communities. For example, the stress “universally” recognized freedoms place on individual rights is contradicted by the Pacific Island tradition of preferences for community rights, to which the individual is subject. Moreover, concepts like “conflict of interest” have little meaning in cultures where the only trusted business partner is a relative or at least a fellow tribesman or villager – linkages that maintain their priority even when the members of the family, tribe, or village happen to be located in widely separated locations.

The paper also pointed to the unique role played by religious bodies in the region. Though governed by written law (usually a simple registration provision), these bodies serve as a primary source of social life and public services in the communities. Largely independent even of village leadership and “traditional” rules, religious bodies represent an extremely powerful independent force in the Pacific.

Many of the kinds of written laws in force in the island states parallel those in other parts of the world, unsurprisingly since most were imposed from outside. Included are laws governing registration, taxation, economic activities, licensing for public services, endowments, ownership of property, and many others. Constitutions frequently guarantee freedom of assembly, of speech, and of association. Whether drafted by foreign experts at the behest of newly independent governments, or “saved” from their own colonial heritage, many of these laws as adopted conform to the needs and circumstances of other times and places. Only in a few countries is a formal review process provided for in order to update and render laws consistent with current times.

The paper concluded with recommendations that were generally recognized by the workshop participants as worth pursuing:

Participants agreed that follow-on actions will be sought in various island states, as well as regionally, to seek to achieve these and the conclusions of other workshop topics.

[1] Countries surveyed included Cook Islands, Fiji, Guam, Kirbati, Marshall Islands, Micronesia, Nauru, New Caledonia, Niue, N. Marianas, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu. French Polynesia and US-related portions of the region were less extensively studied for the purposes of this paper.

Australia

The deadline for submissions to the Inquiry into the Definition of Charities and Related Organisations, an initiative of the Prime Minister, has been extended to June 30, 2001.  A piece on the Inquiry appeared in the last issue of IJNL.

Cambodia

The Fifth NGO Fair Turned in Comments on NGO Law

This article was first published in the Star Kampuchea Legislative Newsletter (Friday, April 20, 2001).
On 30-31 March 2001, the 5th NGO Fair took place in the premise of the Chaktomok Hall Theatre, Phnom Penh.

H. E. Sar Keng, Deputy Prime Minister and Co-Minister of the Ministry of Interior, was invited to preside over the Fair. The local and international NGOs are key potentials and partners of the Royal government in rebuilding the nation in all fields, said H. E. Sar Kheng. He added that in developing the country, the government needs more participation from all activities in which civil society actors are the key components as they are belonged to people and that their goals are to meet requests and serve the need related to living conditions, well-being, rights and freedom, and the happiness of the people, except the political activities. According to the statem ent of Ms. Pok Nanda, President of the Board of Directors of STAR Kampuchea and Executive Director of Women for prosperity, the national and international organizations currently operating in Cambodia are to serve the general interests or to rebuild the civilization, culture and Khmer civil society of which the infrastructures, national and human resources were completely destroyed by decades of civil war.

The 2-day NGO Fair was to make comments to the draft, which are summed up as follows:

I. Registration

Article 5 describes documents, which associations are required to fill up application in order to register with the Ministry of Interior.

* Recommendation

II. Approval of registration

Article 9 describes responses from the Ministry of Interior to founders of associations which read " approval of legal registration on—which requests for modification or additional file of documents of application, and a reject of the registration".

* Recommendation

Article 10 entitles associations to make a motion with a court, if the Ministry of Interior rejects their application.

* Recommendation

the application of the associations.

III. Dissolution

Article 16 states the dissolution of the associations. 

* Recommendation

IV. Transfer of Properties

Article 17 states the transfer of properties of the associations after the dissolution.

* Recommendation

V. Determination of the Areas of NGOs

Article 19 states the similar and different provisions between associations and non-governmental organizations. The NGOs are required to follow all by-laws of the associations, except the contrary provisions.

* Recommendation

Support the phrase "the Non-Governmental organizations can carry out free activities, which are legally serving the public interests".

VI. Report

Article 21 requires NGOs to identify their original financial resources and submit annual report before the end of the year.

* Recommendation

Concerns expressed on the assessment of carrying out of the projects as they are related to determination of tax on the salary. Some organizations cannot finish their reports at the end of December.

VII. Final Provisions

Article 27 states the conditions that require the associations and NGOs to pay a fine of ten thousand Riels (100,000 Riels) for their failure of submission the report on time, while paragraph 2 states the Ministry of Interior's power in postponing temporarily the activities of the associations and NGOs.

* Recommendation

The new draft law does not stipulate the penalty of the governmental official (s), who intentionally create obstacles to the registration of the associations and organizations.

* General suggestions

The collected recommendations on the Local Association and Non-Governmental Organization Draft Law, which were made at the 5th NGO Fair, need to be finally reviewed again by the expert working group of civil society before being submitted to the Ministry of Interior.

Indonesia

As part of the reform of the economy, on 2 August 2000 substantial amendments were enacted to the principal income tax law, Act No. 7 of 1983. As amended, the law provides that:

Japan

A Less-Taxing Woman? : New Regulation on Tax Treatment of Nonprofits in Japan

By Robert Pekkanen

In the Fiscal Year 2001 Tax Reform, provisions were made to allow certain Specified Nonprofit Activities Legal Persons (NPO Legal Persons) to gain the status of Tax-Deductible ("nintei") Specified Nonprofit Activities Legal Persons (hereafter, Tax-Deductible NPOs). These provisions were enacted on March 31, 2001 and will come into effect on October 1, 2001. Applicants must be NPO Legal Persons and be certified by the Commissioner of the National Tax Administration as having satisfied a list of requirements, as detailed below.

The 1998 NPO Law was an important change in nonprofit regulation in Japan.[1]

Thousands of groups were able to gain legal status (necessary to, inter alia, be a party to a contract under Japan's Civil Code). As of April 27, 2001, 4626 groups had applied for and 3933 had been granted NPO Legal Person status. However, a survey of the 1,034 groups granted NPO legal person status by November 1999 (to which 463 responded) found only 5.2 percent “satisfied” with the law. Although legal status itself was an important achievement for nonprofits, the major complaint of the vast majority of these groups (84%) was the lack of tax benefits to legal status.

Nonprofits in Japan wanted two changes in tax laws. First, they wanted deductibility of contributions to NPO Legal Persons. This change did occur, but not for all NPO Legal Persons. Instead, only a subset of NPO Legal Persons will be able to receive contributions that can be deducted from the income tax of individuals or corporations (hereafter, "tax-deductible status"), after being certified by the Commissioner of the National Tax Agency in a process described below. The second change nonprofits wanted was for NPO Legal Persons to be taxed at a lower rate (they are currently taxed at the same rate as corporations). This was not a provision of the legislation. However, the three parties of the governing coalition (the Liberal Democratic Party, Koumei, and the Conservative Party) issued a statement on December 14, 2000 stating that this change would be considered "soon." This is significant. The 2001 tax changes came about in part because provisions in the 1998 NPO Law called for a review of the tax system two years after enactment. Opposition from the Ministry of Finance and elements of the Liberal Democratic Party blocked any changes in taxation at that time, but those in favor were able to call for a later review in the law. This review led to the Fiscal Year 2001 Tax Reform provisions for tax-deductibility for NPO Legal Persons.

Sounds Great--Less Taxing: Defining Tax-Deductibility

There are three parts to the tax-deductibility gained by Tax-Deductible NPO Legal Persons.

  1. Individuals can make tax-deductible contributions to Tax-Deductible NPOs, to the extent of 25% of their incomes less 10,000 yen (about $100). In other words, an individual making 3,000,000 yen (about $30,000) can contribute up to 740,000 yen (about $7400) and deduct that amount from his or her income for tax purposes. It is important to note that this contribution limit applies to all tax-deductible contributions (i.e. it sums contributions to Tax-Deductible NPOs, the Special Public Interest Increasing Legal Persons (a subset of Public Interest Legal Persons certified for tax-deductibility and commonly known as "tokuzou"; hereafter Special Public Interest Legal Persons), and Social Welfare Legal Persons.
  2. Legal Persons (corporations, etc.) can make tax-deductible contributions to Tax-Deductible Legal Persons. The amount is calculated depending on whether or not the Legal Person is capitalized. If so, the amount is 0.0125 times income plus 0.00125 times capital of the donor. If not, the amount is 0.025 times income. As with individual contributions, this limit applies to all charitable contributions.
  3. Bequests can be made to Tax-Deductible NPO Legal Persons without incurring inheritance tax.

All three of these provisions are identical to current provisions for Special Public Interest Legal Persons and Social Welfare Legal Persons. Note also that Tax-Deductible NPOs are not exempt from local taxation.

Qualifying for Tax-Deductibility

The Commissioner of the National Tax Agency makes the determination of tax-deductible status. This official can also investigate the group to make this determination (or its removal). There are a number of hoops to jump through to become tax-deductible.[2]

Reporting duties, for example, are fairly extensive. Groups must file reports every year (within three months of their year's end) to the National Tax Administration. The National Tax Administration will permit public access to these documents for three years. These documents are required: documentation of funding (sources and amounts of income, amount of borrowing); list of activities and services, charges, and object of provision; list of parties engaged in transactions of 500,000 yen or more a year with the Tax-Deductible NPO, their names and the amounts; conditions for membership, membership fees, recruiting scope, and numbers of members residing in different geographic areas (administrative units); specific accounting of activities engaged in with the contributions (including planned activities), scope and methods of collection of contributions; contributors' name, address, and amount given; names and compensation of employees; copies of all documents submitted to the permitting agency that granted the Tax-Deductible NPO its status as a NPO Legal Person. This permitting agency must also attest that the NPO Legal Person has not violated its own charter or the law.

There are also restrictions on activities. Religious or political activities are not permitted. Provisions designed to avoid Tax-Deductible NPOs from being used as front groups prohibit special relationships with specific persons, contributions to corporations, religious groups, or political groups; and special profits for directors, employees, contributors or their relatives. Similarly, no more than 1/3 of employees or directors may be related, or also employees or directors (including relatives of such) of a specific legal person or group.

There are restrictions on expenditures. At least 80% of expenditures and at least 70% of contributions must be spent on Specified Nonprofit Activities (meaning those activities for which groups formed to perform can receive legal status as NPO Legal Persons (Specified Nonprofit Activities Legal Persons). To supply funding, in advance Tax-Deductible NPOs must make open and also provide to the National Tax Administration the criteria, methods, and names of individuals by which or whom grantees will be solicited and evaluated. Actual funding decisions must be treated in the same way. Except in times of emergency when notification may follow, transfers of funds overseas must be notified in advance, including date, amount, and recipient. Strict accounting standards are spelled out.

There are also three public benefit tests. There is a geographic test, and the Tax-Deductible NPO must either (1) receive contributions from individuals or legal persons from multiple geographic areas (cities, wards, towns or villages) (no more than 80% from one area); (2) engage in Specified Nonprofit Activities in multiple geographic areas (no more than 80% in one area); (3) or spread its funding or service across multiple areas (again 80%). A second test includes four provisions designed to prohibit mutual benefit organizations. For example, more than half of activities must not be services or funds for the benefit of members. Nor may more than half of the Tax-Deductible NPOs activities be for exchange, contact, exchange of opinions, etc. among members.

The third public benefit test is the public support test. An accounting formula is provided to determine that at least 1/3 of the group's total revenue comes from public support via contributions. Both revenue and public support are defined in detail. Revenue does not include such items as government funding (hojokin). Contributions from any individual (or his or her relatives) or legal person will only count towards the public support total to 2% of total contributions. This prohibits the group from having a single large donor count towards their public support. Contributions from directors, employees, and their relatives only count towards public support under certain conditions. Only contributions of 3000 yen (about $30) or more count towards the public support total.

Conclusion

It is this public support test that observers see as the most problematic.[3] One newspaper headlined the story with "Tax Benefits for 10%?" and reported a survey of 150 NPO Legal Persons showing only 4 qualifying for Tax-Deductible status.[4] There are serious concerns over how many nonprofits will be able to obtain these benefits. Furthermore, the reporting requirements, including listing of contributors, are also burdensome. The lowering of the tax rate on nonprofits, for certain groups even more important than tax-deductibility, has not even been proposed.

Although the provisions are less than ideal from the perspective of the nonprofit community, there are several grounds for optimism. Japan is in a decade-long economic slump. Besides a decrepit financial system, the country faces a potential fiscal crisis as a result of pump priming by the Obuchi and Mori administrations. Japan's national debt as a percent of GDP has skyrocketed. The Ministry of Finance strongly opposed tax benefits for nonprofits. In the current economic climate, any reduction of tax burdens on nonprofits is a significant achievement. The large numbers of Diet (Japan's parliament) members belonging to the "NPO Caucus" (NPO giin renmei) reinforce this impression of political strength. Moreover, of the two hundred and thirty-eight members, one hundred and twelve are from the Japan's most important political party, the Liberal Democratic Party. This gives added weight to the ruling coalition statement of December 14th, 2000.

The Fiscal Year 2001 Tax Reform provisions should be seen as part of an ongoing political and social process in Japan that includes increased lobbying activities by nonprofits, the growth of the nonprofit sector (20% from 1990-1995), and the passage of the NPO Law in 1998. Further tax benefits for nonprofits are far from a certainty, but no one should be surprised if significant benefits--lower tax rate, easier qualifying process for tax benefits--were granted in the next five to ten years.

Notes

[1] See IJNL XXX; Robert Pekkanen, 2000a. “ Japan’s New Politics? The Case of the NPO Law.” Journal of Japanese Studies. Winter 2000 Vol. 26 No.1; and, 2000b. “Hō, kokka, shimin shakai [Law, the State, and Civil Society]” in Leviathan (27), Fall 2000.

[2] Note that some of these requirements might be Tax-Deductible by implementing ordinance. However, even if so, the great likelihood is that they will be altered only very slightly. The provisions can be found on the Ministry of Finance website: http://www.mof.go.jp/genan13/zei001g.htm

[3] See articles in Asahi Shimbun March 19, 2001 and April 23, 2001; Kohoku Shimbun January 15, 2001; and Yomiuri Shimbun January 15, 2001.

[4] "Zeisei yuuguu ichi-wari ka", Asahi Shimbun April 23, 2001.

 

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