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INTERNATIONAL CENTER FOR NOT-FOR-PROFIT LAW

M ODEL P ROVISIONS FOR L AWS A FFECTING P UBLIC
B ENEFIT O RGANIZATIONS

733 15 th Street, NW CEE Office:
Suite 420 Apáczai Csere János u. 17
Washington DC, 20005, USA Budapest 1052, Hungary
Tel: 202/624-0766 Tel: + 36-1- 318 6923
Fax: 202/624-0767 Fax: + 36-1- 266 1479

LAW ON PUBLIC BENEFIT ORGANIZATIONS *

PREAMBLE

In order to increase the role of Public Benefit Organizations (PBOs) in
society, to promote their public benefit activities, to foster transparency
and accountability, and to provide guidance to the government for using
public benefit organizations in procurement of services for the benefit
of
the general public, the [Parliament of Country] enacts the following:

While some countries have a tradition of preambles, others do not. Even
where no such tradition exists, however, a law that regulates a completely
new area, or one that has not been regulated for decades, may well utilize
a preamble in order to introduce the subject matter and the general
principles, which can then be applied in interpreting the law.

The above preamble is based in part on the Hungarian law on PBOs
(1997). While it is appropriate to include language in a preamble to a
PBO law that encourages partnerships between the government and
PBOs, it would not generally be appropriate to mandate by law that
governments form partnerships with PBOs.

CHAPTER I

GENERAL DEFINTIONS

Article 1: Public Benefit Activity

A Public Benefit Activity is any lawful activity that supports or promotes
public benefit by supporting or promoting one or more of the following:

(a) Amateur athletics,
(b) Arts,
(c) Assistance to, or protection of physically or mentally
handicapped people,
(d) Assistance to refugees,
(e) Charity,
(f) Civil or human rights,
* This document has been developed by a group of experts in Central and Eastern
Europe convened by the International Center for Not-for-Profit Law. It may also be
relevant to countries in other regions of the world.
1

(g) Consumer protection,
(h) Culture,
(i) Democracy,
(j) Ecology or the protection of environment,
(k) Education, training, and enlightenment,
(l) Elimination of discrimination based on race, ethnicity, religion, or any other legally proscribed form of
discrimination,
(m) Elimination of poverty,
(n) Health or physical well-being,
(o) Historical preservation,
(p) Humanitarian or disaster relief,
(q) Medical care,
(r) Protection of children, youth, and disadvantaged individuals,
(s) Protection or care of injured or vulnerable animals,
(t) Relieving the burdens of government,
(u) Religion,
(v) Science,
(w) Social cohesion,
(x) Social or economic development,
(y) Social welfare,
(z) Any other activity that is determined by the Public Benefit Commission to support or promote public benefit.

The above list contains virtually all of the Public Benefit Activities
recognized in one or more countries in Central and Eastern Europe, but no
list can be comprehensive. The list may be too extensive for any particular
country. What is most need ed is that the list be interpreted and applied to
promote activities that are beneficial to the public. Any list of Public
Benefit Activities, of course, should reflect the needs, values, and
traditions of the country in question. Further, no list of Public Benefit
Activities should be closed, for the n eeds and values of any society change
and evolve. See Art. 1(z). Finally, it is important to note that indicators of
whether an organization will or will not qualify for Public Benefit
Organization (PBO) status are provided by Art. 2.4 and 2.5.

Article 2: Public Benefit Organization

2.1 A Public Benefit Organization (PBO) is any Not-For-Profit
Organization (NPO) that is:

(a) registered under [ relevant laws];
(b) organized and operated principally to engage in Public
Benefit Activities, as defined in Art. 1; and
(c) certified as such by the Public Benefits Commission.

2

The Model Provisions presume that NPOs are defined in and registered
under other laws, and that those other laws include a prohibition on the
distribution of profits. Most typically, NPOs will be either foundations or
associations. It is possible, though, for countries to define other types of
persons as NPOs (e.g., institutes not-for-profit corporations). There is no
need to exclude any particular kind of NPO from the possibility of
qualifying as a PBO.

An organization is “organized” principally for public benefit if the purposes
and activities permitted by its governing documents limit it to engaging
principally in Public Benefit Activities. An organization is “operated”
principally for public benefit if its actual activities are principally Public
Benefit Activities. “Principally” may mean more than 50% or virtually all,
depending on the context and the country. There are different ways of
measuring whether the “principally” test, as used in this article, has been
satisfied (e.g., portion of expenditures, portion of staff time, portion of
facilities, etc.). The exact definition and method of measurement could be
specified in a country’s law, or it could be left to the Public Benefit
Commission to define. Note, that defining and interpreting terms such as
this argues strongly for a specialized commission to oversee the PBO sector
(as opposed to other possibilities, discussed in reference to Art. 3 below).

2.2 Determination whether an NPO is organized and operated
principally to engage in Public Benefit Activities will be based on
the NPO’s certification application and activities, if any.

2.3 Qualification for public benefit status will be based on whether the
NPO’s application, subsequent reports, and other information,
taken as a whole and considering all facts and circumstances,
indicate that the NPO is organized and operated principally to
engage in Public Benefit Activities.

2.4 Factors to be taken into account in determining that an NPO is organized and operated to engage principally in Public Benefit
Activities generally include:

(a) That the NPO provides significant benefits
(i) to the public-at-large, or
(ii) to a targeted class of beneficiaries, where
(A) the class is disadvantaged relative to the
population as a whole, or
(B) there is a significant value to the community in
providing special benefits to the targeted class.

Note that this factor constitutes a significant limitation on what constitutes
a PBO. This factor means that it is not sufficient for an organization to
3

engage in a Public Benefit Activity as listed in Article 1. It should also
provide significant benefits, either to the public at large or to a targeted
group under the conditions specified above. Thus, by combining this
article with Article 1 (x), for example, the Public Benefit Commission should
determine that an organization that promotes economic development only
in a prosperous area would not qualify as a PBO. One that promoted
economic development in a disadvantage d region of a country, however, or
even in a whole country if the en tire population can be deemed
“disadvantaged,” would be eligible for PBO status.

(b) That the NPO provides significant goods and services at or
below cost;
(c) All other factors indicating that the NPO is organized and
operated principally to engage in Public Benefit Activities.

2.5 Factors to be taken into account in determining that an NPO is not
organized and operated to engage principally in Public Benefit
Activities generally include:

(a) That the NPO targets a closed or otherwise limited class of
beneficiaries, particularly one that includes persons affiliated
in some way with the organization or its staff;
(b) That the nature and extent of the NPO’s economic activities
indicate that the NPO is not merely advancing its not-for-
profit purposes but is instead organized and operated
principally for a commercial purpose;

The purpose of this factor is to ensure that what is essentially a
commercial business not be afforded the protection of PBO status. If the
economic activities advance the publ ic benefit purposes of the NPO,
however, they should not be deemed a negative factor. See Article 13 and
the accompanying note.

(c) That the NPO regularly engages in the sale of goods or
services at a price above cost; and

Selling goods and services in substantial amounts at prices that exceed
cost is often an indicator that an NP O is in reality a commercial business.

(d) That the NPO provides unreasonable compensation or other
special benefits to its employees or other persons affiliated
with the organization.

The terms “reasonable” or “unreasonable,” or their functional equivalent,
are often defined in other laws. For example, in a specific country
4

”unreasonable compensation” might mean “compensation that is more
than 30% above the average compensation paid in that country to people
who have similar jobs.”

CHAPTER II

PUBLIC BENEFIT COMMISSION

Article 3: Establishment and Composition

A Public Benefit Commission (Commission) is established in this law as

an independent administrative body composed of representatives of the
government, the PBO community, and the public.

The Model Provisions establishes a Public Benefit Commission. The
Commission acts as the certification, oversight, and sanctioning authority.
The Commission should receive an an nual budget appropriation necessary
for the fulfillment of its duties . A key benefit of unifying these various
authorities in a specialized commi ssion is the quality as well as
consistency of decision-making that is brought to the process by
commissioners who are experts on PBOs.

Other possibilities of entities that may serve as the certification authority
include (1) courts, (2) line ministries, ea ch within its area of expertise (e.g.,
health, education, sport), (3) one specific ministry (e.g., justice). Either (1)
line ministries or (2) one specific ministry could exercise the oversight
authority. However, none of these options provides the efficiency or
consistency and quality of decisions pr ovided by a specialized commission.

The administrative law of the country will, of course, regulate the
establishment and operations of the Commission. Many essential features
of the Commission are not addressed in the Model Provisions because
different solutions will be appropriate for different countries. For example,
a specific Commissi on size needs to be stipul ated. In general, the
Commission should be of medium si ze (perhaps between six (6) and twelve
(12) Commissioners), allowing for both broad representation of interests
and efficiency.

Also, the specific composition of th e Commission, terms of service of
Commissioners, and the process throu gh which they are selected are not
specified. Again, there are many possible solutions; the one most
appropriate for a particular country should be selected and included in
that country’s PBO law.

5

An interesting approach to the Commission size and composition is
presented in the Moldovan Law on Associations (1996/97). The Moldovan
Commission consists of nine (9) person s, of whom three (3) are appointed
by the President, three (3) by the Parliament and three (3) by the
Government. At least one of each of the three sets of three (3) appointed
members must be a representative of a PBO and must not simultaneously
be a civil servant, a government official, or a Member of Parliament.

Under other approaches there might be no parliamentary representation on
the Commission, but instead an equa l number of government and PBO
representatives. Whatever approach is used, however, there should be
PBO representation, either through an appointive process or by selection
through a democratic process administ ered by the PBO community. The
presence of PBO representatives protects against repressive or
discriminatory decisions and increa ses the confidence of the public.

The length of terms for the Commi ssioners serving on the Commission
should generally be between two (2) and six (6) years. The term should be
long enough to assure experience on the Commission, but short enough to
prevent stagnation or entrenchment of interests. To ensure continuity,
terms should be staggered. It may be appropriate to put limits on how
many consecutive terms may be served by an individual.

Article 4: Certification Authority

4.1 As the certifying authority, the Commission shall:

(a) certify PBOs;
(b) decertify PBOs in accordance with Article 10;
(c) maintain certification files of PBOs as required in
Arts. 4.2 – 4.4;
(d) issue forms, instructions, and model documents; and
(e) provide advice and training to PBOs.

4.2 PBO certification files shall be maintained at a central registry.
The files shall contain the application documents filed by each
certified PBO and a register of all PBOs that are certified.

4.3 The register and the certification file of each certified and decertified PBO shall be open to public inspection during ordinary
business hours. Any person may request, in person or by mail, a
copy of any entry in the register or any documents in a certification
file. No more than a reasonable charge may be made for such
copies. The requested copies, or a written decision explaining the
reasons for the denial of the request, shall be furnished within
6

thirty (30) days of request. All files may also be made available
through the Internet.

4.4 Any organization that has been decertified shall be removed from
the register, but the file, including the decision on decertification
shall be retained and made available to the public.

Article 5: Oversight authority

5.1 As the oversight authority, the Commission shall:

(a) issue regulations and interpretations;
(b) monitor and enforce compliance with this law and
Commission regulations;
(c) receive and review reports;
(d) subject to the limitations of Art. 5.2, investigate possible violations of this law and regulations by a PBO by examining
its books, records, premises, and activities during normal
business hours;
(e) provide PBOs with appropriate support and training; and
(f) serve as a liason between PBOs, the government, and
parliament on PBO issues.

5.2 A PBO that is being investigated in accordance with Art. 5.1(d) may refuse access to its books, records, or premises if it believes that
the investigation is improper or is a violation of its rights or the
rights of any other person. In order to proceed with the
investigation, the Commission must then seek enforcement from a
court of competent jurisdiction, which shall have the power to
impose sanctions for abusive investigations or frivolous refusals to
cooperate.

This provision, of course, must be ap plied in accordence with the criminal
and administrative law of the country.

Article 6: Sanctioning authority

After a written notice of non-compliance has been given and an adequate
opportunity to correct any defect has been provided, the Commission, as
the sanctioning authority, may:

(a) sanction a PBO with a fine of up to [ a stipulated amount of
money ] for violation of, or non-compliance with, any
provision of this law;
7

(b) sanction a PBO with a fine of up to [a stipulated amount of
money ] for violation of, or non-compliance with, a valid
Commission regulation; or
(c) suspend or decertify a PBO in accordance with Art. 10.

CHAPTER III

PBO CERTIFICATION

Article 7: Documents to be Filed

Any organization seeking status as a PBO shall file the following
documents with the Commission:

(a) a copy of the organization’s founding act and statutes;
(b) a copy of all documents filed in connection with the registration of the organization as an NPO; and
(c) a completed application form stating
(i) the public benefit purposes, for which the PBO is
organized and operated;
(ii) all of the principal activities that the PBO will engage
in; and
(iii) any economic or political activities that the PBO may
engage in.

Article 8: Certification and Refusal to Certify

8.1 The Commission shall issue to a PBO a written PBO certification or
a written decision denying certification within sixty (60) days of
receiving an application for certification, unless the Commission
properly requests, in writing, further information or clarification.

8.2 Upon receipt of further information or the requested clarification,
the Commission shall issue either written PBO certification or a
written decision denying certification within:

(a) the number of days remaining in the original sixty (60) day time period for issuing a decision; or
(b) ten (10) days of receipt of the further information or requested clarification, whichever is greater.

8.3 An organization shall acquire PBO status upon certification.

8

8.4 If certification is denied, the Commission shall issue, together with the written denial, a detailed written explanation of the grounds for
denial of certification.

8.5 Certification may be refused only for any of the following reasons:
(a) The certification application is materially incomplete;
(b) The applicant organization does not meet the qualification requirements of Art. 2; or
(c) The applicant organization has committed a serious violation
or repeated violations of:
(i) this law;
(ii) other laws; or
(iii) regulations.

Article 9: Default Certification

If the Commission fails to make a decision on the certification of an
organization as a PBO prior to the expiration of the time limit(s) provided
in Art. 8, the organization shall be automatically entitled to certifica
tion
as a PBO. In the event of automatic certification, the Commission shall

issue the customary written PBO certification, and the organization shal
l
be entered into the registry in the ordinary manner.

Article 10: Decertification

10.1 A PBO may choose to decertify at any time by filing with the
Commission an application declaring that, pursuant to its rules of
governance, the Governing Body has, by resolution, decided to
decertify.

10.2 Subject to Arts 6 and 10.3, the Commission may suspend or revoke PBO certification only if there is substantial and credible
evidence that the PBO has committed a serious violation or
repeated violations of:

(a) this law;
(b) other laws; or
(c) regulations.

10.3 The Commission may suspend or revoke PBO certification only after it has given reasonable notice to the PBO and given it an
opportunity to correct the defect responsible for the Commission’s
decision to suspend or revoke PBO certification.

9

10.4 Decertification occurs pursuant to Art. 10.1 when a PBO files its intent to decertify, or, pursuant to Art. 10.2, when the Commission
issues a written notice of decertification to the organization.

10.5 Decertification terminates all PBO benefits but does not terminate any obligations, including those with respect to monies or assets
obtained while the organization was a certified PBO, nor does it
terminate reporting requirements covering any such monies or
assets or any period of time during which it was a certified PBO.

Thus, a PBO cannot escape the responsibilities imposed by this law by
decertifying. Note that decertification in no way affects an organization’s
status as an NPO, only its status as a PBO.

CHAPTER IV

PBO GOVERNENCE

Article 11: Governing Body

11.1 A PBO shall be governed by a Governing Body of at least five (5)
members, three (3) of whom are not related to each other. The
Governing Body of a PBO shall have ultimate responsibility for its
policies and financial affairs. Except as otherwise provided by the
Commission, incompetent individuals, those who have not yet
attained the age of sixteen (16), and persons who have been
convicted of a felony within the ten (10) years prior to their
proposed beginning date of service, are not eligible to serve on the
Governing Body.

11.2 The Governing Body shall meet at least once a year to fulfill its
obligations, including reviewing and approving the assets,
liabilities, income, expenditures, and programs of the PBO for the
past year and the anticipated assets, liabilities, income,
expenditures, and programs for the upcoming year.

11.3 The Governing Body of a PBO shall not delegate:

(a) its duties under this Article; the election of its officers;
(b) the process by which its Founding Instrument or
Statute can be amended; or
(c) decisions to merge, split up, dissolve, or decertify the
PBO.

10

Article 12: Supervisory Body or Audit Committee

12.1 A PBO, the revenues of which exceeds [a stipulated amount of
money ] for the most recently completed fiscal year, shall also have
a Supervisory Body or an Audit Committee, no member of which
shall be an officer or employee of the PBO. The Supervisory Body
or Audit Committee shall have access to all books, records, and
information concerning the activities of the organization, and shall
be responsible for determining at least annually whether the
organization is in compliance with the requirements of law and of
the organization’s founding act, statutes, and the resolutions of its
Governing Body.

Note that the creation of a Supervis ory Body or an Audit Committee is
required only of larger organizations, as an additional internal check on
their activities and operations.

12.2 The Supervisory Body or Audit Committee shall report its findings
at least annually to the Governing Body. If the Supervisory Body
or Audit Committee discovers serious irregularities, which, after
reasonable written notice, the Governing Body fails to correct or
prevent, it shall report the irregularities to the proper governmental
authority.

CHAPTER V

PBO OPERATIONS

Article 13: Economic Activity

A PBO may engage in economic activities, but only so long as economic
activities unrelated to Public Benefit Activities do not constitute the
principal activities of the PBO.

It is permissible for a PBO to support its Public Benefit Activities with
revenue earned from economic activities, that is, revenue generated by the
sale of goods or services. Related economic activities – those that advance
the public benefit purposes of the organization – should be allowed, for
often conducting economic activities is the most effective way to carry out
public benefit activities. Some economic activities that are unrelated to a
PBO’s principal purpose may also be allowed, especially if any profits are
used to support the public benefit activities of the organization. However,
allowing unlimited economic activities unrelated to the principal purpose of
11

the organization is inconsistent with PBO status and may lead to tax
evasion or unfair competition between PBOs and the for-profit sector.

The Model Provisions allow a PBO to engage in any legal economic
activities while ensuring that the organization does not conduct unrelated
economic activities as its principal activity.

Article 14: Public Policy and Political Activities

14.1 A PBO may engage freely in research, education, publication, and advocacy with respect to any issue affecting the public interest,
including criticism of the policies or activities of the state or any
officer or organ thereof. It may also express its views on any issue
or policy that is or may be debated or discussed in the course of a
political campaign or election.

14.2 A PBO may not engage in fundraising or campaigning to support or oppose any political party or candidate for appointive or elective
public office, nor may it propose or register candidates for elective
public office.

A strong dedication to complete freedom of expression would argue for no
limit whatsoever on political speech and advocacy by PBOs. The Model
Provisions take the position that resources of PBOs should not be used to
support specific political parties or candidates. One reason for this
approach is to prevent evasion of laws governing political parties and
elections. There should definitely be no prohibition or limitation, however
on a PBO’s right to publicly advocate in favor of or against any cause, to
criticize the policies or actions of th e government, or to provide information
in support or opposition to particular solutions to social questions.

Article 15: Fundraising

Any person who engages in public fundraising on behalf of a PBO may be
required by any person being solicited to demonstrate that the
organization is a registered PBO and to give an accurate description of
its
purposes, the percentage of its income expended on overhead and
fundraising activities, and that person’s authority to engage in
solicitation on behalf of the organization.

The purpose of this provision is to assure that members of the public who
are asked to make a contribution to a PBO have available to them
information relevant to deciding whether to contribute. The approach
taken in Art. 15 avoids the cost, delay, and rent-seeking behavior that
often characterizes a gover nmental licensing scheme.

12

Article 16: Books and Records

Each PBO shall maintain accurate and complete books and records of its
financial activities in accordance with accepted accounting standards
and shall adopt a reasonable record retention policy with respect to both
its financial and non-financial books and records.

It would be appropriate for the Public Benefit Commission to promulgate
record retention rules, accounting standards, forms, and instructions.

Article 17: Audit Requirement

A PBO, the revenues of which exceed [ a stipulated amount of money] for
the most recently completed fiscal year, shall be required to have an
independent audit of its finances.

CHAPTER VI

PBO REPORTING

Article 18: General Reporting and Transparency Requirement

18.1 A PBO, the revenues of which exceed [ a stipulated amount of
money ] for the most recently completed fiscal year, shall file
activity and financial reports with the Commission and the
appropriate fiscal authorities. The reports shall also be made
available to the members of the public, upon request, for no more
than a reasonable charge.

18.2 A PBO that is subject to the audit requirement of Art. 16 shall file a copy of the audit as part of its financial report.

In order to foster the growth of th e PBO sector, it is important not to
overburden small PBOs with cumbersome reporting requirements. Thus,
the Model Provisions includes no extern al reporting requirements at all for
very small PBOs and an independent audit report only for very large
PBOs. Commission regulations will determine the form and content of the
reports.

13

CHAPTER VII

MISCELLANEOUS PROVISIONS

Article 19: Liquidation

19.1 In the event of a voluntary or involuntary liquidation of a legal
person certified as a PBO, the Governing Body of the PBO shall
submit a plan of liquidation to the Public Benefits Commission.
The plan shall include appropriate provisions ensuring that any
assets remaining after the discharge of all debts and liabilities be
distributed to another PBO to be used for purposes similar to those
of the liquidated PBO.

19.2 No distribution of assets can be made except pursuant to the plan
of liquidation approved by the Commission.

Article 20: Effect on Other Laws

This law repeals [ cite laws to be repealed ].

Article 21: Effective Date and Transition Period

This law shall take effect on [ date]. Organizations having a status under
prior laws similar or equivalent to PBO status shall have one (1) year
following the effective date to seek certification as a PBO under this law.
Any such organization that fails to seek certification under this law, a
fter
specific notice to it and a reasonable opportunity to do so, shall cease to
have PBO or any similar or equivalent status thirty (30) days after th
e
expiration of the specific notice period, unless it has, by then, filed
its
PBO certification application.

14

O THER S ELECTED P ROVISIONS N EEDED FOR E FFECTIVE
PBO R EGULATION

LAW ON NOT-FOR-PROFIT ORGANIZATIONS (NPOs)

Refusal to Register

Registration may be refused by [the registering body] if the name
prepared for the organization is identical to that of any registered
organization, any other person or legal entity, or any public body, or is so
similar that confusion would be created in the mind of the public in
[Country].

Thus, without the permission of the holder of the name, an organization
could not register as the Vaclav Havel, Coca Cola, or Ministry of Justice
Foundation.

Failsafe Provisions When it is Impossible to Obtain a Quorum

1. In the case of an organization governed by its Members, if after
proper notice, there is not a sufficient number of Members of the
Organization at the scheduled Annual General Meeting of Members
to constitute a quorum, a second notice shall be sent out for a
meeting to be held at a reasonable time and place but no sooner
that ten (10) days later. Whatever number of Members shall be
present at the rescheduled meeting shall constitute a quorum for
the conduct of all business for which no special quorum is
required.

2. In the case of an organization governed by a Governing Body rather
than all of its Members, if by reason of death, incapacity,
resignation, or other good cause, it is impossible to obtain a
quorum for a meeting of the Governing Body, the members who are
present at a meeting scheduled at a reasonable time and place and
after proper notice shall constitute a quorum for the purpose only
of electing enough additional directors so that a quorum exists for
the conduct of other business.

15

Duties and Liabilities of Officers, Governing Body Members, and
Employees

1. Officers, Governing Body members, and employees of an NPO shall:

(a) execute their responsibilities to the organization with care, diligence, and prudence;
(b) exercise loyalty to the organization;
(c) maintain confidentiality of the organization’s non-public
information; and
(d) ensure that the organization obeys applicable law and abides by its statutes, rules, and resolutions.

2. No person who is an officer, Governing Body member, or employee of a PBO shall be personally liable for the debts, obligations, or
liabilities of the PBO, but each shall be liable individually to the
PBO or any affected third party for willful or grossly negligent
performance or neglect of his or her duties.

Prohibition on Personal Benefit

The assets, earnings, and profits of an NPO shall be used to support the
purposes of the NPO and they shall not be distributed, directly or
indirectly, to any person. This section does not preclude reimbursement
of reasonable expenses or payment of reasonable compensation to any
person for work performed for the NPO.

Conflicts of Interest

1. A conflict of interest is any interest, purpose, or concern of a
person that is or may be inconsistent with the interests, purposes,
or concerns of an NPO.

2. If any person performing services for, or exercising any authority on behalf of an NPO, including any officer, Governing Body
member, or employee of an NPO, has a conflict of interest, that
person shall disclose the nature and possible effects of that conflict
of interest to the Governing Body of the NPO.

3. Except as provided in (2) above, a person with a conflict of interest
shall not participate in the discussion or decision of any matter
involving the NPO as to which he or she has a conflict of interest.

4. Any transaction between an NPO and an affiliated organization, or between an NPO and its officers, Governing Body members, or
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employees shall be prohibited unless the Governing Body
determines after reasonable investigation that the transaction is in
the best interest of, and fair and reasonable to, the organization
and that the organization could not have obtained a more
advantageous arrangement with reasonable effort under the
circumstances.

LAW ON TAXATION

Income Tax

A PBO shall be exempt from taxation on all of its income.

Under this provision, income received by a PBO from fees, donations,
grants, government contracts, or membership dues would not be subject to
income taxation. In addition, the inco me from economic activities earned
by a PBO will also be exempt from income taxation.

Customs Benefits

Goods, supplies, and equipment imported by a PBO and (i) consumed by
it in connection with Public Benefit Activities, (ii) used by it for a
t least
three (3) years for Public Benefit Activities, or (iii) distributed
free of
charge in connection with Public Benefit Activities, shall be exempt fro
m
customs duties.

Donor Benefits

1. Donations or contributions by an individual or a business entity to a PBO that engages exclusively in Public Benefit Activities, or
which are restricted for use for Public Benefit Activities, shall be
deductible from taxable income in the computation of income
taxation in an amount of up to:

(a) fifty (50) percent of taxable income for individuals; and
(b) ten (10) percent of taxable income for business entities.

Some countries allow individuals to claim deductions for contributions to
PBOs for up to 100% of their income; others permit deductions only up to a
very small percentage of income. It is difficult for individuals to make large
gifts, such as gifts to create an endowment or to provide a major facility for
a PBO, unless the limit is fairly genero us. Fifty percent is a middle-ground
position that will encourage donations to support public benefit activities.
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Few companies contribute more than ten percent of their profits to PBOs,
so the suggested limit is adequate.

2. The amount of any donor deduction shall be reduced by the value of any goods or services received by the donor as a result of his or
her contribution.

ADMINISTRATIVE LAW

Appeals

Decisions of the Commission, including but not limited to refusal to
certify an organization as a PBO, the imposition of a sanction, or
decertification may be appealed to a court of competent jurisdiction,
which shall be entitled to examine the factual and legal basis for the
Commission’s action or proposed action.

NOTE ON PUBLIC PROCUREMENT AND GRANTS

Organizations shall not be ineligible to participate in public procurement
because of their status as PBOs. Some areas of procurement may be
reserved exclusively for PBOs. Speci al PBO grant procedures may be
instituted when the governmental purpose is uncertain or less capable of
being defined precisely at the outset.

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