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- Year: 2008
- Country: Transnational
- Language: English
- Document Type: Publication
- Topic: CSO/Government Cooperation,Regional/Global Overviews
This document has been provided by the
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EU Regulation of Charitable Organisations:
The Politics of Legally Enabling Civil Society
The ICNL-Cordaid Civil Liberties Prize
Distinguished Research Award
Professor in the School of Law at
University College Dublin
This manuscript was submitted for consideration for the ICNL-Cordaid Civil Liberties Prize in
January 2008. More information regarding the prize and winners can be found at https://www.icnl.org/programs/locati on/crossregional/prize/index.htm.
Traditionally, the European Union has adopt ed a laissez-faire approach towards the
regulation and governance of ch aritable organizations. The legal enablement of these
bodies occurs in the national legislation of Member Stat es and thus stops at the
borders of those countries, forcing nonprofit organisations that work across borders to
grapple with different national legal and re gulatory regimes. Different tax laws,
different company laws and at times, different charity laws therefore apply to
charitable organisations that wish to work across a number of European Member
States. In some instances, the Europ ean Union lacks competence to harmonise
national laws, for example, in the area of taxation. In other areas, such as company
law, the EU has legislative competence to ha rmonise national laws but has chosen to
exclude nonprofit organisations from the scope of its regulatory efforts. Whatever the
underlying reason for this lack of enablement — whether classified as benign neglect
or legal parsimony on the part of EU institutions — the current European legal regime
prevents nonprofit organisations from enj oying fully the benefits of the common
One solution commonly proffered as a panacea for nonprofit organisations’
difficulties is to develop a European legal ve hicle to facilitate nonprofits that operate
on a pan-European basis. To this end, demands have been made for a European
Statute for Foundations and a European Stat ute for Associations, enacted by way of
European Council Regulation and thus directly applicable in a ll Member States.
These European vehicles, the argument r uns, would have transparent and uniform
requirements in each state and thereby cu t down on the legal and administrative
bureaucracy that nonprofits presently endure in attempting to open new branches or
deal in Member States other than their f ounding Member State. The advantages cited
in support of the adoption of such European St atutes tend to be three in number. First,
proponents argue that the stat utes would facilitate the giving and receiving of gifts
and grants across borders and the general im provement of cross-border operations and
activities of funders and foundations in Europe. Second, the provision of new
instruments for cooperation among funders would both enhance the existing well-
established practice of co-f unding and engaging in join t activities and projects
throughout the EU and also assist in th e increasing number of trans-national
collaborative projects between European nonprofit organizations in third countries.
And third, the statutes would enable nonpr ofits to enjoy fully the freedom of
establishment for all activities which contribute to the objectives of the Community,
irrespective of the form taken by th e nonprofit that carries them on.
Legislative proposals for European foundation and association statutes have enjoyed
considerable support in the nonprofit sector. In a recent Commission Consultation
paper on Future Priorities for Company Law Action , responding foundations
unanimously endorsed a Commission proposal for a feasibility study on the need for a
European Foundations Statute.
1 The response rate to the question was an impressive
55 percent of respondents
2 with many foundations responding exclusively to this
question in the Consultation,
3 implying strategic lobbying by these organizations.
Advocates of a European legislative soluti on seek parity of treatment for nonprofit
organizations with for-profit entities a nd view the European Company Statute,
enacted in 2000 to provide a common Euro pean legal vehicle for public limited
companies (plcs), as an ideal template fo r a similar statute tailored for nonprofit
This paper takes issue with those who view the introduction of a European regulation
as the most effective way to facilitate nonprofit activity in the EU. It argues that the
judicial route and not the legislative route may prove more fruitful if the aim is to
achieve greater legal enablement of civil society organizations within the European
Union. Part II outlines the difficulties asso ciated with uniform European regulatory
solutions in company law and explains why a European legal instrument will not
provide an effective answer to the problem s currently facing nonprofit entities. In the
absence of a legislative solution, Part III considers alternative judicial and political
attempts to create a legally enabling e nvironment for nonprofit organizations in the
EU. Finally, Part IV puts the judicial de velopments relating to nonprofits in the
broader political context of an emerging European Union that can no longer be
1 See Directorate General for Internal Market and Services, Report on Consultation and Hearing on
Future Priorities for the Action Plan on Mode rnising Company Law and Enhancing Corporate
Governance in the European Union (available at
‘Future Priorities Report’), at 26. See further discussion of this phenomenon infra n.112 and
2 The average response rate for other questions in the survey, which dealt with company law issues,
was typically in the low 40s.
3 See n.1 supra.
viewed solely in terms of economics. The paper conclude s that given the evolving
nature of the relationship between EU ins titutions and civil society organizations a
legal solution to facilitate cross-border nonprofit and charitabl e activities may be
politically more effective and timely than a statutory solution.
EUROPEAN STATUTES : INAPPROPRIATE INSTRUMENTS FOR THE CREATION OF A
LEGALLY ENABLING ENVIRONMENT FOR NONPROFIT ORGANIZATIONS
The Background to the European Company Statute
The idea for a European Council Regulation,
4 creating a European legal form that
would be recognisable in all me mber states, is not new. The debate on the need for a
European Company Statute began in Paris in the 1960s
5 and continued for the next
forty years. Although there was little disagreement as to the general principle,
achieving consensus on the model’s detail s proved difficult. Over the following
twenty years the Commissi on published various proposals
6 for a European company
model but deadlock continued to persist in the European Council over the prescribed
forms of worker participa tion in the proposed model.
7 A breakthrough occurred with
the completion of the internal market in the early 1990s when the Commission
published new initiatives to revive the Company Statute.
8 The publication of the
4 A regulation is a legal instrument of general appli cation that is binding in its entirety and directly
applicable in all Member States.
5 Congrès Internationale pour la Création d’une Société Commerciale de Type Européen, Report
published by Revue de Marché Commun (Paris), supplement to No. 27, July-August 1960. The
Congress drew on the practical and academic legal ex pertise not only of those within the existing six
member states that constituted the EEC at the time but also boasted representativ es from the UK, the
United States and the Council of Europe. The Congress proposed the signing of a Convention between
the six member states to recognise a common form of trading company that would exist alongside the
national forms in each member state but would operate under uniform European rules, be registered in
a central registry and subject to European judicial control. Tax matters relating to the company,
however, would continue to be a ma tter for national law in each case. See further, Thompson, The
Project for a Commercial Company of European Type (1960) 10 ICLQ 851, at 858.
6 See Proposal For A Council Regulation Embodying A Statute For The European Company, COM(70)
600, OJ C 124 (10.10.1970); Bull EC Supp 8/70 and Amended Proposal For A Council Regulation On
The Statute For European Companies, COM (75) 150 final, (19.03.1975; Bull EC Supp 4/75..
7 On the general trials and tribulations relating to the legislative history of the European Company
Statute see Sanders, The European Company , 6 G
EORGIA JOURNAL OF INTERNATIONAL AND
COMPARATIVE LAW (1976); Wehlau, The Societas Europaea: A critique of the Commission’s 1991
amended proposal , 29 CML
REV . 473 (1992); Edwards, The European Company – Essential Tool or
Eviscerated Dream? 40 CML Rev 443 (2003).
8 Memorandum from the Commission to Parliament, the Council and the two sides of industry,
“Internal Market and Industrial Cooperation – Stat ute for the European Company – Internal Market
White Paper, point 137”, COM(88)320; EC Bull Supp 3/88, outlining the Memorandum of the
Commission on the SE Statute (in which the Commission moved from having an obligatory board
participation system for all SEs to giving companies instead the choice between different board
Davignon Report 9 in 1997 enabled real progress to be made and the European
Council finally adopted the European Company Statute in Nice in 2000.
European Company Statute (‘ECS’) came into force in 2004.
11 The objective of the
ECS is to enable companies incorporated in different Member States to merge or form
a holding company or joint subsidiary wh ile avoiding the legal and practical
constraints arising from the existence of twenty seven different legal systems.
Although the intention in 1960 was to deve lop a single European company governed
entirely by European principles rather than the laws of any one particular Member
12 legal realities and cultural differences to company law forced the drafters to
modify the model. The final version consis ts of a “European” public company that is
registered in one member state, governed by the Statute in certain key areas (e.g.,
minimum capital, management structure, shareholder meetings) but otherwise is
subject to national laws for public companie s. The ECS specifically does not apply to
The ECS experience graphically illustrates the difficulties of attempting to
accommodate the intricacies of divergen t national company laws in one all-
encompassing Council Regulation. The limite d format of a legal regulation does not
participation systems. See also , the Commission Proposal OJ C 263, 16.10.1989, in which the
Commission for the first time suggested splitting the SE legislation into a Regulation and a Directive.
The latter aimed to deal with the controversial issue of employee involvement
9 Final Report on European Systems of Workers Involvement of the Group of Experts (hereinafter
referred to as the ‘Davignon Report’) May, 1997. The Davignon Group concluded that the national
systems of workers’ involvement were too diverse, making general harmonisation impossible. The
report proposed that priority should be given “to a negotiated solution tailored to cultural differences
and taking account of the diversity of situations.” It was agreed that the relevant parties should first try
to agree on a worker participation model for each Eu ropean company but if negotiations should fail, a
set of standard rules would then apply instead.
10 See Council Regulation 2157/2001, OJ L 294 and Council Directive 2001/86/EC, OJ L 294/22,
10.11.2001. The objective of the Regulation, which came into force in all Member States in October
2004, is “to create a European company with its own legislative framework.” See further,
(last accessed October 30, 2007). 11 Only 6 countries managed to meet the 8 October 2004 deadline for the transposition of the SE
Directive, thereby preventing employees from their country from participating in negotiations in
upcoming SEs, see Commission Press Release, Company law: European Company Statute in force,
but national delays stop companies using it, IP/04/1195, 08/10/2004. In the overwhelming majority of
countries the considerable delay was not caused by substantial national debates on the substance of the
Directive but rather by an apparent lack of interest in the issue. See, e.g.,
(on Slovenian approach) and
more generally, https://www.worker-participation.eu/european_company/countries_transposition
. 12 See Thompson, supra n.5. 13 See Art. 3 Regulation 2157/2001 (providing that “Companies and firms within the meaning of the
second paragraph of Article 48 of the Treaty and other legal bodies governed by public or private law,
formed under the law of a Member State, with re gistered offices and head offices within the
Community may form a subsidiary SE.”) The af orementioned Art 48(2) EC specifically excludes
nonprofit organisations from its scope.
lend itself to the distillation of the granular details necessary to create a generic legal
vehicle that will work uniformly and coherently in all 27 member states. Drafters of
the ECS were forced instead to agree certain lowest common denominator
requirements that can apply to all member states by regulation with remaining issues
that are not expressly covered by the regul ation left to be decided by national law.
Whereas the law relating to minimum capital requirements, management structure,
employee rights and shareholders meetings are governed by a European standard,
other important matters (such as directors’ liability, audits and accounts, liquidation
and insolvency, tax and registration and publication of documents) still fall to be
determined under the relevant national law. The troublesome issue of employee
involvement has also been dealt with by an accompanying Council Directive and
individual Member State legislation.
The Practical Effectiveness of the Societas Europae
The commercial take-up of the European company or “SE,” as it is known,
15 has not
been overwhelming. To date, there have been 105 SEs established throughout the
16 Many of these have commenced life as shelf companies used not to facilitate
the conversion of existing autonomous busine ss operations in different Member States
into one pan-European company but rather to assist new entities that want to enter a
17 According to the European Em ployers Federation (UNICE), the
perceived weaknesses of the SE include the absence of an agreed tax regime and the
creation of now twenty-seven different na tional statutes to give effect to the
18 The value of a legal structure without these elements is limited since it
cannot effectively facilitate cross-borde r trade, a flaw predicted by some
commentators before the European Company Statute was enacted.
14 See , in this regard, Articles 9(1)(c) and 10 of Regulation 2157/2001 15 The European Company is known by its Latin acronym Societas Europae or “SE” for short. 16 Source: https://www.worker-
participation.eu/european_company/se_companies/brief_general_overview (figures current to
17 Ibid . 18 See Edwards, The European Company – Essential Tool or Eviscerated Dream? (2003) 40 CML REV
443, at 463. On the various national implementing legal instruments see
. 19 See Edwards supra n. 18, at 463 (noting, “since many cross- border corporate structures are dictated
by tax considerations more than any other factor, the availability of a pan-European instrument which
leaves the existing mosaic of fiscal regulation untouched may prove to be irrelevant.”). See also,
Winter, EU Company Law on the Move (2007) 31 L
EGAL ISSUES OF ECONOMIC INTEGRATION 97, 98
(commenting that, “The trouble with the Statute, in its agreed-upon form, is that it precisely fails to
The practical utility of the SE remains in doubt: 60 per cent of those responded to the
question regarding the utility of ECS in the Commission’s Report on Consultation
and Hearing on Future Priorities for the Action Plan on Modernising Company Law
and Enhancing Corporate Governance in the European Union
20 did not think the
Statute was either very useful or particularly so.
21 Among the practical problems
cited by those currently using the SE as a legal vehicle were: the persisting difficulties
caused by the differing national taxation regimes;
22 the need to co-ordinate other
Community legislation which could obstruct the creation of an SE; and the issue of
whether an SE incorporated in one Memb er State which has operations in another
Member State (which would requ ire it to register a branch in that Member State if it
were a public limited company) should be required to register a branch, given that the
practice seems to vary between Member States.
When surveyed as to whether there was need for a similar European statute for private
companies, one quarter of respondents were against its introduction, citing the lack of
interest in the industry in such corporate form. According to the Future Priorities
Report , this negative impression was informed by the limited up-take of the existing
SE model and yet again, the “doubted practic al value of the Statute due to other
obstacles to corporate mobility such as taxation, accounting, insolvency or employee
24 Moreover, those in favor of the European Private Company
(i.e., three-quarters of the 40% of responde nts who answered this question) stressed
the need for any new statute to provide a “u niform, genuinely supranational form with
as few references to the nati onal laws as possible.” In ot her words, what is sought is
achieve [its] objective. There is no uniform set of ru les applying to the SE, as Member States were
unable to agree to one set of rules.”)
20 Directorate General for Internal Market and Services, Report on Consultation and Hearing on Future
Priorities for the Action Plan on Modernising Company Law and Enhancing Corporate Governance in
the European Union (available at
‘Future Priorities Report’). The Report reported on the views of more than 270 interested parties who
responded to the consultation; see further, Commission Press Releas e, Company law and corporate
governance: public hearing on future prioritie s for the Action Plan, IP/06/574, May 4, 2006.
21 See Future Priorities Report, supra n.20, at 22. Notably, the report itself takes a more positive
approach to this figure, stating although at an early stage in its evaluation “Still about 40% of the
respondents considered the European Company Statute to be very useful or partly useful.”
22 Although COM 88/320, supra n.8, at 15, suggested greater use of bilateral tax treaties to solve the
taxation problems that would still be encountered by SEs, this solution has not proved practical in
23 Ibid , at 23. 24 Ibid , at 25.
an approach akin to the original aspirations for the SE but far removed from the actual
SE model currently in operation.
Current Obstacles affecting Ci vil Society Organizations that wish to operate on a
It is against such negativity that the en thusiasm expressed for the promulgation of
European Statutes in aid of nonprofit or ganizations falls to be considered.
Responding foundations to the Future Prioriti es Consultation unanimously urged the
Commission to carry out a feasibility study on a European Foundation Statute.
foundational stakeholders, many of which ha ve experienced operational difficulties
with the ECS, dissented from this call. Whereas some of the dissenters adopted a
self-interested stance in counseli ng the Commission to ignore non-profit
27 the majority of dissenters raised a note of caution as to the ability of
the proposed statute to solve the current st ructural obstacles that inhibit nonprofit
activities thr oughout the EU.
It is true that nonprofit organisations, lik e many for-profit entities, face structural
obstacles when they seek to operate on a cross-border basis across the EU. These
obstacles take the form of differing legal and fiscal regimes that operate in each of the
27 Member States with which nonprofit organisations must comply if established in
any of these states.
29 Imagine, for instance, a donor who wishes to establish a pan-
European foundation enjoying charitable tax- exempt status in the EU member-states
of Ireland, France, Germany and Malta.
30 To establish the organisation French law
25 Ibid ., at 25. 26 Ibid , at 26. 27 Ibid (noting that, “A few respondents, mainly from the private sector, considered that the
Commission should focus on issues which directly relate to enhancing the competitiveness of profit
making entities and the improvement of the functioning of the internal market.”)
28 Ibid . (stating that “More than half of [those not in favour of introducing a new Statute] (mainly from
the public sector, industry associations, representativ es of the financial sector and some professional
services providers) were sceptical as to the useful ness of such an instrument or would prefer other
solutions to address the foundations’ requests.”)
29 Information for this comparison is drawn primarily from the E UROPEAN FOUNDATION CENTRE ,
FOUNDATIONS ’ LEGAL AND FISCAL ENVIRONMENTS – MAPPING THE EUROPEAN UNION OF 27 (2007). 30 These four states are chosen simply to illustrate existing national regulatory divergences – a
combination of other member states might not provide the same logistical difficulties but would
provide others in lieu. Thus as Dube, Rossi & Surmatz point out in (Summer, 2007) EFFECT 13,
“While you need at least 3 ,000 euros to start a fo undation in Copenhagen, Denmark, just a short drive
across the Oresund Bridge in Malmö, Sweden, there is no such fixed requirement, although your assets
should be adequate to pursue your planned purpose for five years. And if you set up a foundation in
Cieszyn, Poland, you can run a business activity to generate income for it, but you can’t do so if you set
one up just across the Friendship Bridge in Tešin, Czech Republic.”
requires both registration and state approval, which approval is subject in practice
(although not in law) to a minimum capital re quirement of €1 million. In Germany,
registration and state approval is also required but there the State enjoys no discretion
regarding such approval and although there is no official minimum capital
requirement for establishment the foundation mu st have sufficient assets to carry out
its purpose, which generally requires a minimum capital re quirement of €50,000. In
Ireland, registration with the Revenue Commissioners is required and there is no
minimum capital requirement whereas the Malt ese organisation must register and will
require State approval if it wishes to regist er as a ‘voluntary organisation.’ There are
de minimis Maltese minimum capital requirements with the prescribed amount being
€240 for social purpose foundations and €1200 for all others.
Once established, a number of governance di fferences also emerge as between the
four member states. Ireland, alone, requires that a majority of the governing board
reside within the jurisdiction. French law requires all foundations to appoint an
auditor and a substitute and to file annual returns and financial statements with the
relevant administrative authorities. These reports must be made publicly available
only if the foundation receives annual gi fts in excess of €153,000 or support from
public authorities. By contrast, German law does not have any publication
requirement although dual filing is required both to the state authorities and to the
relevant financial authorit ies if tax exemption is s ought. Irish law requires all
charities with an annual income of over €100,000 to prepare audited accounts but only
imposes a public filing requirement on inco rporated charities. Even then, this
requirement is not consistently applied. If the company is a religious charity, it is
statutorily exempt from making its accounts available.
Retention of tax exemption also varies. If the foundation carries out activities outside
its country of establis hment its tax-exempt status rema ins unaffected in Malta. French
law makes the continuation of tax-exempt status conditional upon proof that the
activities are in the public in terest and of a nonprofit nature whereas German law is
the most demanding, requiring su ch activity to have a positive effect on the reputation
of Germany and its population before tax-ex empt status for foreign activity can be
31 See s. 2 Companies (Amendment) Act 1986.
It is in the treatment of capital asset movement and tax treatment of donations,
particularly cross border donations, however, th at the diverse laws of the twenty seven
member states create the greatest difficulties. In general, EU Member States agree
that there are justifications for granting special tax privileges to charities. The private
supply of public goods by charities for the public benefit of the community provides
the basis for the tax exemptions and privileges that these bodies enjoy. A state’s
ability to tax, however, is seen as a sacrosanct power of a sovereign nation. It is an
element of sovereignty that member states have been extremely resistant to sharing
with the EC.
32 The resulting lack of harmonisa tion has meant that Member States
have remained free to develop their own le gal criteria for what constitutes public
benefit for tax purposes and what ancillar y legal requirements are placed on an
organisation seeking tax relief for its charitable purposes. One such ancillary
condition typically has related to establishm ent – only those organisations established
within the territory of a Member State may be eligible for the relevant tax relief. In
this way, national tax laws tend to limit tax benefits to domestic charities and
discriminate against foreign charities. Of the twenty seven member states, only the
Netherlands, Poland and Slovenia allow donati ons to foreign-based public benefit
organisations to be income tax deductible for a resident donor. The Dutch and Polish
laws in this regard are newly minted a nd result largely from national legislatures’
attempts to pre-empt Commission infringement proceedings.
33 These laws, the scope
of which has not yet been fully defined, are in the minority. Sixteen member states do
not allow deductibility under any circumstan ces for such donations despite allowing
deductions for donations to similar domestic organisations.
34 The remaining eight
states allow deductibility in some limited exceptional cases.
Many of these problems are felt equally by for-profit companies operating on a
transnational basis in the EU and have not been resolved by the introduction of the
European Company or ‘SE.’ Directors of SE s must still turn to the various national
implementing laws to determine issues of liability, reporting and auditing
32 To be adopted, European tax regulation requires the unanimous support of all member states. Not
surprisingly, the Commission’s attempts over many years to harmonise national tax laws have failed.
33 See infra Part III. 34 See further EFC, FOUNDATIONS – LEGAL AND FISCAL ENVIRONMENTS , supra n.30. 35 Thus, France allows income tax deductions only if the foreign-based organisation would be
recognised as being of public benefit in France.
requirements. Moreover, in no instance has the tax treatment of companies using the
SE as their legal vehicle of choice improved since the Commission lacks the
competence in the absence of unanimity at Council level to harmonise national tax
The appropriateness of the ECS Model in the Legal Enablement of Nonprofits
It remains difficult, therefore, to see how the introduction of a European Statute –
even one tailored to the specific char acteristics of nonprofit associations or
foundations – could hope to resolve the centr al structural problems encountered by
such entities. Attempts to develop parallel nonprofit-friendly fac ilitative regulation to
date have failed. In 2006 the Commission withdrew its proposals for Regulations on
the Statute for a European Association (ESA)
36 and the statute for a European Mutual
37 introduced in 1991, on the overarching grounds that they ‘were not found
to be consistent with the Lisbon and Better Regulation criteria, unlikely to make
further progress in the legislative proces s or found to be no longer topical for
The withdrawal of the ESA proposal came in the wake of a frustrating 20-year
incubation period. Institutional support fo r an ESA had sprung from the European
Parliament’s adoption of the Committee on Legal Affairs a nd Citizens’ Rights Report
on Nonprofit Making Associati ons in the European Community
39 in 1987. 40 With a
suggested Treaty base in Article 12 EC’s (ex Article 7 EC Treaty) prohibition of
discrimination on grounds of nationality, the idea behind the European association
was to facilitate transnational transacti ons by nonprofit membership associations.
Despite its enthusiastic begi nnings, the ESA proposal made little progress for almost
15 years since its fate — like that of its sibling regulations the European Statute on
Mutual Societies and the European Statute on Cooperative Societies — wa
s tied to that
of the ECS.
41 Although the latter’s enactment in 2000 gave some renewed impetus to
36 COM (1991) 273, OJ C 99, 21.4.1992, 1. 37 COM (1991) 273, OJ C 99, 21.4.1992, 40. 38 OJ C 64, 17.3.2006, 3. 39 Working Documents, Series A 2-196/86, January 8, 1987 (hereinafter “T HE FONTAINE REPORT ”)., 40 European Parliament, Resolution on non-profit-making associations in the European Community, OJ
C 99/205 (13 April 1987).
41 CEDAG, The Proposed Statute for a European Association: Background and Challenges, Document
presented to the Liaison Group of the European Economic and Social Committee with civil society
organisations and networks, Brussels, 28 February 2006. See also Gjems-Onstad, The proposed
European Association: a symbol in need of friends? (1995) 6(1) V
the ESA proposal, the political necessary to make the ESA a reality did not exist. A
number of stakeholders share the ‘blame’ for this demise. Some Member States
viewed the enactment of a European Statute as an unwelcome Commission
encroachment into an area of third sector policy previously reserved to national
42 an unwarranted intrusion for which there was no legal Treaty basis. 43
Indeed, the Commission’s commitment to the ESA proposal has not always been
constant or consistent, due in part to the lack of definitive Directorate General
responsibility for nonprofit a ssociations during the 1990s.
44 Similarly, with each
rotation of the Presidency of the European Council, th e attention lavished upon the
ESA varied with the individual interests of the Member State in control of the
legislative policy agenda.
Support for the ESA in legal circles has also been scarce. In its report to the EU
Commission in November 2002 on a mode rn regulatory framework for company
46 the High Level Group of Company Law Experts recognised the difficulties
surrounding the development of either a European Association or a European
Foundation Statute. In particul ar it stated that a European form of association was not
regarded by the Group as a priority for th e short or medium term. According to the
Group, long-term plans for any such legal ve hicle should be dependent upon a review
42 Germany and the United Kingdom are alleged to have subscribed to this view. See Jeremy Kendall
& Laurent Fraisse, The European Statute of Association: Why an obscure but contested symbol in a sea
of indifference and scepticism? , LSE TSEP W
ORKING PAPER 11, June 2005. 43 Some Member States (most notably the UK) expressed concern as to whether Article 48 EC, which
expressly excludes nonprofit entities from its scope, could provide a legal basis for the regulation for a
Statute for European Associations, which by definiti on are nonprofit entities. Indeed, Perri ascribed the
failure of the Statute as far back as 1995 to the disagreements among both member states and the
organisations themselves. See Perri, The voluntary and non-profit sectors in continental Europe , in J.
MITH , C. ROCHESTER AND R. HEDLEY (eds), A N INTRODUCTION TO THE VOLUNTARY SECTOR
(Routledge, 1995) at 141. 44 See Gjems-Onstad, supra n.41, at 4, suggesting that, during this period, “it is obscure whether
anybody, either outside or inside the official bureaucracy of Brussels, much cared about what
happen[ed] to the proposals.” See also, B
REEN , infra n.120. 45 Thus, the Greek Presidency in the first half of 2003 revitalised the consideration of the Statute for
European Associations by prioritising it during its tenure, according to Kendall & Fraisse, supra n.42.
Kendall surmises however that Greece’s “interest may have had more to do with the national
Government’s wish to progress corporate legisla tion in general than a specific interest in the
association sector as such.” The Irish presiden cy, which followed, chose to focus on the mutuals
statute to the exclusion of the association statute.
46 Published in November 2002 and available at:
In its recommendations the Group stated that it failed to see how uniform regulations of the European
Association and European Mutual Society coul d be achieved if there was no agreement on
harmonisation of the underlying national rules. On the other hand, the Group acknowledged that the
progress made on the SCE regulation (regulation for European Co-operative) represented an important
precedent for the other proposed Regulations.
of European Statute on Cooperative Enterprises. 47 Thus the overall recommendation
made by the High Level Expert Group was not to proceed with the introduction of the
social economy statutes but instead to consider working towards the adoption of
model laws instead. Arguing in favour of a different regulatory approach, the Group
The work on such model laws would need to reach agreement on the basic
characteristics the European legal form should have, and thus contribute to
agreement on a certain level of harmonisation of these national legal forms.
Once that level of agreement is reached, the introduction of alternative
European legal forms could become feasible.
Thus, strong opinions in the form of i ndividual Member States (doubting the legal
basis for the regulation and querying its proposed scope)
49 and of expert legal groups
(doubting the utility of the EA as a legal vehicle)
50 along with institutional lack of
direction militated against the introduction of the EA. Notwithstanding this death
knell of the proposal for a European Statute for Associations, charities have continued
to lobby for the development of a European Foundation Statute.
openness to this proposal to date, perhaps in light of the ESA experience, has been
neither constant nor consistent.
47 Ibid , Recommendation VIII.1. at 120. 48 Ibid , at p. 122. 49 General reservations on the need for such a regulation have been expressed by Netherlands, Sweden,
Finland, Germany, Ireland, Denmark, and Austria; while Italy has made a scrutiny reservation
regarding the need for the regulation. These are apart from the more particular concerns of the UK
delegation regarding the content of the proposed regulation and its likely effect on charity law. See
Working Party on Company Law (EA) Council Documents 6873/03 (17 March 2003) and 8401/03 (10
50 See in particular p.120 et seq. of the High Level Company Expert Group’s report at
51 See. e.g., Synthesis of the responses to the Communication of the Commission to the Council and the
European Parliament “Modernising Company Law and Enhancing Corporate Governance in the
European Union – A Plan to Move Forward” – COM (2003) 284 final of 21 May 2003: A Working
Document of DG Internal Market, November 15, 2003, at 23. See also, the work of the European
Foundation Centre, which produced a draft Statute for Foundations and successfully lobbied the
Commission to carry out a feasibility study on a European Foundation Statute, a study which is
expected to begin in late 2008; see https://www.efc.be/project s/eu/legal/efcefs.htm
October 30, 2007)
52 See the speech of Commissioner for the Internal Ma rket, Mr. Charlie McGreevy to the European
Parliament’s Committee on Legal Affairs, November 21, 2006 (expressing caution regarding the
introduction of a multiplicity of European corporate forms to the effect that he was “not yet convinced
about the ability of a European Foundation Statute to respond to the specific needs of foundations.”)
language=EN&guiLanguage=en , last accessed November 29, 2007). C.f. the positive feedback given
by Commission Official Nathalie Berg er in support of proceeding with the plans for a European statute
ALTERNATIVE W AYS OF CREATING A LEGALLY ENABLING ENVIRONMENT FOR
CIVIL SOCIETY ORGANISATIONS
Part II has illustrated that the legal and administrative hazards associated with
operating on a cross-border basis have not b een resolved for for-profit companies with
the enactment of the ECS. Nonprofit orga nisations experiencing similar problems and
charitable organisations experiencing greater difficulties (from a taxation perspective)
are therefore unlikely to find that statut e law is capable of creating the legally
enabling environment that they seek. The search for an alternative resolution of these
acknowledged difficulties begins from this rea lisation. And just as with Aesop’s fable
of the hare and tortoise,
53 what cannot be achieved direc tly by way of legislation often
may be better (albeit incrementa lly) achieved judicially.
The European Court of Jus tice, aided in part by the European Commission, has been
presented with a number of opportunities to re-interpret the Treaty in aid of nonprofit
organisations, and particularly charities. Fr om what might be viewed as inauspicious
beginnings and the relatively barren soil of the founding Trea ty provisions, the Court,
adopting a functional approach, is re-s tating the rights and duties of nonprofit
organisations under EU law. A growing j udicial and institutional momentum seems
set to lead to legal change for charities that operate in more than one Member State.
Part III traces this evolution from the in itial silence of the Rome Treaty towards
nonprofits, the rise of Treaty obligations on nonp rofits in a number of spheres and the
recent case law elaborating for the first tim e on the rights of nonprofit organisations
under European law.
The Treaty Basis for Community Compet ence over Nonprofit Organizations
Historically, the Treaty of Rome was silent on the role of nonprofit
organisations under EU law. It wasn’t until the year 2000, with the ratification of the
Treaty of Nice, that a reference to ‘civil society’ first appeared in the governing
provisions of the Treaty.
54 The Nice Treaty amended Art 257 EC to include reference
for Foundations at European Foundation Centre Conference, Towards a European Framework for
foundations in Europe, Brussels, September 14, 2006.
53 A ESOP , AESOP ‘S FABLES , ACCOMPANIED BY MANY HUNDRED PROVERBS AND MORAL MAXIMS (1836,
P.D Hardy, Dublin)
54 Between 1957 and 2000 there were protocols to various Amending Treaties that did refer to charities
and nonprofits organisations such as Declaration 23, Treaty on European Union, 1992 (providing, “The
to ‘organised civil society’ as one of the constituent groupings to be represented by
the Economic and Social Committee, thus gi ving nonprofit organisations an indirect
(albeit largely ineffective) voice in European affairs. But for almost 50 years prior to
this the only express referenc e to nonprofit organisations in the Articles of the Rome
Treaty was a negative one in Article 48 EC . Art 48 EC expressly excludes nonprofit
bodies based in one Member State from the right to establishment in the territory of
another Member State,
55 a right which is enjoyed by for-profit companies and EU
workers. This difference in treatment hi ghlights the EU’s natural preference for the
facilitation of commercial entities, workers and the circulation of capital within the
EU. For a Treaty founded on economic in terests and corresponding rights, which
created a community for many years known as the ‘European Economic Community,’
this initial disregard for nonpr ofit bodies is unsurprising. As the European Court of
Justice in Sodemare noted:
[Article 48 EC] . . . ha s the function of assimila ting companies, firms and
other legal persons, other than those wh ich are non-profit-making (hereinafter
normally referred to as “commercial companies”), to natural persons who are
nationals of Member States, for the pur poses of freedom of establishment.
Thus, non-profit-making companies, firms and other legal persons do not
benefit from freedom of establishment.
An issue that the Court did not address in Sodemare, but which is of particular interest
here, is whether the scope of the Article 48(2) EC exclusion should be interpreted
narrowly as rela ting to nonprofit establishment rights only or whether it can be
Conference stresses the importance, in pursuing the objectives of Article 117 of the Treaty establishing
the European Community, of co-operation between the latter and charitable associations and
foundations as institutions responsible for welfare establishments and services.” ) and Declaration 38 of
the Treaty of Amsterdam (“The Conference recognises the important contribution made by voluntary
service activities to developing social solidarity. The Community will encourage the European
dimension of voluntary organisations with particular emphasis on the exchange of information and
experiences as well as on the participation of the yo ung and the elderly in voluntary work.”). These
declarations, however, have no legal basis in European law and thus do not provide a source of legal
rights to such organisations.
55 See Article 43 EU Treaty (giving rights of freedom of establishment to all natural persons and
companies), which is expressly qualified by Art 48(2 ) which provides that nonprofit organisations are
excluded (‘‘Companies or firms’ means companies or firms constituted under civil or commercial law,
including cooperative societies, and other legal persons governed by public or private law, save for
those which are non-profit-making.”)
56 Case C-70/95 Sodemare SA and Others v. Regione Lombardia  3 C.M.L.R. 591, 604 (The
court went on to note, however, that material scope of the establishment freedom was not in any way
affected by this holding since “national rules which treat non-profit-making companies differently from
natural persons or commercial companies are not excluded, simply by virtue of Article 58, from the
scope of application of Chapter 2 of Title III of the Tr eaty if their effect is to restrict the freedom of
establishment of the latter. Otherwise, the simple exclusion of one category of legal persons from the
benefit of Treaty rights would affect the extent of the rights actually enjoyed by other categories.”
construed more broadly as indicative of a general lack of Community competence
over nonprofit organisations. For its pa rt, the Committee on Legal Affairs and
Citizens’ Rights of the Europ ean Parliament has chosen to interpret the exclusionary
provisions of Article 48 narrowly.
57 The Fontaine Report, presented to the European
Parliament in 1987, pointed to a number of other Treaty bases that could potentially
provide Community competence over nonprofit organizations, such as Article 12 EC,
Article 308 EC and Article 95 EC.
Most notable in this regard was Articl e 7 EC Treaty (now Article 12 EC), which
prohibits discrimination on grounds of nationality and is ap plicable to states whose
legislation reserves to its citizens alone the right to form or administer associations.
An opportunity for the European Court to test this legal basis arose in 1998 in the case
of Commission v Belgium
58 in which the Commission challenged the validity of two
Belgian laws that prescribed associati onal membership. Under a 1919 Belgian law
the conferral of legal personality on interna tional associations pursuing ‘philanthropic,
religious, scientific, artistic or pedagogical objectives’ re quired the executive organ of
the organisation to have at least one Belgian member.
59 Similarly, a 1921 Belgian
Law conferring legal personality on non-profit making associations and on institutions
promoting the public interest made reliance on legal personality against third parties
dependant upon three fifths of the asso ciation’s members being of Belgian
The Court of Justice ruled that by requiri ng the presence of a Belgian member in the
administration of an association or a mini mum, and majority, presence of members of
Belgian nationality in order for legal persona lity of an association to be recognised,
Belgium had failed to fulfil its oblig ations under Article 12 EC, prohibiting
discrimination on the grounds of nationality.
61 The Court based its ruling on the
freedom of establishment enjoyed not only by Belgian nationals but by nationals of
other Member States that wished to form new associations in Belgium.
62 It followed
57 THE FONTAINE REPORT , supra n.39 stated that it could not be deduced that this provision was general
in scope and aimed to exclude non-profit making associations from any Community powers.
58 Case C-172/98, Commission of the European Communities v Belgium  ECR I-3999. 59 Article 1 of the Belgian Law of October 25, 1919. 60 Article 26 of the Law of June 27, 1921. 61 See supra, n.58, at par. 14. 62 See supra, n. 58, at par. 11.
that given its membership element a nonprofit association could not be discriminated
against in terms of establishment in a Me mber State: to do so, would indirectly
discriminate against those citizens of th e EU on the basis of their nationality. A
foundation, however, is not based on membership. Its ability to rely on Article 12 EC
in support of a right of establishment is accordingly less.
The Fontaine Report did not limit the potential Treaty bases for Community
legislative competence over nonp rofit organizations to Article 12 EC alone. The
Report put forward two other Treaty articles: Article 8A of the Single European Act
(which subsequently became Art 100A EC Treaty and is currently Article 95 EC) and
Article 235 EC Treaty (now Ar ticle 308 EC). These two articles – Article 95 and
Article 308 – operate in different manners and therefore significance attaches to
whichever is adjudged to be the correct Treaty basis for European facilitative
regulation for non-profit organisations.
Article 308 EC is essentia lly a catch-all provision, wh ich allows the Council of
Ministers to take action to achieve the Treat y’s objectives in cases in which the Treaty
has not provided the Council with the necessary powers.
63 The Fontaine Report
believed that the facilita tion of nonprofit activity with in the EU could be a
Community objective in the course of th e operation of the Common Market and to
this end it made deliberate efforts to vi ew the contribution of nonprofit organisations
through the lens of European economic activ ity. In the Report, the Parliament’s
Committee on Legal Affairs considered that nonprofit organisations made a positive
contribution to the economic life of the EC bot h as a direct and indirect generator of
employment and as a product consumer. In this way these organisations contributed
to the Community’s economic activity and could thus turn to Article 308 as a relevant
Treaty basis since the EC had to have juri sdiction to take action to assist nonprofit
associations because “it would be incomprehensible for the association sector
properly so called to be left on the sidelines on the basis of an incorrect and restrictive
interpretation of the Treaty.”
63 Article 308 (Nice Consolidated version) states that “If action by the Community should prove
necessary to attain, in the course of the operation of the common market, one of the objectives of the
Community, and this Treaty has not provided the necessary powers, the Council shall, acting
unanimously on a proposal from the Commission and after consulting the European Parliament, take
the appropriate measures.”
64 FONTAINE REPORT, supra n.39, at par. 60.
One of the principal difficulties in using Article 308 EC as the legal basis for
nonprofit facilitation, however, is the procedur e for its use: legislation with Article
308 as its legal basis must be passed unanimously by the European Council.
Unanimity, however, in a Council representing 27 Member States is a rare occurrence
and thus a recipe for inanition and ultimat ely inaction. Article 95, on the other hand,
utilises the co-decision procedure with th e European Parliament and requires only a
qualified majority vote within Council. Lack ing the catch-all quality of Article 308,
Article 95 EC may only be used when the Council adopts “measures for the
approximation of the provisions laid down by law, regulation or administrative action
in Member States which have as their obj ect the establishment and functioning of the
To date there has been some controversy as to whether Art. 95, although more user-
friendly, is the appropriate legal basis for the introducti on of legal instruments in
support of nonprofit organizations. The Stat utes for European Associations and
European Cooperative Societies started out with Article 95 as the legal basis.
Council successfully ch allenged this basis with regard to the Cooperative Societies
Statute in European Parliament v Council ,
66 claiming that Art 308 EC was the correct
legal basis and thus required unanimity in Council. The decision led the Commission
to change the legislative bases not onl y for the Cooperative Societies Statute
also for the Statute on European Associati ons. The return to unanimous voting in
Council greatly lessened the ch ances of this statute ever being enacted and probably
influenced its subsequent withdrawal by the Commission, despite the protests of the
Parliament and Economic and Social Council. The Court’s decision in European
Parliament v Council has also led propone nts of the European Foundation Statute
65 See, e.g. , Council of The European Union, Draft Council Regulation on the Statute for a European
Cooperative Society (SCE); and Draft Council Directive supplementing the Statute for a European
Cooperative Society with regard to the involvement of employees – Reconsultation of the European
Parliament , DRS 58 SOC 384 (Brussels, 12 September 2002).
66 See Case C-436/03, European Parliament v Council  ECR I-3733 in which the Court held that
the Regulation on the Statute for a European Cooperative Society was correctly adopted on the basis of
Article 308 and not on the basis of Art 95 EC, as the Parliament had sought to argue. According to the
Court, “the contested regulation, which leaves unchanged the different national laws already in
existence, cannot be regarded as aiming to approxima te the laws of the Member States applicable to
cooperative societies, but has as its purpose the creation of a ne w form of cooperative society in
addition to the national forms.”
67 COUNCIL REGULATION (EC) No 1435/2003 of 22 July 2003 on the Statute for a European
Cooperative Society (SCE), O.J. L 207/1, 18.08.2003.
tentatively to cite both Articles 95 and 308 EC as th e appropriate legal bases; a
combination that legally is entirely inconsistent.
Treaty Obligations on Nonprofits – L abour Law, Competition Law and State Aid
Notwithstanding the narrow Treaty basis for Council or Commission
competence over nonprofit organizations, the ECJ has found nonprofits to be
nonetheless subject to Community law. In Sophie Redmond Stichting v Hendrikus
69 the Court of Ju stice ruled that a Dutch nonprofit unde rtaking financed
entirely by government subsidy was subjec t to European labour law requirements
under the Directive on the Tr ansfer of Undertakings.
70 In his Opinion, Advocate
General Van Gerven acknowledged that never before had the Court been cal
to consider the application of this Directive to non-profit organisations.
Nonetheless the AG, with whom the Court ultimately agreed, found that functionally
there was nothing to prevent the applica tion of the Directive to nonprofits on the
transfer of their employees.
Similarly, nonprofit organisations have also found themselves subject to Community
competition rules – both in the context of cartel and monopoly proceedings and in the
context of state aid.
73 To be subject to the competition rules, a nonprofit organisation
68 See, e.g., E UROPEAN FOUNDATION CENTRE , PROPOSAL FOR A EUROPEAN FOUNDATION STATUTE ,
January 2005, which remains open to either Article 95 or Article 308 as potential legal bases for the
legal instrument ( https://www.efc.be/ftp/public/EU/ LegalTF/european_statute.pdf
) last accessed
December 4, 2007. See also the European Foundation Project, The European Foundation: A New
Legal Approach (2005), which suggests both Articles 95 and 308 as the appropriate legal basis for a
European Foundation Statute – which one might suggest is entirely inconsistent
%20A%20New%20Legal%20Approach.pdf ) last accessed December 4, 2007. 69 Case C-29/91  ECR I-03189. 70 Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member
States relating to the safeguarding of employees’ ri ghts in the event of transfers of undertakings,
businesses or parts of businesses
71 Case C-29/91, Opinion of AG Van Gerven  ECR I-03189, at par. 6 -7 (commenting, “The
actual text of the directive makes no distinction depending on whether an undertaking is commercial or
non-commercial. . . The directive, it appears from the preamble thereto, was prompted by changes in
the structure of commercial undertakings, caused by economic trends at both national and Community
level. . . However, there is nothing in the wording of the directive to rule out a broad interpretation of
the term “undertaking” used therein.”)
72 Supra n.69, par. 18 (ECJ holding that “moreover, the fact that in this case the origin of the operation
lies in the grant of subsidies to foundations or as sociations whose services are allegedly provided
without remuneration does not exclude that operation from the scope of the directive. The directive, as
has already been stated, is designed to ensure that employees’ rights are safeguarded, and covers all
employees who enjoy some, albeit limited, protection against dismissal under national law.”)
73 C-222/04 Ministero dell’Economia e delle Finanze v Cassa di Risparmio di Firenze SpA, Fondazione
Cassa di Risparmio di San Miniato and Cassa di Risparmio di San Miniato SpA  ECR I-289.
must be found to be an “undertaking;” a fact determined by whether it engages in an
“economic activity,” regardless of its le gal status and the way in which it is
74 The Court has applied a very broad te st, holding that an entity engages in
an “economic activity” when it offers goods or services on the market.
75 The Court
has further held that the non-pr ofit-making nature of the entity in question or the fact
that it seeks non-commercial objectives is i rrelevant for the purposes of qualifying it
as an “undertaking.”
In principle, the Court of Justice has he ld that when organisations that perform
predominantly social functions engage in non-profit making activities of a non-
commercial nature these organisations will normally be excluded from the
Community competition and internal market rules.
77 The Commission has interpreted
this case law to mean that internal market and competition rules, as a general rule, do
not apply to “non-economic activ ities” of organizations such as trade unions, political
parties, churches and religious societies, consumer associations, learned societies,
charities as well as relief and aid organizations.
78 The definition of ‘economic’ as
opposed to ‘non-economic’ activ ity is not always clear,
79 prompting the Commission
to consider at least the need for greater cl arification of the rights and responsibilities
74 C-41/90 Höfner and Elser  ECR I-1979 75 See Joined Cases C-180/98 to C-184/98 Pavlov Stichting Pensioenfonds Medische Specialisten
 ECR I-6451, at par. 75; see also C-222/04 Ministero dell’Economia e delle Finanze v Cassa di
Risparmio di Firenze SpA, Fondazione Cassa di Risparmio di San Miniato and Cassa di Risparmio di
San Miniato SpA  ECR I-289.
76 See C-244/94 Fédération Française des Sociétés d’Assura nce, Société Paternelle-Vie, Union des
Assurances de Paris-Vie and Caisse d’Assuran ce et de Prévoyance Mutuelle des Agriculteurs v
Ministère de l’Agriculture et de la Pêche  ECR 1-4013, at par. 21; Joined Cases C-180/98 to C-
184/98 Pavlov Stichting Pensioenfonds Medische Specialisten  ECR I-6451, at par. 117 (holding
that the fact that a pension fund is non-profit-mak ing and the solidarity aspects emphasised by the fund
and the governments which had submitted observations were not sufficient to relieve the fund of its
status as an undertaking within the meani ng of the competition rules of the Treaty.)
77 See Cases C-159/91 and C-160/91 Poucet v. Assurances Générale s de France and Caisse Mutuelle
Règionale du Languedoc-Roussilon, and Pistre v. Caisse Autonome Nationale de Compensation de
l’Assurance Vieillesse des Artisans (hereinafter: “Poucet and Pistre”)  ECR I-637; Case C-
109/92 Wirth v Landeshauptstadt Hannover  ECR I-6447.
78 Communication from the Commission, Services of general interest in Europe (OJ C 17/04)
19.1.2001, at par. 30. The Communication goes on to state that “whenever such an organisation, in
performing a general interest task, engages in economic activities, application of Community rules to
these economic activities will be guided by the principles in this Communication respecting in
particular the social and cultural environmen t in which the relevant activities take place.”
79 European Commission, Green Paper on Services of General Interest, COM(2003) 270 final, at par.
46 (noting that, “the evolving and dynamic character of this distinction has . . . raised concerns, in
particular among providers of non-economic services who ask for more legal certainty regarding their
of nonprofit organizations performing largely social functions, 80 while leading the
European Economic and Social Committee to advocate for the latter’s complete
immunity from Community competition rules.
The potential implications for charities th at are subject to the competition law rules
was exposed recently in the Italian Banking Foundations case in which the ECJ
explored the possibility that tax benefits to such organizations might qualify as state
aid and thus be held incompatible with EU competition law.
82 The ECJ was asked in
a preliminary reference whether Italian foundations of banking origin,
83 created by
statute to be the controlling shareholders in companies engaged in banking activity
upon the privatisation of Italian public sector credit institutions, could be considered
to be subject to the Community rules on competition — even where they were
assigned objects of social benefit.
84 The Court distinguished between the activity of a
foundation that simply makes grants to nonprofit organizations
85 and a foundation,
acting itself in the fields of public inte rest and social assistance that uses the
authorization given to it by the national legislature to effect the financial, commercial,
real estate and asset operati ons necessary or opportune in order to achieve the aims
prescribed for it. Whereas the former was not an undertaking, the latter had to be so
viewed since “it is capable of offering goods or services on the market in competition
with other operators, for example in fields like scientific research, education, art or
80 Ibid at par. 48. 81 Opinion of the European Economic and Social Committee on the ‘Green Paper on Services of
General Interest’ OJ C 80/66, 30.3.2004 (stating that, “In order to distinguish between economic and
noneconomic activities, services associated with national education systems and the mandatory
membership of a basic social security scheme, and services provided by not-for-profit social, charitable
and cultural entities, must be exempt from competition rules and provisions relating to the internal
market, but not from the principles of Community law.”)
82 See supra, n.75. See also European Antitrust Review (2006) at 77. 83 On the history of the Italian nonprofit Banking Foundations see Piero Gastaldo, Let’s not forget the
past – A commentary on “Italian philanthropy rediscovered” (Summer, 2007) EFFECT 18-19.
84 The Italian privatisation process allowed public credit institutions, including savings banks
(allocating entities’), to allocate their banking concerns to public limited companies established by them
and of which they remained the sole shareholders. The newly created public limited companies
performed the banking activities previously carried out by the allocating entities. Under the 1990
Italian decree allocating entities (i.e., foundations of banking origin) were required to pursue aims of
public interest and social assistance, mainly in th e sectors of scientific research, education, art and
health. See Opinion of A.G. Jacobs in Case C-222/04 Ministero dell’Economia e delle Finanze v Cassa
di Risparmio di Firenze SpA, Fondazione Cassa di Risparmio di San Miniato and Cassa di Risparmio
di San Miniato SpA .  ECR I-289.
85 Ibid , at par. 119 (“Such an activity is of an exclus ively social nature and is not carried on on the
market in competition with other operators. As regards that activity, a banking foundation acts as a
voluntary body or charitable organisation and not as an undertaking.”)
health.” 86 It would seem to follow from that decision that in areas of general interest
such as education, health, science and re search, where it is clear that a competing
market exists, operating foundations that enjoy national tax exemptions might find
themselves in conflict with EU State Aid competition rules.
Nonprofit organisations, therefore, do not en joy a general immunity from the EU law
obligations that apply to thei r for-profit counterparts. In the areas of labour law and
competition law, nonprofits must comply with the Treaty rules. The extension of the
state aid rules to cover tax exemptions to nonprofit foundations in certain
circumstances, although potentially alar ming for charitable organisations, follows
logically from this functiona l approach to nonprofit entities. If the application of
Treaty obligations to nonprofits is thus determined on a functional basis, it becomes
necessary to consider whether the bestowal of Treaty rights is similarly accorded.
The Stauffer case provides an important star ting point in this discussion.
The extension of Treaty Freedoms to No nprofit Organizations: The Stauffer Case
In Centro di Musicologia Walter Stauffer v Finanzamt Munchen fur Korperschaften
87 the Court of Justice was asked whether an Italian charitable
foundation that owned commerci al property in Munich was liable for corporation tax
on that property under German tax law when comparable German charities owning
comparable property were exempt. The Stauffer Foundation, established in Italy,
endowed music scholarships that enabled young Swiss people to study the history of
music while resident in Crem ona, Italy. Under the relevant German tax law, Stauffer
pursued recognized charitable objects. Moreover, the German legislation did not
require promotion of these interests to be undertaken for the benefit of German
nationals. In principle, the foundation s hould therefore have been exempt from
corporation tax. However, since the foundati on’s seat and management were in Italy,
the rental income it received in Germany was subject to tax liability. In a preliminary
reference from the German Bundesfinanzhof, the Court of Justice was asked whether
this finding was incompatible with the Trea ty’s rights on freedom of establishment or
free movement of capital.
86 Ibid at par. 122. 87 Case C-386/04 Stauffer  ECR I-8203
The Court found that the provisions governing freedom of establishment were
inapplicable to the Stauffer case. The C ourt did not make this finding on the basis
that nonprofit organizations can never avail of the establishment provisions. Rather
the Court held that the concept of establ ishment was a broad one. It found that the
right of establishment allowed a “Community national to participate, on a stable and
continuous basis, in the economic life of a Me mber State other than his State of origin
and to profit therefrom, so contributing to economic and social interpenetration within
the Community in the sphere of act ivities as self-employed persons.”
88 This finding
advances or perhaps a clarif ies the Court’s findings in Sodemare
89 in that it does not
automatically exclude a nonprofit organiza tion from the scope of the right of
establishment if that organization is an active contributor to economic and social
integration in the EU.
90 Stauffer could not rely on the establishment provisions,
however, because it did not have a secure d permanent presence in Germany for the
purposes of pursuing its activities. A Ge rman property management agent handled
the services ancillary to the le tting of its Munich property.
The free movement of capital provisions in Article 73 EC provided a more fruitful
basis for Stauffer. Capital movement, although undefined by the Treaty, has been
interpreted to include, inter alia , investments in real estate on a national territory by a
91 According to Art. 73(b) EC, an y restriction on capital movements
between Member States is forbidden. It followed that, because German tax
exemptions for rental income applied only to charitable organizations established in
Germany, the legislation in principle placed charitable organizations established in
other Member States but having rental property in Germ any at a disadvantage and
was therefore, an obstacle to free movement.
To maintain the restriction, it would be n ecessary to show that the national law was
non-discriminatory in that it was dealing w ith objectively different situations. The
88 Ibid , at par. 18, citing Case 2/74 Reyners  ECR 631 and Case C-55/94 Gebhard  ECR I-
89 See supra n.56 90 A finding that is quite in line with the earlier thin king of the European Parliament’s Fontaine Report
in 1987. See supra n.39.
91 See Article 1 Directive 88/361. C.f. Case C-222/97 Trummer and Mayer  ECR I-1661; Joined
Cases C-515/99, C-519/99 to C-524/99 and C-526/99 to C-540/99 Reisch and Others  ECR I-
2157, pointing to the indicative albeit non-exhaustive value of the Directive’s definition of capital
movement and payment.
92 See supra, n.87, at par. 28.
German Government, supported by the UK Government, sought to make this
argument by drawing a distinction between a charitable foundation with unlimited tax
liability (i.e., a ch aritable foundation resident in Germany) and a foundation like
Stauffer, which had limited tax liability due to its non-residency status in Germany.
The former, it was argued, played an active role in German society and relieved the
German state of duties that it would othe rwise have to carry out with consequent
benefits for the State’s budget. The charit able activities of Stauffer, on the other
hand, had no benefits for the German people. The interveners also claim
ed that the
conditions for the granting of charitable status varied between Member States
according to each State’s conception of pub lic utility and its perception of what
constitutes a ‘charitable purpose’. It fo llowed that a foundation charitable under
Italian law was not in a comparable situa tion to a foundation charitable under German
law since the requirements applicable in each Member State were likely to be
The Court of Justice rejected both argumen ts. The national tax law in question did
not require that the charitable objects should be carried out on the national territory as
opposed to abroad. So although Member Stat es could require a sufficiently close link
between charitable foundations granted tax exempt status and the activ ities pursued
by these foundations, it was irrelevant for th e purposes of this preliminary reference
whether such a link existed in this case. With regard to the comparability argument,
the Court acknowledged that Member States did have a discretion when it
conferring tax exempt status on foreign foundations. Nonetheless, this discretion had
to be exercised in accordance with Commun ity law even within the area of direct
taxation in which Member States enjoyed full competence.
94 A Member State was
not required to accept that an organization r ecognized as a charity within its Member
State of origin was automatically entitled to the same status in its own territory. The
Court held, however, that where a foundation re cognized as having charitable status in
one Member State also satisfies the requirements imposed for that purpose by the law
of another Member State and where its object is to promote the very same interests of
93 Ibid ., paras 33-35. 94 See, e.g., Case C-80/94 Wielockx  ECR I-2493; Case C-39/04 Laboratoires Fournier 
ECR I-2057; and Case C-513/03 Van Hilten-van der Heijden  ECR I-0000, paragraph 36. With
regard specifically to nonprofit organizations, see Case C-415/04 Kinderopvang Enschede  ECR
I-0000, paragraph 23.
the general public (which it is a matter for the national authorities of that other State,
including its courts to determine) the authorities of that Member State cannot deny
that foundation the right to equal treatm ent solely on the ground that it is not
established in its territory.
It followed that the discriminatory restrict ion in Stauffer (namely, the requirement of
German establishment) could only be saved if it was justified by overriding reasons in
the general interest. A number of such reasons were put forward: the promotion of
culture, training and education; the need for effective fiscal supervision; the need to
ensure the cohesion of the national tax syst em; the need to protect the basis of tax
revenue; and the fight agains t crime. All were rejected by the Court. The ECJ
conceded that there were difficulties for Member States in determining whether a
charitable organization established abroad actually fulfilled national law requirements
on public benefit and in monitoring the effec tive management of these organizations.
These difficulties, however were of a “pur ely administrative nature” and were not
sufficient to justify the Member State in refusing to grant tax exemptions on the basis
of the overriding importance of effective fiscal supervision. It was open to the
national tax authority to require the organi zation to produce the necessary evidence to
assist in assessment of its claim.
95 Moreover, it could call upon its sister tax
authorities in other Member States to validate the information received in reviewing
96 Equally, the Court dismissed the motiv ation of the fight against crime as
a valid basis for discrimination, noting that the fact a foundation was established in
another Member State could not of itself give rise to a general assumption of criminal
activity. The preclusion of tax exemptions on this basis was disproportional.
The Likely Effect of the Stauffer Ruling in the Legal Enablement of Nonprofits
The ruling in Stauffer is tremendously important with regard to the legal and policy
framework for the foreign funding of civil society. Stauffer establishes that in
principle a charitable organization that sa tisfies the conditions that a Member State
95 See Ineke Koele, Cross-Border Philanthropy: Solving the “Landlock,” (2006) 8(1) SEAL 30, 32
(discussing who should bear the burden of proof as to whether a donation qualifies for tax relief); See
also Case C-39/04 Laboratoires Fournier SA v Direction des vérifications nationales et internationals
 ECR I-2057 (to the effect that national law preventing a taxpayer from submitting such
evidence could not be justified in the name of effectiveness of fiscal supervision).
96 Such assistance would be rendered under the Council Directive 77/799/EEC concerning mutual
assistance by the competent authorities of Member States in the field of direct taxation (OJ 1977 L 336,
15.), as amended by Council Directive 2004/106/EC (OJ 2004 L 359, 30).
97 Citing C-243/01 Gambelli  ECR I-13031, at par. 74.
imposes on its own charities for tax exemption cannot be discriminated against on the
basis of its non-resident status.
98 The judgment forces Member States for the first
time to consider whether a non-resident charity qualifies for comparable tax treatment
to a resident charity under national law. Up until Stauffer, Member States were able
to disregard the claims of non-resident chari ties for parity of treatment with resident
charities through (a) relia nce on national tax law and its insistence upon an
organization having its seat in the Member State before being eligible for tax
privileges; and (b) through reliance on the varying requirements of charity law in each
country. The effect of Stauffe r is that a Member State in future will be required to
justify its denial of tax relief to a non-resident charity in substantive terms based on an
analysis of national requirements for charita ble status and an explanation of how the
comparative foreign requirements satisfied by the applicant fall short. In carrying out
such an analysis, the applicant’s non-resi dence in a Member State will not be a
sufficient ground per se for discrimination.
Notwithstanding these groundbreak ing propositions for charities, procedurally the
Court’s methodology of reasoning has not changed. The ECJ maintains its functional
approach in assessing the scope of the Treaty’s freedoms. The fact that Stauffer was a
charitable foundation carrying out nonprofit ac tivity was merely incidental to the
European Court’s determination of the case. The ECJ focused on the activity in
question – the letting of property – and view ing it as an economic activity in its own
right, the Court proceeded to consider whether German tax law was compatible with
Substantively, this ruling augurs well fo r nonprofit organizations in a number of
respects. First, since the term cap ital movement also covers donations,
established in one Member State undoubtedly will seek inclusion in national tax
schemes of other host Member States that currently grant tax rebates on donations to
resident charities but exclude foreign charitie s for reasons similar to those in Stauffer.
Second, the scope of capital movement is likely to be tested in the near future. In a
98 In this way, Stauffer builds on the earlier case of Barbier, which held that freedom of capital applies
to gifts and comparable transactions within the EU irrespective of whether the donor or donee is
carrying out economic activities that are pr otected by the freedoms of the EC Treaty. See Case C-
364/01 The heirs of H. Barbier v Inspecteur van de Belastingdienst Particulieren/Ondernemingen
buitenland te Heerlen  ECR I-15013.
99 See Florian Becker, Case C-386/04, Centro di Musicologia Walter Stauffer v. Finanzamt München,
(2007) 44(3) C
OMMON MARKET LAW REVIEW , 803 at 812.
recently filed application for a preliminary reference, Hein Persche v Finanzamt
100 the Court of Justice is being aske d to consider whether donations of
everyday goods by a national of a Member Stat e to bodies which have their seat in a
different Member State, and under the law of that Member State, are recognized as
charitable, fall within the scope of applic ation of free movement of capital (Art. 56
EC). Again the nub of this inquiry relates to taxation: Hein Persche is essentially
asking the court to rule on whether it is compatible with Art. 56 EC for the law of a
Member State to confer a tax benefit on donations to charitable bodies only if the
latter are resident in that Member State. Although the full facts of the reference have
yet to come before the court, it would seem that on the basis of Stauffer, if donations
of goods are covered by capital neither the lack of residency nor the administrative
difficulties borne by the Member State in verifying the details of the donation will be
sufficient grounds for refusing tax relief if reli ef is granted for similar objectives in its
own territory. Moreover, an express provision excluding relief on donations to non-
resident charities would still require overriding reasons to justify such apparently
Third, the outcome of the Stauffer case has raised the profile of third sector activity in
the EU and provided a welcome boost to pending claims that Member State tax
regimes discriminate against nonprofits in wa y that is incompatible with EU law.
Currently, the Commission is investigating the tax regimes of a number of member
states (including Belgium, the UK,
101 Ireland, 102 Poland 103 and Portugal) in a variety
of areas as they relate to charities. The extent of the tax privileges vary in detail
between the different states but in general comprise of exemptions from income tax,
corporate tax, capital gains tax, capital acquisition tax, stamp duty, deposit interest
retention tax, inheritance tax and in many c ountries the ability to reclaim taxes already
paid on donations received, sometimes referred to as gift tax exemption or gift aid. A
common requirement for tax exemption or reli ef is that the charity in question be
based in the country granting the tax break – as was the case in Stau
ffer — and be
recognised as a charity or publ ic benefit organisation according to the laws of that
country. These requirements create tax difficulties for a) donors who live and pay
100 Case C-318/07, OJ C 247/3, 20.10.2007. 101 Commission Press Release, IP/06/964, July 10, 2006. 102 Commission Press Release, IP/06/1408, October 17, 2006. 103 Ibid .
taxes in a different member state to their original home state (i.e., expatriates) and
who want to donate to a charity in their home state; b) charities that operate and solicit
funds from taxpayers in one member stat e but are legally established in another
Member State; and c) donors who wish to give to overseas charities not registered in
their home Member State. Many Member States currently implement national tax
laws that allow them to discriminate in favour of domestic charities in a manner
which is arguably contrary to the idea of the single market and consequently is in
breach of European Law.
Prior to, but particularly post- the decisi on in Stauffer, the Commission has actively
encouraged complaints regarding alleged Me mber State discrimination against foreign
charities in the area of ta xation exemption. In 2002, the Commission sent a reasoned
opinion to Belgium seeking the modificati on of Flemish, Walloon and Brussels tax
legislation that discriminated against foreign-based charities by granting reduced
taxation of legacies and gift s to domestic charitable organisations only. All three
regions amended their tax laws in light of the Commission’s opinion to extend the
application of the reduced rates to charities located in other Member States, thus
settling the matter relating to the Flemis h and Brussels legislation. The Walloon
104 however did not satisfy the Commission. 105 The reduced rates on
gifts or inheritance tax do not apply when Walloon residents who never worked or
lived in a particular Member States or Me mber States make legacies or gifts to
charities in those states. Th e reduced rate also does not apply if a person who moved
from another Member State to Belgium makes a gift or legacy to a charity in a third
106 Having referred the case to the Court of Justice in 2005, 107 the
Commission suspended temporarily the starti ng of the procedure before the ECJ in
104 Article 60 of the Walloon “Code des droits de succession” and Article 140 of the Walloon “Code
des droits d’enregistrement, d’hypothèque et de greffe” provide for a reduction of inheritance and gift
taxes but only for two types of organisations: a) Organisations resident in Belgium and b) (for the
application of the inheritance tax law) organisations established in the EU Member State in which the
person making the legacy (the “de cujus”) effectively resided or had his place of work at the time of his
death, or in which he had previously effectivel y resided or had his place of work and (for the
application of the gift tax law) organisations in the EU Member State in which the donor effectively
resides or has his place of work at the time of the donation, or in which he has previously effectively
resided or had his place of work.
105 The press release reporting the Commission’s referral of the infringement to the Court of Justice in
July 2005 stated that the Walloon law breached Articles 12, 43 and 48 thereby basing the
Commission’s case on discrimination on the grounds of nationality and infringement of the freedom of
establishment of salaried workers. In a subsequent press release
106 See Commission Press Release, IP/05/936, July 14, 2005. 107 Ibid .
2006 in the apparent understanding that the infringement still existed but that the case
would be re-entered on a broader basi s than just merely inheritance tax.
Since the decision in Stauffer, the Co mmission has begun action against the UK,
Ireland and now Belgium to end their discri mination against foreign charities in the
area of direct tax. In each case the Commi ssion cites the preferential tax treatment of
charities established in the territory of each Member Stat e over foreign charities as
incompatible with EU law, in particular as being an obstacle to the free movement of
capital, contrary to the free movement of persons since workers and self-employed
persons moving to the infringing Member Stat e might wish to make gifts to charities
established in the Member State where they came from, and contrary to the freedom
of establishment since foreign charities are fo rced to set up branches in the infringing
Member State in order to benefit from th e favourable tax treatment. Proceedings
against infringing States were delayed dur ing 2007 when the respondents met with the
Commission to find a resolution but the ending of unsuccessful negotiations in
November 2007 means that the Commission is now likely to resume proceedings
against the three with new actions pending against Denmark and France.
The Commission’s infringement actions have borne fruit in some countries without
the necessity of court action. Similar cases against Poland, the Netherlands and
Slovenia will be set aside after the countries agreed to change their legislation to
comply with EU principles. Given the Co mmission’s success in these cases coupled
with the strong precedent of Stauffer it is hard to see how Member States could
successfully convince the ECJ th at the challenged tax laws are compatible with EU
law. In all cases, revenue authorities and ultimately national courts will be required in
future to compare the public benefit required under national law for charitable tax
exemption with the standard of public benefit provided by the activities or purposes of
the foreign charity before it. Greater clarity, clear justification of over-riding reasons
for treating otherwise comparable situations differently and an end to discrimination
based simply on non-residency are likely outcomes. Success in these areas will
108 Source: G IVING IN EUROPE (accessed at https://www.givingineurope.org ). This supposition has been
borne out by the Commission’s issuance of a reasoned opinion requested Belgium to end its
discrimination against foreign charities in the area of direct taxation – see Commission Press Release
IP/06/1879, December 21, 2006.
109 Emilie Filou, UK faces European court over taxation of foreign donations, T HIRD SECTOR , 28
November 2007 (available at https://www.thirdsector.co.uk/channels/Finance/Article/769721/UK-faces-
European-court-taxation-foreign-donations ) last visited January 11, 2008.
arguably do more to facilitate philanthropy in general and cross-border giving in
particular than any Council Regulat ion could hope to achieve.
Informal Civil Sector Efforts at Facilitation of Cross-border Activities and
In the intervening period, in formal mechanisms are being used to assist donors who
wish to give tax-efficient donations to char ities established in Member States outside
the donor’s country of origin. The Transnat ional Giving Europe Project, set up under
King Badouin Foundation, is one such example.
110 The TGE Project consists of a
network of large, accredited foundations in a growing number of European countries
(including Belgium, France, Ireland, Ge rmany, the Netherlands, Poland and the
United Kingdom). A donor wishing to make a donation to a foreign charity in one of
the participating states contacts its na tional foundation, which then contacts the
participating partner foundation in the reci pient country for an assessment of the
potential donee nonprofit. If the assessment is positive, the foundation in the home
country accepts the donation from the donor and issues a tax receipt in compliance
with national law before transferring the donation to the partner foundation on behalf
of the intended beneficiary.
The TGE Project thus enables a donor to make a charitable gift to a foreign non-profit
and receive the same tax incentives that they would be eligible for when making a gift
to a charity in their own country. It eliminates the need for foreign charities in
participating countries to establish branches in other Member States and in the lag-
time before the creation of a legally enab ling environment for charities engaged in
cross-border activities it provides a stop- gap measure in those countries where it
operates. To date, TGE has proven partic ularly popular with academic institutions
that solicit on donations from individuals and companies and possess a significant
number of alumni in other countries.
ONCLUSION : THE HISTORICAL POLITICO -L EGAL RELATIONSHIP BETWEEN
NONPROFIT ORGANISATIONS AND THE COMMISSION OF THE EUROPEAN UNION
110 See https://www.kbs-frb.be/call.aspx?id=209842&LangType=1033 (last accessed January 13, 2008). 111 See, e.g., the development pages of Oxford University at
(last accessed January
The Context of Review
The relationship of nonprofit organisations with the EU is a complex one that to be
understood fully must be viewed simultaneous ly through the three lenses of history,
politics and law. Laws present a snapshot of rights and duties of various stakeholders
based on past political unde rstandings between those parties that are shaped
themselves by preceding historical dealings and events. Legal reform is at its most
effective when it involves an understanding of how relations between stakeholders
have changed since the prev ious regulation (i.e., a political perspective) and an
appreciation of the implicat ions of this change for the power balance between those
parties (i.e., a histor ical perspective).
If we apply this analysis to the treatment of civil society organisation under EU law,
we find that historically, the Treaty Articles had little to say regarding the rights and
responsibilities of nonprofit orga nisations, apart from the negative reference in what is
currently Article 48 EC. This non-recogn ition of civil society organisations has
changed, at least superficially, with the ra tification of the Treaty of Nice with its
specific reference to ‘civil society’ in the governing provisions of the Treaty.
Lisbon Treaty, which has yet to be ratifi ed by 26 Member States, appears to build
further upon the legal standing of such orga nisations in its requirement of European
institutions to ‘maintain an open, transparen t and regular dialogue with representative
associations and civil society”
113 although the form that su ch participatory democracy
will take (beyond the usual reference to ‘consultation’) and the sanctions for not
respecting this charge remain unspecified.
To reconcile the historical view of nonprofit organisations under EU law (i.e., non-
rights holders in an economic community ) with the emerging role of nonprofit
organisations today (i.e., enti ties that are not only subject to the rigours of EU law but
are increasingly being viewed as a va luable communicative conduit between the
Commission and the European demos and a sounding board for Commission
initiatives) requires some understanding of the underlying political events that have
brought about this change and the current po litical events that are likely to further
define the relationship in the future.
112 Article 257 EC. 113 Article 8 B (2) Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community (2007).
Past Political Catalytic Events affecting the Legal Enablement of Nonprofits
Notwithstanding the lack of formal legal st anding, upon which this paper has focused,
certain nonprofit organizations for a long time have enjoyed strong informal policy
relations with the Commission. For decades the European Commission relied largely
on the field experience of developmen t agencies and human rights groups in
developing European policy in this area.
114 The European Parliament 115 and
116 also reaffirmed the specific and irreplaceable role of NGOs and the
usefulness and effectiveness of their deve lopment operations. Indeed, the strong
relations forged between human rights and development organisations enabled their
successful lobbying of EU institu tions to bring development work within the pillars of
the Treaty and to give this field (a nd NGO involvement in it) a constitutional
underpinning at the time of the Maastricht Treaty in 1992.
117 The success of this legal
enablement of civil society in political terms may best be described as mixed.
Although non-governmental organisations now are legally entitled to work alongside
the Commission and Member States in th e development of policy, the bringing of
development assistance within the walls of the Treaty has radically changed the
balance of power between the parties though perhaps not as anticipated by the NGOs.
In practice, the development assistance agenda must now compete with the EU’s
other external re lations objectives, which tend to be of an intergovernmental nature,
for priority. These latter concerns thus fr equently take precedence to the concerns of
114 DG VIII/B/2, the department in the Development Directorate General of the Commission is
colloquially known as the ‘NGO Unit.
115 See EP Resolution of 14 May 1992 on the role of NGOs in development cooperation, June 15 1992,
OJ (C 150) 273 (1992) (emphasizing in particular the key role of NGOs’ work on behalf of marginal
social groups in developing countries, the need to preserve the NGO’s freedom of action, and the vital
role of NGOs in promoting human rights and the development of grassroots democracy.)
116 Council resolution on Community cooperation with non governmental development organisations,
(May 27, 1991), Bull. EC 5-1991, point 1.3.76, underlining the importance of the autonomy and
independence of NGOs in the context of development assistance in a Council Resolution on
cooperation with the NGOs.
117 In the context of non-governmental development organizations, Article 181 EC (ex Art. 130y), as
inserted by the Maastricht Treaty states that: “W ithin their respective spheres of competence, the
Community and the Member States shall cooperate with third countries and with the competent
international organisations. The arrangements for Community cooperation may be the subject of
agreements between the Community and the third parties concerned, which shall be negotiated and
concluded in accordance with Article 300.”
118 See, e.g. , The Convention on the Future of Europe’s Final Report of Working Group VII on
External Action (Brussels, 16 December 2002) CONV 459/02, which makes minimal reference to
Aside from the admittedly exceptional case of human rights organisations, other
nonprofits have built informal collaborative relations with the Commission that have
been used to influence policy formati on and policy change. The Commission’s DG
for Employment and Social Affairs (DG V) , for instance, courted nonprofit policy
participation in its Green Paper on Social Policy in 1993.
119 A successful
collaboration between DG V and social non-governmental organisations led
subsequently to the Commission’s establis hment of the biennial European Social
Forum, which provided greater opport unities for NGO/Commission dialogue.
Moreover, the Commission’s heightened in terest in the social NGOs – albeit
necessitated by the Commission’s inability to achieve consensus among Member
States on social policy issues
120 – provided the necessary momentum that led to the
publication of a join t DG V and DG XXIII
121 Communication on the role of voluntary
organizations in Europe in 1997.
Given the Commission’s growing reliance on non-governmental organization
involvement to bridge the communication ga p between the European institutions and
the citizenry of Europe (often referred to as the democratic deficit but maybe more
correctly defined as the accountability deficit)
123 it would be politically difficult for
the Commission, on the one hand, to accept such support while, on the other, refusing
to endorse, if not advocate for, a clear statement of the legal rights of these
124 Politically, a clearer statement of rights for these organisations will
development cooperation and instead approaches development policy from a perspective of strategic
interests within the broader sphere of th e common foreign and security policy (‘CFSP’).
119 European Commission, Green Paper on European Social Policy , COM(93) 551 final. 120 This, occurring in the wake of the UK government’s veto of the incorporation of a new Social
Chapter in the Maastricht Treaty in 1992 resulting in political stalemate that forced the Commission to
explore less controversial ways of keeping social po licy on the reform agenda. One such alternative
was to engage social NGOs in policy dialogue , which soon became known as “civil dialogue.” See
further Breen, Crossing borders: comparative perspec tives on the legal regulation of charities and the
role of state-nonprofit partnership in public policy development, Thesis (J.S.D.)–Yale Law School,
121 DG XXIII is the Directorate General in charge of Enterprise Policy, Distributive Trades, Tourism
122 Interview with Pádraig Flynn, former EU Commissioner for Employment and Social Affairs, in
Dublin (January 11, 2005).
123 Given the lack of representativeness among many nonprofit organisations it would be difficult for
the EU to argue that the type of federated umbrella organisations with which it likes to deal are a proxy
for dealing with the Union’s citizens. However, the intermediary role that these organisations play,
once recognised as a channel for communicating with citizens and not an alternative for so doing, is
nonetheless of value to the Commission.
124 Two recent examples of such reliance on NPOs related to the period of negotiations preceding the
referenda on the ill-fated Treaty for a Constitution on Europe in 2002-2004 and the period before the
not affect the balance of power between EU institutions and such nonprofits. The
Commission, thus, has not hing to lose in championing thei r claims before the ECJ.
Those most affected by any judicial ruli ngs in favour of greater European legal
enablement of nonprofits will be the individual Member States. Those same states,
who will bear the financial costs of r ecognising foreign charities in their own
territories, are extremely unlikely to find the unanimity necessary at Council level
under Art. 308 EC to pass any regulation de signed to further facilitate the cross-
border activities of nonprofits . If anything, national governments may be more
willing to work together to redress the perc eption that there has been a shift in the
balance of power in their relati onships with nonprofit organisations.
In this regard, one final pol itical event deserves consideration given its potential to
affect the future legal enablement of civi l society organisations at European level,
namely, the introduction by the UN’s Financia l Action Task Force (FATF) of Special
Recommendation VIII in 2004. Issued in the wake of the 9/11 terrorist attacks, the
objective of Special Recommendation VIII is to ensure that nonprofit organizations
are not misused by terrorist organisations: (i) to pose as legitimate entities; (ii) to
exploit legitimate entities as conduits for terrorist financing, including for the purpose
of escaping asset freezing measures; or (iii ) to conceal or obscure the clandestine
diversion of funds intended for legitimate pur poses but diverted for terrorist purposes.
Special Recommendation VIII has provided th e European Commission, a reluctant if
not disinterested regulator in the past, with a political platform for coordinating the
regulation of nonprofit organisations. Over the past three years, the Commission has
issued draft recommendations,
125 consulted nonprofit or ganisations throughout
accession of the ten candidate Eastern European States in 2004, both occasions on which the
Commission’s professed sup port for the role of NGOs in ensu ring democratic accountability and
125 European Commission Directorate-General Justi ce, Freedom And Security, Draft Recommendations
to Member States Regarding a Code of Conduct for Non-Profit Organisations to Promote Transparency
and Accountability Best Practices: An EU Design for Implementation of FATF Special
Recommendation VIII – Non-profit Organisations (Brussels, July 22, 2005).
Europe 126 and issued a code of conduct for nonprofit organisations operating not just
on a Europe-wide basis but al so on a more local basis.
Recently, the Commission has redefined the basis of its brief to regulate such
organisations not just on th e grounds of terrorist-funding but on the broader basis that
the financial activities of these organisations may facilitate fraud.
128 The potential to
extend its remit beyond terrorist financ ing was evident in the Commission’s
Guidelines for Member States on natio nal level coordination structures and
vulnerabilities of th e non-profit sector.
129 The Commission’s expressed intention
remains the same: to establish common prin ciples for the supervision of nonprofits on
which national implementation can be based but that should not in any way hinder
legal cross border activities of nonprofit organizations.
130 The recommended
common principles make Member States responsible for effectively overseeing
nonprofit activities within their territories facilitated through good national
cooperation between the relevant authorities responsible for the registration of such
bodies, their fundraising and banking activit ies, their tax exemptions and grant
applications and their annual reporting requirements.
In addition to the establishment of a good infrastructure for nonprofit supervision,
Member States are encouraged to promot e compliance with the Commission’s Code
of Practice amongst nonprofits wh ich, if successfully achieved, would lead to similar
transparency and accountability goals in each Member State. The coordination of
126 The European Commission’s Directorate General for Justice, Freedom and Security opened a
consultation on 26 July 2005 on a draft Recommendation to member-states regarding a “voluntary”
Code of Conduct for Non-Profit Organizations in order to promote a so-called “transparency and
January 13, 2008)
127 European Commission, The Prevention of and Fight against Terrorist Financing through enhanced
national level coordination and greater transparency of the non-profit sector, COM(2005) 620 final
(Brussels, November 29, 2005).
128 A Commission-sponsored survey regarding the scope and extent of nonprofit financial abuse in
Member States, to which the author has contributed, is currently underway. The Commission hopes
that greater empirical data will enable it to better grasp the issues facing nonprofit organizations active
in the EU and enable the Commission eliminate opportunities for financial fraud without unduly
interfering with the diverse philanthropic endeavors undertaken by these organizations.
129 See supra n. 127, at 8-9 (stating, “While the focus of the present Communication is to prevent abuse
of NPOs by terrorist financing, the enhanced transparency and accountability measures will also help
to protect organisations from other forms of criminal abuse. The Recommendation and the Framework
for a Code of Conduct should therefore enhance donor confidence, encourage more giving, while
preventing or at least reducing th e risk of criminal abuse.”)
130 Ibid , at 12.
supervisory responsibilities at a national level would facilitate cooperation between
relevant authorities in Member States, t hus echoing the Court of Justice’s vision in
Stauffer of national author ities sharing information in the furtherance of European
affairs. As between individual Member States and the EU, the Commission cites
potential roles for the European Anti Fr aud Office (OLAF) in assisting in co-
operation and information exchange and the European Police College (CEPOL) in
training senior police officers in highlighting vulnerabilities of the sector, typologies
of abuse, promoting cooperation/information exchange.
From a nonprofit perspective, the Commi ssion’s recommendations are similar to
those commonly issued by national charity regul ators and relate to the need for a clear
mission purpose for each organization to which resources are then applied; the
importance of maintaining an up-to-date governing document that is publicly
available; the keeping of proper books of account, the use of formal channels for
transferring funds and the necess ity for audit trails of funds transferred outside the
host Member State and of funds transferred to any person delivering service on behalf
of the nonprofit. Lack ing is any mention of sanctions for non-compliance, making the
Commission, at best, a fledging regulator.
If implemented in a proportional, transp arent and properly resourced manner, the
Commission’s Guidelines will facilitate the work of nonprofit organizations
throughout Europe by requiring all Member States to have in place an adequate
regime for nonprofit regulation. Not alone w ould this regulatory initiative develop
regulatory regimes in Member States where perhaps there was none in the past but it
should also require all Member States of existing regimes to review their practices for
clarity, efficiency and effectiveness. Im plementation in this manner would assist in
the avoidance of non profit a buse in line with Commission guidelines but would also
provide opportunities for enhanc ing the type of Member State cooperation that should
exist in an integrated Union. The stakes ar e high, however. If Member States engage
only in half-hearted implementation of the European guidelines non-profits will be
subjected to disparate demands regarding reporting requirements and varying national
legal requirements loosely justified by reference to the Guidelines or to the fight
against crime more generally. Member State non-adherence might also lead to a lack
of mutual assistance between national regu
latory authorities and the consequent
hampering of nonprofit activiti es across the Union.
The achievement of true lega l enablement of nonprofits wi thin the European Union is
thus a long-term and ongoing project. Its f acilitation, as this paper has strived to
show, has not and is unlikely to be brought about through legislation even when
specifically focused at nonprofit bodies. Paradoxically, more may be achieved in
respect of the legal enablement of civ il society through the Court’s adoption of a
functional approach towards th e rights and liabilities of nonprofit organizations under
the existing fundamental freedoms bestowed by the Treaty. In light of this
conclusion, great care should be taken in the implementation of European policies to
counter terrorism and fraud in the dealings of non-profit organizations that such
policies do not become a byword for Member States’ erection or maintenance of
national barriers to free-movement of civ il society organizations in an integrated