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Law on Public Welfare Status
1. Issuance of provisional certificates regarding Public Welfare status
2. Appropriateness of expenditures for ad ministration and requests for donations
Meeting KSt/GewSt I/00 – TOP I/21 1
The BFH [National Finance Office] has decided with its decree of 23 September 1998 – I B
82/98 that
I. a public welfare corporation under specific conditions has a claim to the issuance of
a
provisional certificate regarding public welfare status, and
II. a corporation is breaking the Law on Non-Profit Status (§ 55 AO) if it does not use the
donations received primarily for tax-advantaged purposes as set out in its bylaws.
Considering the result of the discussion with the supreme financial authorities of the states, I
take the following position regarding the application of the basic legal framework of this
decree:
1. Provisional Certificates
1. According to the decree on applicability of AO, § 59 no. 4 and 5, the Finance Office, upon
application, is to issue a provisional certificate regarding Public Welfare status to a
corporation for which the qualification for tax-advantaged status has not yet been
determined in the assessment process (regarding newly founded corporations),
The official minutes have not been published yet.
Address: P.O. Box 13 08, 53003 Bonn Other offices: Bonn, Husarenstr. 32 and Ellerstr. 56
Central Office (for correspondence): Graurheindorfer Str. 108, 53117 Bonn Bonn-Bad Godesberg, Langer
Grabenweg 35 and Steubenring 11
1. Berlin office, Wilhelmstr. 97 and
Mauerstr. 69 – 75

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if the bylaws that have been submitted satisfy the demands of the law on Public Welfare
status. The certificate is to be issued in a timely fashion and may be cancelled at any
time. In particular it entitles the corporati on to receive tax-advantaged contributions even
before the end of the first assessment period.
This procedure will continue. The provisiona l certificate on Public Welfare status is
to be issued in these cases (newly formed corporations) on form Gem 5.
2. According to the decree of the national Finance Office of 23 September 1998, the
issuance of a provisional certification regarding Public Welfare status can also be
considered if a corporation has been in ex istence for some time and its Public Welfare
status has been denied in the assessment process.
a) A provisional certificate re garding Public Welfare stat us is to be issued, upon
application, in those cases where the corporation will likely fulfill the conditions
of Public Welfare status for the en tire assessment period following the
assessment period of the denial. Its validity shall not exceed 18 months.
b) Moreover, the issuance of a temporary cer tification of Public Welfare status may
also be granted if the corporation is not a Public Welfare entity in the opinion of
the Finance Department. In such cases the certificate may be issued only of the
following conditions are met:
aa) The corporation must have filed for le gal protection with the responsible Finance
Court against a decision of the Finance Office in which the issuance of a
temporary certificate of Public We lfare status has been denied.
bb) Serious doubts must exist as to whether the denial of Public Welfare status will be
upheld in the proceedings. This means that the corporation conclusively and
credibly shows that it meets the conditions for Public Welfare status in its bylaws
and in its actual day-to-day activity.

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cc) The economic status of the corporation must be threatened as a result of the non-
issuance of the provisional certificate. The individual circumstances will determine
the decision in each case. A threat to the corporation’s existence cannot be
supported merely because hitherto the co rporation has supported itself in large
measure on donations or on tax-deductible membership dues, and now because of
the denial of certification for tax-advantaged contributions a significant decline of
income is to be expected. A threat to the corporation’s existence also does not exist
if the corporation has sufficient available funds or can obtain necessary credit. As
grounds for the application, the corporation must make the threat to its existence
conclusive and credible.
The provisional certification of Public Welfare status will be issued under no. 2 letter b
without a special form. It must put the corpora tion in the situation of being able to ask for
donations on the basis of tax deductibility. The te rm of the certification is to last until the
rendering of a legal decision in the case. The circumstances of each individual case will
determine whether conditions imposed are reas onable and necessary, such as the national
Finance Office has decided in the case at issue (including quarterly submission of reports
on income and expenses).
II. Appropriateness of Administrative Expenses
1. A corporation cannot be considered as a Public Welfare ag ency if its expenses for general
administration, including appeals for donations, exceed a reasonable amount (§ 55 section
1 no. 1 and 3 AO). According to the deci sion of the national Finance Office of 23
September 1998, this amount is exceeded when a corporation which is largely financed by
monetary donations after a growth phase uses these dona tions primarily to finance
expenses for administration and appeals for dona tions instead of for the pursuit of the tax-
advantaged goals as set out in the bylaws. The national Finance Office has compared the
amount of administrative expense, including appeals for donations, to the amount of
donations received. Consequently, one should ge neralize from this that administrative
expenses, including appeals for donations, should be judged in proportion to the total
received amounts (donations, membership donations, grants, profits from economic
enterprises, etc.).

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The national Finance Office with this decision has not set a general limit of 50% for the
appropriateness of administrative expenses, including appeals for donations. More to the
point, as one may deduce from the reasoning of this decision, the particular circumstances
of each individual case determine the question of the appropriateness of expenses. The use
of funds detrimental to Public Welfare status can therefore occur even at a much lower
percentage level of administrative expenses.
If a corporation uses its funds for advertising for new members, as a rule there should be
no problem if no more than 10 percent of th e total membership dues are used for this
purpose each year.
2. During the founding or growth phase of a cor poration, the use of a major part of funds for
administrative expenses and appeals for donatio ns may not be harmful to Public Welfare
status. The length of the founding or growth pha se during which these larger expenses are
permissible depends on the circumstances of each individual case.
In the case decided here, the national Finance Office did not complain about the fact that
the expenses of the corporation for administration and appeals for donations far surpassed
the boundary of 50% of the monetary donations in the first four years after the founding;
only from the fifth year on did it demand maintenance of this limit. However, it cannot be
concluded from this case that in general perm ission must be given for a growth phase of
four years in which there are proportionally higher expenses for administration and appeals
for donations. In the case decided here, the na tional Finance Office also took into account,
in addition to the special tasks and the struct ure of the corporation, that a second growth
phase was necessary after denial of Public We lfare status had caused a sharp reduction in
donations. Therefore, the four-year period allowed by the national Finance Office is to be
understood as an upper limit. As a rule one should plan on a shorter growth phase.
3. Attention is drawn to the fact that Public Welf are status also is to be denied in the case
where there is no objection to the relationship of administrative expenses to expenses for
tax-advantaged purposes, but one particular ad ministrative expense is not appropriate (e.g.,
the salary of the executive o fficer or outlays for appeals for members and donations) (§ 55
Section 1 no. 1 and 3 AO).

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4. According to the explanations of the national Finance Office in the decision of 23
September 1998, expenses for salaries and fringe benefits (personnel costs) of
administration and appeals for donations should be maintained appropriate to the
working time spent on these activities. One shoul d take note in this regard that costs for
the work of an executive director should be treated basically as administrative expenses.
A categorization of the costs of the director as part of the Public Welfare activity is
possible only insofar as the executive director is directly involved ion Public Welfare
projects. The same reasoning applies to the categorization of travel costs.
This document will be published in the Bunde ssteuerblatt [national tax newsletter] part I
and at the same time as the decision of the national Finance Office decision of 23
September 1998 in the Bundessteuerblatt part II.
For
Sarrazin Attested
Public Off icial