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The International Journal
of Not-for-Profit Law

Volume 5, Issue 1, September 2002

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

Table of Contents


The Economics of Non Profit Accounting and Auditing: Suggestions for a Research Agenda
Marc Jegers

Australian Charity Law Reform Proposals
Prof. Myles McGregor-Lowndes

Charities and Terrorism: The Charity Commission Response
Debra Morris

Charity Law Review in Ireland and the Challenges for the State/Third Sector Partnership
Kerry J. O'Halloran

The Kamehameha Schools Admissions Policy Controversy
Randall W. Roth

Case Notes

Asia Pacific:
Fiji | New Zealand

Central and Eastern Europe: Croatia

Middle East and North Africa:

North America:
Canada | United States

Sub-Saharan Africa:
South Africa

Western Europe:
European Union | The Netherlands

Country Reports

Financial Action Task Force (FATF) on Money Laundering

Asia Pacific:
Regional | Burma | China | Japan | New Zealand | Singapore

Central and Eastern Europe: Estonia | Kosovo | Latvia | Romania

Latin America and the Caribbean: Regional

Middle East and North Africa: Regional

Newly Independent States: Belarus

North America:
Canada | Mexico | United States

South Asia:
Afghanistan | India | Sri Lanka

Sub-Saharan Africa:
Congo | Malawi | Nigeria | South Africa | Sudan | Tanzania | Togo | Zimbabwe

Western Europe:
Regional | Belgium | France | Germany | Italy | The Netherlands | Portugal | Spain | United Kingdom

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Editorial Board

Country Reports: Asia Pacific


Developments in the South Pacific – Civil Society Legal Frameworks under Review

by Stephan E. Klingelhofer*  

During the past few years, increasing attention has been devoted in several of the island nations of the South Pacific to the legal framework governing civil society organizations (CSOs) within the region.  This interest and concern has been shared by stakeholders concerned about the evolution of sustainable organizations in the region, in order that they may participate in the establishment of economic and social development programs and their implementation within the rule of law. 

In November 2000, stakeholders convened in Port Vila, Vanuatu, for the purposes of exploring various approaches to improving civil society organizations’ capacity to operate effectively in the South Pacific.  Primary sponsors of the conference were the New Zealand Overseas Development Assistance (NZODA), the Australian Agency for International Development (AusAid), and the Asian Development Bank (ADB).  The conference was organized by the Pacific Islands Association of Non-Governmental Organizations (PIANGO).   

During the Stakeholders’ Conference, participants agreed that a sound legal framework is essential to the establishment of a strong civil society sector.  However, it was clear that in most of the island nations three concerns were predominant:

Many of these issues were discussed in a paper presented at the conference by ICNL representatives (myself and David Robinson), and summarized in the published proceedings.[1] 

At the follow-on conference a year later in Suva, Fiji, participants again pointed to the need for establishing a legal framework suitable for the South Pacific cultural, social, and economic setting in order to encourage and strengthen the civil society sector as an instrument of participatory development.  Subsequently, in 2002, PIANGO itself endorsed this objective as a goal for the sector.

Accordingly, work begun prior to the 2000 conference is now being carried forward,[2] focusing at the outset on the legal structures governing civil society in four countries:  Fiji, Vanuatu, Samoa, and Tuvalu.  All have, in varying degrees, enacted laws that purport to govern the sector.  Each law is largely derived from English legal traditions, but has been modified to some extent to achieve certain local goals.  Tuvalu represents an example of the smaller island nations, where applicable laws are likely to be simpler and less comprehensive than in the larger neighboring states.  In all these nations, moreover, the tension between written laws and traditional or customary practices remains an obstacle to comprehensive implementation of a legal framework that is provides healthy space for organizations to operate at all levels of society. 

An indication of these tensions was visible in Suva, Fiji, in August 2002, during the deliberations of the Pacific Island Forum, led by Heads of Government from throughout the region.  Various representatives expressed their strong feeling that “cultural and traditional values” needed re-emphasis in the legal structures of their countries, and that Western democratic principles in their countries must be interpreted in light of such values. 

These concerns are being addressed both by scholars[3] and on the ground in the current legislative assessment.  In this project the applicable legislation of the four countries is being systematically reviewed, the customary and traditional practices affecting community organizations studied, and recommendations produced for use in the legislative drafting process underway in those countries.

An initial overview of the circumstances in the three major countries covered by the project has reached the following preliminary conclusions, with indications of work to follow:

Vanuatu-- The least developed politically of the three major selected countries, Vanuatu’s government is perceived by some to be in many ways ineffectual, and questions have been raised in the media and elsewhere about the integrity of certain officials.  Government officials acknowledge that it has difficulty providing basic services beyond the vicinity of the capital, and that village leadership holds sway in the outer islands, with only a very weak local Port Vila-directed government structure.

For some time, the government has sought to enter into a memorandum of understanding with the civil society sector, primarily through the umbrella group VANGO, but it has been met with serious opposition from representatives of the non-governmental sector.  They openly distrust the government’s motives and fear the exercise of excessive government control through this mechanism.  While in fact the execution of an acceptable draft MOU may well present the first important step toward more government/CSO cooperation, even that step seems to be some distance away.

The study team is continuing its conversations with leading CSO and government officials, and it will provide its analysis of the current legal environment to key people in the hope of engaging them in an effort to address the issues.  In addition, in collaboration with work later this year and next by the University of the South Pacific in evaluating the effectiveness of local government and its relationship with the village governance structure, the team hopes to make additional progress with the various parties as they seek to assure a safe legal space in which CSOs may effectively operate and be sustained at the local level. 

Fiji – Fijian political, social, and economic development today is colored by the always-present level of tension between the ethnic Indian and indigenous Fijian communities.  This tension is reflected as well in the civil society community, where organizations promoting constitutional protections are sometimes perceived by the government as supporting minority (Indian) political aspirations to the detriment of the majority Fijian community.  In addition, regardless of ethnic support, civil society organizations are frequently looked upon by the authorities as being trouble-makers and serving to draw needed foreign funding away from government-supported programs. 

The Attorney General in August issued a published statement that the CSO sector’s “wings must be trimmed,” apparently in response to opposition from the sector to government political moves.  In addition, the well-known Citizens Constitutional Forum (which had decried what it viewed as unconstitutional governmental actions) had been recently “de-registered” for having registered under the incorrect governance provisions, and remains unregistered. 

At the same time, in order to further CSO/government collaboration in providing social services, the Department of Social Welfare is undertaking a comprehensive process of developing a draft “NGO Policy” to govern such relationships.  Department officials hope through this mechanism to affect a more positive relationship between the government and the sector, and buy-ins from the Prime Minister and the Policy Office.   

Moreover, the Solicitor General’s office has also initiated its own study of the legal framework governing CSOs in Fiji.  The office has requested support from the ICNL study team in the form of comparative models, and commentary on draft amendments. 

The ethnic conflicts are reflected as well in the tension between traditional norms and written law.  The power of the Council of Chiefs was invoked to end the ethnic and political civil disturbances in 2000.  Villages (led by traditional chiefs) frequently have significantly more power than the fledgling local town governments (usually led by ethnic Indians).

Accordingly, Fiji presents the most pressing and compelling case for immediate attention.  It is clear that the government is preparing to adjust the relations between CSOs and the government.  Efforts are expected within the civil society sector to undertake broad practical consultations in order to enter into useful discussions with the government, perhaps through the “NGO Policy” development process led by the Department of Social Welfare, as well as through the Solicitor General’s staff working on new legislation. 

Samoa – In Samoa, the legal structure and government/CSO relations are the most closely coordinated of any of the study countries.  On the surface, the CSOs and government alike describe their cooperation and the legal framework in positive terms.  Registration is fairly easy, under the terms of the Charitable Societies Act, with some minor compliance issues that require clearing up from time to time.  The Prime Minister has established a monthly meeting with an issues committee of CSO representatives established by the umbrella group, SUNGO.  Problems seem to arise around advocacy matters, and groups that advocate on behalf of a “cause” are not favored.  Most CSO funding comes from abroad, mainly through the Ministry of Foreign Affairs (MOFA), which consults with other ministries and local village representatives and funnels the money to what it deems to be appropriate groups.[4] Moreover, urban-based CSOs frequently serve as the accountability link between funders/government and the smaller community organizations that actually carry on the funded activities. 

Beneath the surface, however, some issues are left largely unaddressed, at least publicly.  Some CSOs express resentment about government control of their outside funding.  Others suggest that the recipients may be selected in less than open processes, and that in order to receive funding, one must cultivate various government officials.  There is no opportunity to appeal a funding decision by the MOFA. 

The connection between Samoan custom and law appears murky at best, with less open discussion than in other countries in the region.  Chiefs have significant influence in all parts of the society, including the political and economic spheres.  But, particularly in the economic sphere, non-chiefly leadership is also strong.  The government expressly recognizes the power of customary practices through the “Village Meeting Act,” which recognizes the actions taken by village councils as legal (though the mechanism for implementing or enforcing such recognition is unclear).

Immediate further work in Samoa will likely emphasize “exposition.”  The analysis of the current legal framework may lead to certain recommendations for change.  However, the CSO sector there has requested information – about how CSOs can function, about good internal governance, about funding and money management, and about how to advocate more effectively, even within the constraints of the Samoan system.  In Samoa revolutionary ideas for change in the legal framework governing the sector are unlikely to be accepted or acceptable.  Nevertheless, carefully designed materials and information for the sector and the public at large may well have a significant impact.


The evaluation of laws affecting civil society in the South Pacific constitutes a small part of what appears to be a general self-examination underway throughout the region.  In part, this process has grown out of the turmoil experienced in several of the countries in the region in recent years, most notably Fiji, the Solomon Islands, and Papua New Guinea.  But this re-examination also reflects the unease that is demonstrated as a result of the migration of significant numbers of youth and professionals away from the region in the recent years.  Moreover, civil society organizations, both formal ones and less formal community based groups, are becoming more outspoken, seeking to increase their activities and their participation n the broader life of their communities and nations.

Leaders, both governmental and non-governmental, in these nations are now initiating their own analyses of these circumstances, and their social, economic, political – and legal -- implications.  The study and implementation programs discussed here are intended to facilitate discussion and full participation in the resolution of the tensions that characterize so much of present-day relations between the sectors.

[1] NGO CAPACITY BUILDING IN THE PACIFIC --TOWARDS GREATER INTER-AGENCY COOPERATION -- Regional Stakeholders Workshop, Pacific Islands Association of Non-Governmental Organizations (PIANGO), Port Vila, 2001.  For other discussions of the legal issues, see also Chaitanya Lakshman, The Cotonou Agreement, Civil Societies and Charities in Pacific Member States of the APC, and Stephan Klingelhofer and David Robinson, The Rule of Law, Custom and Civil Society in the South Pacific: An Overview in 8 Third Sector Rev. 173, 211 (Special Issue: Charity Law in the Pacific Rim) (2002) (reviewed elsewhere in this issue). 

[2] A civil society development project now underway and sponsored by OXFAM-NZ and NZAID includes the legal component (conducted by ICNL in collaboration with the University of the South Pacific government representatives and other civil society partners).

[3] See, for example, Zorn, J.G. and Care, J.C., Proving Customary Law in the Common Law Courts of the South Pacific, British Institute of International and Comparative Law, London, 2002 (reviewed elsewhere in this issue).

[4] It is not unknown, however, for some groups to successfully circumvent this official practice and obtain foreign funding directly.


Burma Government Arrests Students Who Formed Literary Group

The Free Burma Coalition reported in August that fifteen students in Rangoon who participated in a meeting of an informal literary group that read and discussed world politics, Ghandian non-violence, and philosophy.  This crackdown on the pro-democracy movement is a setback in the recent trends toward liberalization by Burma’s military regime.  The State Peace and Development Council was responsible for the arrests.  KWS


New Trust Law

by Paul Bater*

On 1 October 2001 the Trusts Law came into effect in China.  The law defines a trust as a civil legal act whereby a settlor entrusts a trustee with property, such that the trustee manages or disposes of the property in its own name in accordance with the settlor’s intention and for the benefit of the beneficiary or for a specific purpose.  In contrast to the common law approach, there is no explicit distinction between legal and beneficial ownership of trust property.  The trustee is required to separate the trust property from its personal property and to account for the trust property separately.  A trust must be created by a written document containing details of the property and beneficiaries.  

The law provides for two types of trust: private trusts and public interest or charitable trusts.  The law provides a non-exhaustive list of charitable purposes:

The law prohibits activities by trusts that may harm the interests of the state or the public interest  The establishment of a charitable trust must be approved by an organization charged with managing a public interest area (you guan gongyi shiye de guanli jigou).  Each trust will have an inspector (jiancha ren) who is appointed by the competent department, if the trust document fails to do so.  The trustees must produce an annual report to the inspector, the beneficiaries and the public.  The inspector can sue to protect the interests of the beneficiaries.  The regulatory authority can modify the terms of the trust if unforeseeable circumstances make it appropriate to do so in order to fulfil the trust’s purposes [Author’s note: this provision appears to operate in a similar way to the cy-pres rule in common law countries.]  On the termination of a trust, the trustee can transfer the trust property to an organization with similar purposes, subject to regulatory approval.  This report is taken from the journal Trust Law, for 28 April 2001.

* Paul Bater is Senior Research Associate – International Bureau of Fiscal Documentation.  He can be reached at paulbater@eudora.com.


The tax reform proposals for 2002, announced by the Ministry of Finance on 19 December 2001 included a proposal that corporations established under the Civil Code, which help the victims of crime or promote sports for disabled people or assist other organizations that undertake such activities nationally would qualify as corporations officially recognized as public interest corporations, to which tax deductible donations can be made.  (Tax News Service, 4 March 2002) 

The Ministry of Finance is also reported to be considering proposals:

(Daily Yomiuri, 4 March and 14 August 2002).  PB

New Zealand

October 2001 Government Announcement.

Following the 2001 discussion document “Tax and Charities”, the Government announced in October 2001 that:

However, in November (see below) the Minister of Finance announced that this exemption also would be investigated by officials. 

November 2001 Government Announcement.

In November 2001, the Minister of Finance appointed a Working Party on Charities Taxation to make recommendations on the operational aspects of the introduction and application of the registration, reporting and monitoring rules for charities. The Working Party was required to address:

The Government also announced that it was investigating the possibility of allowing charities a refund of imputation credits (for underlying corporate income tax) in respect of dividend income from a charity's share investment in a company.  Currently, imputation credits are not allowed to tax exempt shareholders.  The revenue costs of a "supplementary dividend regime" which, in effect, gives non-resident shareholders the benefit of imputation credits, as well as a direct refund mechanism, are being examined for charities. 

Working Party Report I.

The Charities Working Party reported in February 2002.  Its main recommendations include the establishment of a Charities Commission to:

Registration with the Commission would automatically entitle organizations to income tax exemptions and donee status for charities whose purposes are exclusively within New Zealand.  Charities with overseas purposes would nevertheless be required to register with the Inland Revenue.  “Short-term" charitable trusts (which, it is proposed, exist for no more than two years) created by would not be required to register.  

Provisional registration would be allowed for two years from the date the empowering legislation becomes effective for existing charities that obtain a letter from the Inland Revenue Department, which confirms the current tax-exempt charitable status.  Formal registration with the Charities Commission by such charities would be required within the two-year transitional period.

All charities, including those with overseas purposes, would be required to file a standard annual return form, which includes:

Charities that received more than NZD 100,000 annually from public donations (excluding church collections and grants) would be required to file annual audited financial statements. 

Registration and annual filing documents would be available to the public to increase accountability and to enhance confidence in organizations that seek public donations and other funds. 

If a charity is not operating in accordance with its objects, the Commission could replace the governing body or appoint a temporary managing trustee.  The Working Party proposed compliance through education rather than punishment; however, failure to comply could result in monetary penalties for officers or trustees without the right of indemnity from the charity's funds. Deregistration of the charity would be available as a last resort.  The Inland Revenue Department would retain a right of independent audit for tax purposes.  The monitoring of charities with overseas purposes was left for a subsequent report. 

When a charity terminates its operation, it would be required to inform the Commission, which would monitor the liquidation process to ensure that the charity's net assets are properly distributed. 

The Working Party also recommended that:

(Treasury Working Party, February 2002) 

Working Party Report II.  The Charities Working Party issued its second report on 12 June 2002 concerning standardization of tax assistance rules applying to New Zealand charities operating overseas and the definition of charitable purposes.  The Working Party's main recommendations were that: 

1. Charities with overseas purposes

2. Definition of charitable purpose 

The Government simultaneously announced that it will not adopt the Working Party's proposed changes in the immediate future, preferring to await the outcome of similar investigations in other commonwealth countries.

(Charities Working Party second report, 12 June 2002)

Taxation Issues 

A. Taxation of Maori organizations and their donees.

The Government has proposed legislation to implement the recommendations of the review of the taxation of Maori organizations issued in August 2001.  The bill proposes, inter alia, that:

These amendments apply from the beginning of the 2004/05 income year, except for the new public benefit test, which applies from the beginning of the 2003/04 income year. 

B. Other proposed legislative changes for donations.

The Bill, which is currently before the Finance and Expenditure Select Committee, also incorporates some legislative changes which arise out of the “Tax and Charities” discussion document.  Specifically, the Bill provides for:

The amendment to the rebate and deduction provisions are to take effect retrospectively from the beginning of the 2002/03 income year. The amendment requiring annual verification of charitable purposes is to take effect from the beginning of the 2003/04 income year.

(Taxation (Annual Rates, Maori Organizations, Taxpayer Compliance and Miscellaneous Provisions) Bill 2002) 

C. Goods and Services Tax amendment proposed.

The government has introduced a bill to amend the Goods and Services Tax Act 1985 to permit non-profit bodies to claim full input tax credits other than in respect of the making of exempt supplies.

(Taxation (Relief, Refunds and Miscellaneous Provisions) Bill 2002)

* Paul Bater is Senior Research Associate – International Bureau of Fiscal Documentation.  He can be reached at paulbater@eudora.com


Tax Changes

The Budget for 2002, which was presented to parliament on 3 May 2002, included several measures to promote philanthropy:

With effect from 1 January 2003 the rate of Goods and Services Tax (GST) will increase from 3% to 5%.  Instead of granting exemptions from GST, the government has announced an offset package in the form of specific grants and rebatesto cover the GST payable on subsidised healthcare and education services.  PB (Budget speech 3 May 2002, reported in Asia-Pacific Tax Bulletin, July/August 2002.)


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