The International Journal
of Not-for-Profit Law
Volume 5, Issue 1, September 2002
By Kerry J. O’Halloran*
Ireland has a particularly rich and diverse range of not-for-profit organisations. Since acquiring independence, the national strategy for promoting Irish economic growth and development has depended to a considerable extent on a core of State and semi-State bodies with their distinctive rules governing profit distribution. Then there are the usual social infrastructure bodies established and managed by the government to deliver not-for-profit (nfp) services such as transport and health care. Also, in keeping with other developed nations, Ireland is experiencing a retraction of government service provision and a corresponding growth of a ‘contract culture’ in which partnership arrangements are forged between government bodies and ngos for the delivery of what were previously seen as government services. This proliferation in number and type of nfp bodies has so far been unaccompanied by a corresponding growth in regulations to govern their activities.
In fact charities and their activities continue to be governed by the Charities Acts of 1961 and 1973 which were largely derived from the English template provided by the Charities Act 1960. This facilitative statutory framework does not provide for any registration or regulatory duties in respect of charities. Other ngos such as Industrial and Provident Societies are subject to legislation specific to their needs. The activities of many nfps will also come within the scope of statutes such as the Companies Acts of 1963 and 1990, the Tax Consolidation Act 1997, the Finance Act 2002 and the disclosure requirements of the Freedom of Information Act 1997.
It is generally accepted that the pace of recent socio-economic change in Ireland has now made change to the related legislative framework an inescapable and pressing necessity. Legislative change is broadly indicated to provide a facilitative and sustainable environment for nfps and to put in place registration and regulatory systems. Consideration will also have to be given to assessing how the range of existing ancillary legislation, such as how the Companies Act 1963 as amended, impacts upon nfps and again much of this will need to be revised and shaped into a more unified coherent body of law. Any such overhaul of the law relating to nfps would also need to address the legal structures that house their activities. The continued appropriateness of unincorporated associations, trusts, foundations, IPS, and Friendly Societies etc as offering the most effective and sufficient legal vehicles for delivering nfp activity must be open to question. A clearer legislative articulation of the public benefit principle as it applies to contemporary social circumstances in Ireland may well be necessary to underpin and give coherence to the final re-formulation of the law.
Ireland now needs a seamless web of legislative provisions to differentiate between and govern in a coherent fashion all not-for-profit bodies, not just ngos and not just charities. This must have an in-built flexibility enabling it to respond to and develop with evolving social circumstances. While any such new legal framework must address its indigenous socio-economic characteristics it must also provide for a working degree of parity with the law of its neighbouring jurisdictions. The final formulation will now also need to be contextualised within the Council of Europe’s agreed framework of principles to govern the status of ngos1.
Ireland has embarked on this process of change, through a focus on charity law review, intended to lead to legislative reform2. This, the first major re-framing of the law for 40 years, is currently being lead by the Dept of Social, Community & Family Affairs (‘the Dept’)3. The Government has recently declared4 that its governing policy will be to engage with the Community and Voluntary Sector (‘the sector’) in achieving consensual reform. The Dept commissioned a charity law review report, to which this applicant made a leading contribution5, as a first step towards identifying areas requiring reform. That report is now being examined by a committee of experts established for the purpose by the Dept. The Dept has now also received a report from the Law Society of Ireland6 which will similarly feed into the review process.
The next step for the Dept will be to prepare an agenda of matters it considers crucial to charity law reform for discussion with the sector. It is intended that this process of negotiation between the Dept and the sector will result in a consensus as to the nature and extent of proposed charity law reform. This article suggests that whatever the outcome, the process itself will reveal and test the strengths and weaknesses of their partnership relationship. Although drawn substantially from the submission made to the Dept, the views expressed in this article are solely those of the author and are not necessarily shared to any degree by the Dept nor by the Law Society to whose excellent report frequent reference is made.
Inevitably a new piece of charity legislation will emerge. This will provide the legal context for much of the sector’s activity for the foreseeable future. It will be enormously important in terms of facilitating and regulating that activity, defining those activities not to be construed as charitable and clarifying the differentiation between charities and other ngos. It will also be of far-reaching significance insofar as it demonstrates the bona fides of the Government’s approach to the sector, embeds the principles which both the Government and the sector feel represent and balances their strategic interests, reflects the maturing nature of their evolving relationship and sets the ground rules for addressing future matters of mutual concern.
This article examines the issues that will need to be addressed during this process and considers the possible implications arising for the State/third sector partnership. The article is in six parts and draws directly from the writer’s recent submission to the Department of Social Welfare, while referring also to the Law Society’s report. Part one identifies those definitional aspects of charity law which will be crucial to the review process. Part two considers matters relating to the structure of charities. Part three focuses on the need to introduce systems for registration and regulation. Parts four and five deal briefly with fundraising and tax/rates issues respectively. Part six, concludes the article by providing a summary of the main issues, reflects on the implications for the State/sector partnership and considers some concerns regarding the future strategic relationship between the State and the sector.
The challenge of re-shaping our common law understanding of what constitutes ‘charity’ into a modern statutory definition is one which has exercised a number of recent charity law reviews. There is much to be said in favour of the Australian proposal7 and this author, in keeping with the views of the Law Society8, would recommend that consideration be given adopting at least the approach if not the full definition arrived at in the Australian report.
1.1 Statutory Definition
In Ireland, the contemporary legislative framework fails to provide a definition of ‘charity’, fails to identify where responsibility lies for determining charitable status and fails also to specify whether the test to be applied to determine such status is to be applied objectively or subjectively. To some degree, these legislative gaps have been bridged by case law.
1.1.1The Common Law
Lord Macnaghten in the Pemsel case9 endorsed established judicial interpretations of charitable purposes as these had evolved from the time of the Statute of Charitable Purposes 1601 (43 Eliz. 1, c.4). His classification of charitable purposes was accepted in Ireland, notwithstanding the somewhat different legislative roots for charity in the Statute of Charitable Uses 1634 (10 Char 1, Sess. 3, c.1). This classification defined such purposes as being those which were exclusively charitable and which could be grouped under one of four heads:
- the relief of poverty
- the advancement of education
- the advancement of religion, and
- certain other purposes beneficial to the community which could not be accommodated within the first three.
Before and after that decision, however, when determining whether or not a purpose could be construed as charitable, the judiciary in Ireland, as elsewhere in the common law world, relied on the ‘spirit or intendment’ rule for guidance. Broadly speaking, this rule holds that even if a purpose cannot be defined as coming under one of the established heads of charity, it will nonetheless be construed as charitable if it can be interpreted as falling within the ‘spirit or intendment’ of the Preamble to the 1601 Act10. This rule has underpinned the common law development of charity law giving the judiciary some discretion to adjust the law to fit contemporary social circumstances. However, any such development of the law is clearly dependent upon a significant volume of cases coming before the courts. This is not happening in Ireland.
1.1.2 Statute Law
In practice the question of whether the activities of an organisation can be defined as charitable will arise when it seeks exemption from liability to pay either taxes or rates on the grounds that it is a charity. Applications for the former are determined by the Revenue Commission and for the latter by the Valuation Office, both acting quite separately and independently of each other.
1.1.2(i) Charitable Exemption from Tax
In the absence of any statutory definition in the Charity Law Acts of 1961 and 1973, the Revenue Commissioners employ the above common law interpretation of charitable purpose to determine exemption.
1.1.2(ii) Charitable Exemption from Rates
Again there is no statutory definition to guide decisions. The statutory provisions governing the eligibility of premises for exemption from rates, on the grounds that they are being used for charitable purposes, remain as stated in early 19 th century legislation11. The grounds are not synonymous with those required to substantiate eligibility for charitable exemption from tax.
1.2 Elements of Definition
The essential elements in the common law definition of charity are well established, have subsisted for many years and are recognised as such, with some differences in emphasis, throughout the common law world.
1.2.1 Charitable Intent
The judiciary in this jurisdiction adopt a subjective test in determining whether or not a gift satisfies the public benefit test12 . That is the courts will pose the question ‘Did the donor believe that the purpose to which he or she was directing a gift was of a charitable nature?’ As explained by Keane J in In re the Worth Library13:
“In every case, the intention of the testator is of paramount importance. If he
intended to advance a charitable object recognised as such by the law, his gift will be a charitable gift.”
In order to set and uphold a distinctive high standard for charitable status, together with jurisdictional parity considerations, legislative provisions should be introduced to state that in cases of uncertainty a donor’s charitable intent will be determined by judicial application of an objective test guided by the principle of reasonableness.
1.2.2 Public Benefit
Marrying a concept of public benefit broad enough14 to remain responsive to pressures from an ever-changing social context, with philanthropic intent, and with administrative systems and procedures, to produce an integrated and distinctive body of jurisprudence is the central challenge for charity law in Ireland.
The public benefit test has two requirements.
Firstly, the rule is not that all persons in the relevant class of the public should derive a benefit but only that they should all be eligible to do so. So, the class of persons who might benefit may be either a section of the public15 or a class of the community16, or a section of the community17. Conversely, it will not be met and the trust will not be charitable if those who might benefit are merely ‘a fluctuating body of private individuals’18. The basis for this distinction between public and private classes is unsatisfactory because in practice fluctuating membership can be a characteristic of both types.
Secondly, the rule does not impose an absolute bar on any private benefit accruing from a charitable gift. It does, however, require that any private benefit conferred must be incidental.
These inconsistencies, together with the fact that the burden of proof in relation to the ‘benefit’ requirement varies across the four Pemsel heads, with no application to trusts for the advancement of religion, suggest that in Ireland the rules for applying the public benefit test now require legislative adjustment. The Law Society also draw attention to this problem — “we recommend consideration of the strong arguments for applying the public benefit criteria consistently across the heads of charity”19.
1.2.3 Charitable Purposes
These remain as first identified and listed in the two 17 th century statutes and as later classified in Pemsel (see, above). This list has always been treated as indicative rather than prescriptive20 and its extension within the common law has been guided by analogy rather than by principle. As a charitable purpose has never been strictly defined in law the courts have sought to interpret it in accordance with contemporary social conditions.
In Ireland there is now a need to consider whether the Pemsel categorisation is appropriate and sufficient for focussing charitable donations and activity in our complex modern society. There are issues around community development, self-help groups, partnership arrangements and profit distribution etc. Arguably, specific consideration may need to be given to whether religious purposes should continue to be charitable. It may well be that any review of charitable purposes in Ireland should also avail of the opportunity to address civil society issues throughout the island. This would entail providing for peace and reconciliation projects, encouraging community development initiatives, allowing for some level of political advocacy in favour of socially excluded minority groups and addressing the problems associated with unemployment and rural deprivation.
1.2.4 Exclusively charitable
Case law has long established that for a trust to be charitable its purposes must be confined exclusively to charitable purposes. If a donor’s gift included both charitable and non-charitable purposes, and allowed for the possibility of trustees using some or all of a gift for non-charitable purposes, then the courts would refuse to recognise it as charitable21. In this jurisdiction, the judiciary always applied the rule requiring exclusiveness in charitable purposes with some equivocation22 until statute law placed the matter beyond doubt. The Charities Act 1961, s. 49 now provides that:
Where any of the purposes of a gift includes or could be deemed to include
both charitable and non-charitable objects, its terms shall be so construed and given effect as to exclude the non-charitable objects and the purpose shall, accordingly, be treated as charitable.
However, while the Revenue Commission is now guided by this provision when determining eligibility for charitable exemption from tax, the rule continues to be fully applied under 19 th century statutory provisions by the Valuation Office when determining charitable exemption from rates. In itself, this area of inconsistency in Irish charity law needs to be legislatively addressed.
The exclusivity rule also needs to be considered in the context of maximising opportunities for achieving greater internal logical coherence within Irish law and parity with the law of neighbouring jurisdictions. On both counts consideration should be given to the desirability of modifying the rule to permit charitable status to be extended to include purposes which are incidental to and directly derive from a main charitable purpose.
A distinctive characteristic of charities, traditionally upheld as being of the utmost importance, is the duty resting on trustees to honour the terms of their trust and ensure that the objects of the charity prevail. This was seen as the primary means whereby the integrity of the donor’s gift could be protected. In Ireland, as elsewhere, this tradition of independence is increasingly being compromised by the pressures of the modern marketplace. Partially this can be seen in the need to engage in the ‘contract culture’, develop ‘brand driven’ strategies and to compete with commercial organisations for market position. Mostly it is evident in the growth of partnership arrangements with government bodies and in the resulting ‘muting of dissent’ (see, further, below). Other pressures are also becoming evident, bringing with them inducements to compromise trustee independence. Representation of ‘users’ in management structures is rapidly becoming a political necessity for the credibility of service delivery organisations. More radically, many self-help groups now insist on exercising full control over their organisations. The strength of such situations, resting on the deliberate fusion of personal and organisational interests, is also their biggest weakness in terms of eligibility for charitable status.
Legislative provisions may well be needed to preserve their traditional independence of charities and to clarify the roles and responsibilities of their trustees and users.
In Ireland, the dividing line between the public benefit service provision of government bodies and that of charities has become difficult to draw with any certainty. As the partnership ethos develops there is good reason to believe that this distinction will become increasingly blurred. Complicity between government and charities in addressing social need is an attractive proposition and often effective in practice for both parties. However, it is a matter of concern because of the legal imperative that requires a charity to maintain its independence.
It is probable that legislative provisions are now needed to clarify the rationale for distinguishing between the public benefit provision of government bodies and charities, to protect the independence of the latter and prevent them from becoming mere agents of the former (see, further, below).
1.2.7 Non-Profit Distributing
A charity does not compromise its standing by making a profit. Entering fully into the commercial marketplace by engaging in trading, competitive practices, mergers and management take-overs etc, has become a modern necessity for many charities. However, it is of crucial importance that any profit gained does not accrue to the benefit of individuals but is directed towards the fulfillment of the charity’s objects. Any future regulatory legislation could, usefully direct annual disclosures of administrative costs and any profit distribution as a proportion of a charity’s total income and expenditure.
A common law characteristic of charities is the restraint on their freedom to engage in political activity. Even if legally permissible, the capacity of charities to articulate social concerns is being increasingly eroded by a need for compliance with government policy in order to safeguard future government funding or contracts. Arguably, a healthy vibrant democracy can only benefit from hearing the clear, uninhibited voice of the voluntary sector including charities. Legislative provision is probably now indicated in order to clarify the distinction between party political involvement by, which should continue to be a non-charitable activity, and advocacy for social/political/legal change on behalf of the disadvantaged which should have full recognition as a legitimate charitable activity. This view is supported by the recommendations of the Law Society23.
1.3 Presumption Favouring Religion
There are two distinct matters to be considered when examining the present relationship between religion and charity in Irish law. Firstly, there is the issue as to whether the advancement of religion should continue to receive specific recognition in law as a charitable purpose? Secondly, if so, should it also continue to receive the additional preferment conferred by the statutory presumption of inherent public benefit and reinforced by the special recognition given to the Roman Catholic Church in the nation’s Constitution?
1.3.1 Religion as a Pemsel head
In Ireland, unlike elsewhere in these islands, there is a long and strong tradition of making certain types of gifts which have been upheld as charitable trusts for the advancement of religion.
1.3.1(i) Case for Removing Religion as a Charitable Head
This rests on at least the following points:
- Logically, religion is not a species of charity and ‘the Church’ is usually viewed not as a part of the community and voluntary sector but as a wholly separate entity.
- Religion no longer holds a special position in this increasingly secular society; it has diminished considerably since the introduction of the 1961 Act and more so since the Constitution was introduced. Ireland in the 21 st century is not the homogenous Catholic society it once was.
- The removal of religion would not prevent religious organisations from claiming charitable status in their own right, on proof of public benefit.
- Religion on this island has become a demonstrably divisive influence, polarising communities and hindering the consolidation of civil society.
- The activities of certain religious organisations, particularly those entrusted with providing residential care for children, have brought international discredit to charities and to Ireland which may have been avoided by applying the ‘public benefit’ test.
- Finally, the legal complications arising from the imminent necessity to marry the requirements of Articles 9 and 14 of the Human Rights Convention with existing legislative/constitutional differentiation between the relative significance of religions and between religious and non-religious organisations can perhaps be only wholly overcome by removing this Pemsel head.
1.3.2 The Legal Presumption
The legal presumption favouring religion arises explicitly under s. 45 of the 1961 Act and implicitly under Article 44 of the Constitution.
Under s. 45 of the Charities Act 1961:
- In determining whether or not a gift for the purpose of the advancement of religion is a valid charitable gift it shall be conclusively presumed that the purpose includes and will occasion public benefit.
- For the avoidance of the difficulties which arise in giving effect to the intentions of donors of certain gifts for the purpose of the advancement of religion and in order not to frustrate those intentions and notwithstanding that certain gifts for the purpose aforesaid, including gifts for the celebration of Masses, whether in public or in private, are valid charitable gifts, it is hereby enacted that a valid charitable gift for the purpose of the advancement of religion shall have effect and, as respects its having effect, shall be construed in accordance with the laws, canons, ordinances and tenets of the religion concerned.
This presumption is extended by s. 50 of the 1961 Act to favour gifts for the upkeep of graves and burial vaults etc; it has no counterpart in the law of the UK.
Case law24 has also confirmed that references in the Irish Constitution25 to the Roman Catholic Church confer a preferential standing on that religion relative to all other religions in the State. It may well be that there are now legal tensions between the Constitution and the Convention on Human Rights that might yet surface in the context of charity law.
1.3.2(i) Effect of Presumption
The net effect for charity law in Ireland is that, unlike the United Kingdom26, a gift directed to be applied for the benefit of a religious body is conclusively presumed to be for the public benefit. This is the case whether the religious order in question is closed and contemplative or dedicated to improving the external social community.
1.3.2(ii) Case for Removing Presumption
The case for at least removing the present statutory presumption favouring religion would seem to rest on the following grounds.
- No good reason why this particular head should be given cart blanche charitable status when the others are not; a stronger case could be put for a presumption favouring the relief of poverty.
- The fact that Ireland is the only jurisdiction in these islands with such a statutory presumption presents an unnecessary obstacle to maximising jurisdictional parity in charity law.
- The integrity of the public benefit test needs protection and should be seen to apply objectively and uniformly to the activities of all bodies seeking charitable status.
It should be noted that the Law Society takes a contrary view – “We recommend that no change be made to section 45 of the Charities Act 1961 …”27, a position which might seem to be at variance with its recommendation that the public benefit test be applied consistently across all heads28. Instead it confines itself to suggesting that – “it would be advisable to clarify the concept of ‘advancement of religion’ and the constituent elements of worship and whether the legal definition of religion extends beyond Supreme Beings (i.e. a theistic approach) to embrace supernatural things or principles (i.e. a non-theistic approach)”29.
The Legal Structure of Charities
In Ireland, charitable activity is housed in a range of different structures. Government bodies, religious organisations and foundations as well as the more traditional trusts, unincorporated associations and incorporated charities are now all likely to be claiming tax exemption on the grounds of their charitable activities. Industrial and Provident Societies, Friendly Societies and corporations may also, though infrequently, provide structures for charitable activity.
2.1 Type of Structure
A variety of different types of legal vehicle are available to further the work of charities. It is difficult to construe each type of vehicle as being of equal standing in terms of relative capacity to represent the ethos of charity and ability to give full and unqualified effect to charitable purposes. Arguably, there is a distinction to be drawn between those vehicles which derive wholly from a charity and would not exist if it were not for the need to give effect to that charity’s purpose; i.e. the charitable gift/activity, resulting from a voluntary gesture, came first. The trust, unincorporated association and incorporated company would come into such a category. Then there are a number of secondary vehicles whose activities may well be charitable but may not necessarily be established for such purposes, or be exclusively or indefinitely charitable; i.e. the authorising body, obliged to provide such a vehicle, came first. Into this category fall a range of government public benefit service institutions such as hospitals, universities, leisure centres etc and also, perhaps, many religious organisations. Finally, there are new vehicles such as foundations and perhaps Incorporated Charitable Organisations (as proposed in Scotland) which differ from both previous categories by being designed specifically and solely to give effect to charitable purposes.
All three categories, needless to say, differ from other not-for-profit and mutual benefit vehicles such as an IPS or Friendly Society (though both may, occasionally, be charities), co-operative or trade union etc.
2.1.1 A Trust
In trusts, like unincorporated associations, the internal legal relationships of office bearers and the management structure adopted are determined by the terms of their governing instruments. Similarly, external legal relationships are conducted by office bearers acting in a personal contractual capacity.
Honouring the terms of the trust is the fundamental responsibility resting on a trustee and to that extent the obligations of all trustees are essentially the same and, as the Law Society recommends, this should be given explicit statutory recognition30 regardless of the type of legal vehicle or form of governing instrument employed to give effect to a charity. The powers of trustees emanate from the instrument, which established the trust and provided for their appointment. They are also empowered by statute, in particular by sections 10 – 24 of the Trustee Act 1893 and by the Charity Act 1961. This legislation provides a wholly inappropriate legal framework to govern the responsibilities of modern charity trustees.
2.1.2 A Company
Many charities are, or eventually become, companies limited by guarantee. All companies, whether charities or not, are by definition required to adopt a corporate model of governance. Legislation requires the Articles of companies to stipulate:
- membership details
- arrangements for meetings
- voting requirements
- arrangements for the appointment and removal of the management committee or Board of Directors
- powers and duties of the management committee, and
- accounting and auditing arrangements.
Companies and their directors are subject to both common law and statutory law. At common law, the principal duties of company directors are fiduciary: they must exercise their powers for the benefit of the organisation and in good faith; they must not appropriate to themselves an opportunity which rightfully belongs to the organisation; and they must not put themselves in a position where their interests conflict, or may conflict, with those of the organisation. They are required to exercise due skill and care.
In addition, the Companies Acts 1963 and 1990 now afford protection to third parties by providing for transparency and accountability in relation to the appointment, decisions and discharge of company directors.
While the legislative framework provided by the Companies Acts is appropriate to govern modern companies it is not designed to apply to the particular circumstances of those companies that happen also to be charities. Consequently, while submitting to the regulatory requirements of the Companies Acts ensures that charities comply with general incorporation standards it does nothing to ensure compliance with standards particular to the good practice expected of charities.
2.1.3 An Unincorporated Association
Traditionally, most charities in Ireland at least commenced life as unincorporated associations, though many subsequently became incorporated. The constitution should clearly set out the powers and duties of the office bearers and their terms of office. An unincorporated association cannot hold property on its own behalf; it is necessary that trustees or representatives undertake this responsibility.
Internal decisions of members are governed by the contractual arrangements entered into when they established the association. External decisions, binding the association in relation to third parties, are governed by the normal obligations of contract law and carry the prospect of personal liability for debts incurred by the association or for contractual obligations entered into as a result of decisions taken by board or ordinary members without proper authority.
The office bearers comprising the management board hold responsibility for the conduct of the affairs of an unincorporated association. The board acts as agents for the members of the association. As such it is authorised, on their behalf, to enter into such contracts and arrangements as may be necessary to give effect to the association’s purposes. Provided the office bearers act within the authority conferred by virtue of their office in furthering those purposes then their decisions will be binding upon the members. Each member is held directly and personally responsible for any decision made or action taken by the organisation and is liable for any debt it may incur. Unincorporated associations are free from any registration requirements.
2.2 Alternative Legal Structures
It is widely accepted that current legal vehicles are not best suited to facilitate the activities of modern charities. The difficulties tend to be in the area of legal personality: how best to ensure limited liability for trustees while also equipping the charity to enter into contractual relations with third parties? The present means of coping with this is to opt for incorporation which brings with it the full burden of administrative and regulatory requirements appropriate to commercial companies. A good case can be made for considering legislative provisions to introduce a new vehicle ‘the Charitable Incorporated Organisation’, as suggested in the Scottish charity law review31 and more recently advocated by the Law Society.
Systems for Registering and Regulating Charities
Ireland ‘s tradition of reliance upon ngos has so far been unaccompanied by any evidence of State interest in regulating the sector. However, the reluctance to rush into prescriptive legislation has led to the present process of negotiation between government and sector now underpinned by the Green Paper and the White Paper. Any introduction of a regulatory system should grow naturally from this consensual process.
3.1 Determination of Status
Charitable status is at present an uncertain entity in Irish law. No statutory duty to determine charitable status rests on any specific body, although a number of different bodies may be involved in considering matters relating to status. More fundamentally, there is no definitive checklist of criteria for determining charitable status.
A current problem in Irish charity law is that a number of bodies each carry quite separate responsibilities in respect of matters relating to charitable status. This can result in expensive and time wasting procedures as charities shuttle much the same information from one agency to the next.
The Revenue Commissioners will rule on whether or not the purposes and activities of an organisation are such as to warrant its recognition as a charity for tax exemption purposes. It assesses the eligibility of applicants for exemption in relation to income tax, corporation tax, capital gains tax, deposit interest retention tax, stamp duty, capital acquisitions tax, probate tax and sundry lesser liabilities. It does so by first establishing whether the activities of the applicant body come within one of the four heads of charity identified in Pemsel. Where this is confirmed it then examines the body’s ‘governing instrument’ to establish whether the income and property of the applicant body is exclusively and irrevocably committed to charitable purposes.
This is not quite the same as formally conferring or withholding charitable status.
The Commission of Charitable Donations and Bequests will, on request, use its powers to give advice or make decisions upon many issues affecting the running of charities. It will give informal advice to bodies as whether their activities can be construed as charitable and will provide the guidance and forms necessary for a body to become appropriately constituted.
The Probate Office is required to furnish the Board, annually, with particulars of every charitable devise or bequest contained in any will. This duty requires the Probate Office to first identify a charitable bequest and differentiate between it and all other forms of bequest.
The few cases which reach the High Court are usually concerned with technical interpretations of eligibility for exemption from liability for rates or tax and seldom involve more fundamental matters of definition. When dealing with definitional matters the High Court will resolve issues by referring to the Pemsel classification, associated precedents and the ‘spirit and intendment’ rule.
The Valuation Officeand where appropriate the Valuation Tribunal, will determine eligibility for rates exemption on charitable grounds as governed by certain 19 th century statutes.
3.2 Registration / Publication Requirement
There is neither a registration duty resting on charities per se, nor a duty resting on any body to register the existence of charities. However, again a number of bodies have related responsibilities.
The Revenue Commission has no responsibilities in relation to the registration or inspection of charities. It does, however, maintain a list of those bodies that have successfully applied for tax exemption on charitable grounds. There is no requirement that the Revenue publish this list but it is now publicly accessible under the Freedom of Information Act 1997.
The Companies Registry Office maintains a register of incorporated bodies, including charities. While it does not publish the information which companies are statutorily required to file with it, public access to the information is available (see, further, below).
The Probate Office monitors and collates information on all charitable gifts or bequests contained in wills. This is passed to the Commissioners for Charitable Donations and Bequests.
The Commissioners for Charitable Donations and Bequests may require the publication of details relating to a charitable bequest in a particular case, otherwise a general exemption from publication is available.
3.3 The Need for a Central Registration / Regulatory Body
In Ireland there is no statutory provision for the registration and inspection of charities. No one government body keeps a register of all ‘live’ charities and no statutory mechanisms exist for ensuring probity, requiring accountability, setting and monitoring standards nor for ascertaining the effectiveness of charitable activity. In this jurisdiction there is no government body with statutory powers to register, inspect and regulate charities. The emphasis is on providing official recognition for the charitable activities of organisations in order to facilitate their eligibility for tax exemption and thereby encourage the continuance of such activity.
3.3.1 Registration Systems
A number of bodies have responsibilities to maintain registers in which charities will be listed. These include: the Registrar of Companies; the Registrar of the Industrial and Provident Societies and Friendly Societies; andThe Valuation Office which maintains the Valuation Lists.
Certain questions arise:
- Is it really necessary to have so many of them?
- Would it be possible to co-ordinate the functions of the bodies within and between each set?
- Why are all bodies restricted to a reactive role?
- Should not one body be vested with the duty and the powers necessary to be pro-active in inspecting and monitoring charities in accordance with one fixed set of standards?
3.3.2 Regulatory Systems
No central regulatory system exists for facilitating transparency, monitoring effectiveness and ensuring public accountability in relation to the activities of charities. However, certain bodies have some responsibilities in relation to such matters. These include the Dept of Social, Community and Family Affairs which is now the government body vested with responsibility for charity law matters in Ireland33. The Dept has no power to provide a system for the registration of charities and has a limited capacity to provide a system for regulating charitable activity. Its responsibilities are largely of a monitoring and review nature. The Dept is currently reviewing the law governing matters relating to charities following the recommendations made by the Costello report34 and subsequently by the Advisory Group35.
The duties of the Attorney General include acting as protector of charities in Ireland and charitable trusts are enforceable by the Attorney General36. The High Court exercises a broad jurisdiction in respect of charities and ultimate legal accountability for the proper management of a charity’s affairs is to the High Court. The Commissioners of Charitable Donations and Bequestshas certain powers with regards to the administration of charity law, but there are no corresponding duties imposed on charities in terms of accountability or transparency, and indeed some of the Commissioners statutory powers have never been exercised. Its powers in terms of monitoring and investigation of charities are much more closely circumscribed than those of its English counterpart. The Revenue Commission plays a limited regulatory role by checking that income has, in fact, been applied exclusively for charitable purposes (or indeed applied at all rather than left to accumulate) and that claims for repayment of tax are properly substantiated. It can also withdraw recognition where it appears that purposes are no longer exclusively charitable. Otherwise, the Revenue Commission has no function in relation to the supervision of bodies granted charitable recognition for tax purposes.
Where a charity is registered as a limited company and the Companies Registrar is able to confirm improper, irregular or illegal behaviour (usually following police investigations) then sanctions as provided by the Companies Acts may be applied.
Again, the Valuation Office has no general regulatory function but the Valuation Tribunal does, however, rule on matters affecting the rateability of individual charities and its register of judgments provides valuable guidance to circumstances where charities are not fully compliant with eligibility criteria. Finally, evidence of criminal activity will give rise to a police investigation by the Garda Siochána in the normal way. This is really the only form of regulatory intervention that an unincorporated charity is likely to encounter.
3.3.3 Financial / Accounting Requirements
There is an obligation resting on the recipient of charitable donations and related tax exemptions to satisfy a public interest that the use of privileged funds complies with the highest standards of fiscal probity. This requires a system to provide the means whereby the income and expenditure of charities can be identified, monitored and regularly measured against stated standards. It also requires the existence of a specific body, vested with regulating authority, to which all charities must furnish regular financial / accounting statements, and which may impose sanctions in respect of any failure to comply with such requirements. There is no such system or regulatory body in Ireland.
3.3.3(i) Bodies with Responsibilities Relating to Financial/Accounting Requirements
The Commissioners of Charitable Donations and Bequests has no general power to require charities to submit financial accounts. However, under s. 42 of the 1961 Act, it does have a specific power of inspection of documents which is occasionally used in circumstances where the Board has reason to suspect financial irregularity within a particular charity.
Once a charity is incorporated then annual returns including a statement of accounts must be made to the registrar of the Companies Registry Office. Failure to comply with the requirement to make annual returns will lead to a company being struck off the register37.
3.3.3(ii) Accounting Guidelines
The public interest in ascertaining whether or not a charity is solvent, is on a sound financial footing and is conducting its financial affairs with probity cannot at present be satisfied. There are no accounting or filing requirements for charities which are not incorporated as companies.
Charities which are incorporated are subject to differing requirements depending on whether they are limited by guarantee or by shares. Where limited by guarantee a charitable company is required to file an annual return and a set of accounts in the Companies Registration Office. There is no requirement for the accounts to detail the company’s expenses to any meaningful extent or to file a profit and loss account or director’s report. The Advisory Group recommended that legislation be introduced to require a fixed standard of accounting and to empower the proposed registration authority to deal with the details of the accounting requirements. It suggested that all registered groups should be required to keep proper accounts including accounting records and an end-of-year statement. Where limited by shares, if the charity qualifies as a small company, then it need only file a balance sheet and related notes plus accounting policies38. In practice many Irish charities often voluntarily apply higher standards – equivalent to those found in the UK’s Statement of Recommended Practice (SORP). There is a clear need to require all charities, whatever their legal form, to regularly file the accounts necessary to reveal flows of income and expenditure and disclose assets and liabilities. The Law Society make quite detailed recommendations regarding the setting up of new registration and regulatory systems which seem appropriate39.
In Ireland, there is no specific legislative framework designed to govern fundraising for charitable purposes. Such statute law as exists is dated, addresses fundraising for charitable and for other purposes and is mostly concerned to outline authorising procedures than to identify and proscribe abuses. Raffles, church collections, door-to-door and street collections continue to be successful methods of fundraising. But such traditional means are now supplemented by more professional and entertaining fundraising techniques with the capacity to attract and possibly transfer overseas, within a very short period, a large volume of funds. Current legislative provision is wholly inappropriate to govern modern fundraising for charitable purposes.
4.1 The Legislation
The fundraising activities of charities remain governed by two statutes: the Street and House to House Collections Act 1962 and the Gaming and Lotteries Act 1956. Both are now too dated to adequately address the complexities of modern fundraising practice nor do they deal with the more fundamental issues of identifying the organisations and the activities which constitute fundraising for charitable purposes. The National Lottery was established and remains governed by its own specific legislation.
4.1.1 The Street and House to House Collections Act 1962
The law imposes constraints on fundraising by means of street collections and by house to house collections whether undertaken for charitable or for non-charitable purposes. The role of the Gardaí in the issue of permits for such collections was introduced by the 1962 Act which continues to provide the governing legislative provisions. Attention has been dran to the specific deficiencies in this statute by G St J Moore40.
Basically, such very dated legislation provides controls that are inadequate and insufficient to effectively govern this form of fundraising in modern Ireland. The inadequacy is evident in the meagre amount of information an applicant is required to provide about their organisation, the projected costs to be incurred in undertaking the collection and regarding arrangements for paying the collectors. Once completed, there is no obligation on the permit holder to furnish accounts. The legislation is insufficient because it fails to deal with collections in certain circumstances. For example, although a large proportion of fundraising in Ireland is Church based, the 1962 Act avoids imposing controls in situations where this might cause offence to religious sensibilities.
4.1.2 The Gaming and Lotteries Act 1956
The 1956 Act identifies four different types of lottery which are deemed not to be unlawful: certain private lotteries 41; lotteries held under a permit granted by the Superintendent of the Garda Siochána42; lotteries held under a licence granted by the District Court43; and lotteries promoted as part of certain events (such as dances and concerts)44.
4.1.3 The National Lotteries Act 1986
The national lottery was established by the National Lotteries Act 1986. In keeping with such lotteries in other countries, it offers prizes of much greater value than traditional small-scale lotteries and does so through draws held at fixed and frequent intervals. It is subject to specific statutory requirements regarding such matters as the proportion of income expended on running costs and the furnishing of accounts. It is not subject to the provisions of the Gaming and Lotteries Act 1956.
4.2 Registering and Regulating Fundraising Activities
Legislation is now required to give effect to the recommendations contained in the reports of the Costello Committee45 and the Advisory Committee46 both of which were established by the government specifically to advise it on fundraising issues and duly did so. This will have to provide new statutory requirements to govern the accountability of charitable bodies to their donors.
4.2.1 Registration Systems
Among the recommendations listed by the Committee on Fundraising Activities for Charitable and Other Purposes in its report was that a system be established to provide for the registration of organisations which fundraise for charitable and philanthropic purposes. This it regarded as one of the most important legislative changes needed to be made.
A new system of accountability is needed with clear rules requiring organisations to register, establishing the criteria for registration and identifying an agency with specified duties and powers in respect of the registration process.
4.2.2 Regulatory Systems
Regulation of fundraising activities is currently left to the Gardaí who, after granting the necessary permits, under the 1962 Act, will rarely intervene unless presented with evidence of a crime such as fraud. The Costello Report contained recommendations regarding the need to regulate fundraising activities. These included recommendations for:
- the Registration Authority to have supervisory and investigatory powers;
- a prohibition on the sale of lottery tickets by house-to-house visits and on the street (sale of lottery tickets in the street to be prohibited);
- greater controls on private lotteries, occasional lotteries and periodic lotteries;
- telethons to operate under approved schemes; and
- registration and control of professional fundraisers.
In November 1996 the Advisory Group submitted its report broadly endorsing, and recommending implementation of, the Committee’s proposals. The charity law review must now take the recommendations on board.
4.2.3 Other Specific Fundraising Problems: Lotteries
There are four different types of lottery.
- Private lotteries. These are governed by s. 23 of the 1956 Act. They are not unlawful if they are not openly publicised, and are confined either to members of one society which has not been established for purposes connected to gaming, wagering or lotteries or to persons working or residing on the same premises. Such lotteries are not restricted to charitable purposes and no limit is set to the value of prizes. Private lotteries have become a key component in the fundraising strategy of many charitable bodies. The Advisory Group endorsed the recommendations made by the Committee in relation to private lotteries, subject to the limit for prize funds being raised considerably.
- Lotteries held under permit. Under s. 27 of the 1956 Act, a Superintendent of the Garda Siochána is authorised to grant permits for lotteries in circumstances where: the applicant will derive no profit; the value of the prizes shall not exceed a total of £300 (now increased); and the value of each prize will be stated on the ticket. No applicant can be awarded more than one permit within any six month period. Both the Committee and the Advisory Group agreed on the following recommendations for improving statutory provisions: the application should be made to a Garda Superintendent and should state the number of tickets to be printed etc; the application must be made within six months of the proposed lottery date; a permit should not be granted more than once in six months to any beneficiary; each ticket should state the price etc; a reasonable opportunity should be given to the public to attend the draw; and the permit holder should make a return to the granting Superintendent within 3 months of the draw and should publicise a statement of prizes and prizewinners. The Advisory Group proposed that: there should be no prescribed limit on expenses but full disclosure of expenses should be made in the accounts; the registration authority should be empowered to prescribe the detail of regulations governing the sale of chances on the street.
- Periodical lotteries. Under s. 28 of the 1956 Act a District Court is authorised to grant a licence for the promotion of a lottery on condition that: it is for charitable purposes; no profit shall be derived; the total value of prizes on any one occasion shall not exceed £500 and if more than one is held in any week the total of all prizes shall not exceed £50047; the value of each prize will be stated on the ticket; and not more than 40% of gross proceeds shall be spent on expenses. An applicant must give at least 28 days notice to the Superintendent of the Garda Siochána for the district in which the lottery is to be held. Under the “Periodical Lotteries Regulations 1961”48 proper accounts and other records must be maintained. Occasional lotteries have become enormously popular in recent years. Large scale enterprises such as the Rehab Lottery (a limited company established jointly by the Rehabilitation Institute and the Central Remedial Clinic), with annual ticket sales of approx. £14 million, have been established under Part 1V of the 1956 Act. The law governing this activity, however, has remained unchanged. The 1956 Act provides an increasingly insufficient statutory framework for regulating the modern volume and sophistication of occasional lotteries. The Advisory Group recommended that: all applications for nationwide periodical licences should be made in a prescribed format to the registration authority; the cap on prize funds should be removed; there should be no prescribed limits on expenses but full disclosure of same in the accounts; and the regulations for the running of lotteries should be the responsibility of the registration authority.
- Lotteries at dances, concerts and other events. Under s. 24 of the 1956 Act, a lottery is not unlawful if is promoted as part of a dance, concert or similar event, the person holding the event derives no profit and the total value of the prizes does not exceed £25.00. Nor is it unlawful if promoted as part of a circus, other travelling show or carnival, bazaar, sports meeting or such like event, on a day in which ‘gaming’ is permitted; provided no profit is derived by the person holding the event.
4.2.3 Deficiencies in the Law governing Lotteries
This unnecessarily complex area of law now requires updating, simplification and consolidation. Lotteries held by permit, for example: need not be held for charitable purposes; the proportion of proceeds used to cover expenses is not fixed by law and need not be disclosed; neither is there any obligation to disclose amounts raised; tickets may be sold in the street and from house-to-house without a permit; and there is no means whereby the issuing authority can monitor how the permit holder ran the lottery.
The financial limits set for prizes under s. 24 and s. 25 have remained as fixed under the 1956 Act and are no longer appropriate.
4.2.4 Other Specific Fundraising Problems: The National Lottery
The National Lotteries Act 1986 was introduced solely and specifically to provide a statutory framework for running the national lottery and has proved to be an important means of fundraising for charitable purposes. The national lottery is unlike all other lotteries in one important and distinguishing respect, it is not subject to any restrictions as regards the value of its prizes. The only requirement is that any given year the total value of the prizes must not less than 40% of total ticket sales.
The 1986 Act vests considerable authority in the Minister for Finance to exercise control over any company licensed to run the national lottery. The minister must: approve the company’s articles of association and any alterations made to them; appoint the directors; receive approved accounts and annual reports; approve the scheme of rules prepared by the company for each lottery game; and appoint an independent scrutineer to inspect and monitor the national lottery. The national lottery is exempted from the provisions of the Gaming and Lotteries Acts.
4.2.5 Other Specific Fundraising Problems: Telethons
These have become an extremely popular method of involving the general public in fundraising and of promoting awareness of deserving causes. However, at present such activity is outside statutory control. The Advisory Group, broadly endorsing the suggestions made the Committee, recommended that telethon organisers should be obliged to (a) register a scheme, in a prescribed format, with the Fundraising Registration Authority and (b) return accounts and records to the Authority; and that the registration authority should have investigative powers in respect of telethons.
4.2.6 Other Specific Fundraising Problems: Professional fundraisers
Both the Committee and the Advisory Group recommended that such persons should be required to register. There is a concern that professional fundraisers can contract their services for payment on the basis of an excessive proportion of total funds raised. Legislative provisions need to be introduced to fix a ceiling on payments by commission. The Law Society made some detailed and wholly appropriate recommendations for reform of this area of practice49:
“We recommend that in addition to the requirements for professional fundraisers to be registered with the regulatory authority and for written agreements between them and the charities for which they are acting, there should be statutory grounds for charities to injunct professional fundraisers or others from collecting funds in their names where
- The fundraiser is using methods to which the charity objects; or
- The fundraiser is not a fit and proper person to raise funds for the charity; or
- The charity does not wish to be associated with that fund-raising venture.”
4.2.7 Other Specific Fundraising Problems: Disaster Appeals
Fund-raising activity for the purpose of disaster relief must clearly specify the purpose for eliciting funds and ensure that all donations will be used exclusively for that purpose. This gives rise to problems where there are surplus funds or where there is uncertainty regarding the extent of the class eligible for relief. The procedure, under s. 48 of the Charities Act 1961, to dispose of funds, or of surplus funds, in circumstances where a public appeal has attracted donations which are not needed may need to be reviewed to ensure that cases concerning such matters are not brought before the courts.
4.2.8 Other Specific Fundraising Problems: Schools
The Costello Report noted that a special situation exists in relation to schools50. Whilst they may come within the charitable purpose of advancing education, and often do engage in fundraising to augment their capitation grants, this form of fundraising should not come within the ambit of any registration provisions. Where appeals are made to past-pupils or parents of present-day pupils the funds are not being raised from the ‘public’ as such. New legislative provisions are needed to clarify and regularise fundraising by schools.
Tax & Rates
In Ireland the agencies and legislative frameworks for processing applications in respect of eligibility for tax exemption on grounds of charitable ‘status’ are very different from those relate to any equivalent entitlement to rates exemption. The lack of legal synchronisation between the two is an anomaly that has long needed legislative correction.
5.1 Determination of Status for Exemption Purposes
The Revenue Commissioners are responsible for the administration of tax exemptions and determine which bodies are entitled to charitable exemption. In general, charitable exemption from liability for tax is available where:
- the body is established for charitable purposes only; and
- the income is applied for charitable purposes only.
As there is no statutory definition of ‘charity’ the Revenue Commissioners rely on the common law interpretation resting on Pemsel and the associated case law precedents (see, above).
The Commissioners of Valuations are responsible for the administration of rates exemptions. Again, in the absence of a statutory definition of charity, the Commissioners of Valuations rely on a traditional form of interpretation which allows only certain categories of charitable activity to claim exemption. The result is that not all bodies entitled to charitable exemption from liability for tax will be entitled to rates exemption in respect of their premises.
5.2 Tax Laws
The laws governing tax in Ireland are to be found largely in the Taxes Consolidation Act 1997 and the Finance Act 2002. The statutory framework provides a complex spread of provisions with an incidental but important relevance for charities. Their application to charitable organisations and their activities now needs to be synthesised and governed by a uniform set of principles.
5.2.1 Income Tax
Exemption from income tax is available under sections 207 and 208 of the Taxes Consolidation Act 1997. These are not blanket exemptions. The income in question must come within the categories specified in the legislation and must also be applied exclusively for charitable purposes. Further, recent case law51 has confirmed that eligibility for income tax exemption is restricted to charities that are established in Ireland. Exemption from liability for income tax is determined in accordance with conditions outlined in one of four different Schedules; exemption from corporation tax is similarly determined.
- Schedule C. Deals with income tax liability relating to the interest, annuities, dividends or shares of annuities from the revenue of a public body.
- Schedule D. Deals with tax liability relating to specified activities/types of income including revenue resulting from trading. The Revenue Commissioners define trading as “generally involving the sale of goods or services to customers with a view to generating a profit”. To qualify for a trading exemption the relevant body must have charitable exemption and the income derived from trading must be applied solely to the purposes of the charity. In addition, normally one of the following conditions must also be satisfied: the trade must be a primary purpose of the charity; or the work in connection with the trade must be carried on mainly by beneficiaries of the charity. Trades may also qualify for trading exemption if they are ancillary to the carrying on of a primary purpose of a charity. The Revenue Commissioners will otherwise allow exemption where that part of the trade which is not a primary purpose activity is small relative to the overall trading activity, and the turnover of that part of the trade which is not a primary purpose activity is not greater than 10% of the entire trading turnover. If these conditions are not satisfied all of the profits arising from both the primary purpose and non-primary purpose trade will be taxable.
- Schedule E. Deals with tax liability relating to income from offices, employment, pensions and annuities (other than annuities taxed under C). There is no entitlement to tax exemption under this Schedule for charities.
- Schedule F. Deals with tax liability relating to dividends and distributions from Irish tax resident companies. Exemption is allowed for in respect of income derived solely from exclusively charitable purposes. Currently, for charities in Ireland, the restrictions are most obvious in relation to the lack of eligibility for tax exemption in relation to employment income under Schedule E, professional income under Schedule D, income from any trade that does not fit within the above constraints, income from foreign sources and various other miscellaneous income under Schedule D.
5.2.2 Capital Gains Tax
Exemption from capital gains tax is available under s 609 of the Taxes Consolidation Act 1997 where a capital gain accrues to a charity and is applied for charitable purposes. Where property owned by a charity ceases to be the subject of a charitable trust the proceeds of a sale will be fully liable to capital gains tax. Under s 611 where a disposal of property to charity is made at cost price or less then it will escape liability for capital gains tax.
5.2.3 Capital Acquisitions Tax, etc.
Exemption from capital acquisition tax is available under s 54 of the Capital Acquisitions Tax Act 1976 in respect of gifts or inheritances for public or charitable purposes.
Probate tax is charged at a rate of 2% on the net assets of a deceased above an index-linked threshold. Section 112(b) of the Finance Act, 1993 provides that property, real or otherwise, which is given by the will of the deceased for charitable purposes, will be exempt from tax, to the extent that the Revenue Commissioners are satisfied that it has been or will be applied for charitable purposes.
Discretionary Trust Tax is charged at a once-off rate of 6% and thereafter at an annual rate of 1%. Trustees of a discretionary trust have discretion as to how and when the income of the trust is/will be distributed. A discretionary trust which is shown to the satisfaction of the Revenue Commissioners to have been created exclusively for charitable purposes in Ireland or Northern Ireland is exempt from tax pursuant to section 108(1)(a) of the Finance Act, 1984.
5.2.4 Stamp Duty, etc.
Section 82 of the Stamp Duties Consolidation Act 1999 exempts from stamp duty any conveyance or lease of land made for charitable purposes, in both Ireland and Northern Ireland, to a body of persons or trust established for charitable purposes only or to the trustees of a trust established for charitable purposes only. There is no exemption in respect of the acquisition by charities of, or other dealings in, other forms of property such as shares or intellectual property rights.
Section 120 of the Stamp Duties Consolidation Act 1999 provides for exemption from capital duty, a form of stamp duty, in the case of a transaction that is effected by a capital company whose objects are exclusively cultural, charitable or educational.
5.2.5 Value Added Tax
As Ireland is part of the European Economic Community the national VAT laws are framed within the parameters of the European Union’s Sixth Council Directive on VAT (77/388/EEC (as amended)) which sets out the structure for a common system of VAT in the EU.
Organisations which have been granted charitable tax exemption are not, in the normal course, either obliged or entitled to register and account for VAT on their income (output VAT) and are therefore not entitled to a credit on the VAT they incur.
Charities engaged in trading activities, such as a coffee shop run by a charity, are brought within the VAT net because they are considered to be supply of taxable goods and services for consideration in the course or furtherance of a business. If these charities exceed the threshold for registration (currently 50,790 euros for the sale of goods) they are obliged to register for VAT in respect of these business activities.
Section 6 of the VAT Act, 1972 exempts certain activities which would otherwise be considered taxable. Some of the exemptions listed in the First Schedule to the VAT Act, 1972 relate to charities including exemptions in respect of supply of goods and services closely related to welfare and social security by non-profit-making organisations, the issue of tickets or coupons for the purpose of a lottery. Also exempt is the supply of goods and services closely related thereto for the benefit of members by non-profit-making organisations whose aims are primarily of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature where such supply is made without payment other than the payment of any membership subscription.
Generally the Revenue Commissioners allow exemption if they consider that the activities carried on by the charitable organisations either fit within the exemptions in the First Schedule of the VAT Act, 1972 or do not conflict with Article 13.A.2 (b) of the EC Sixth Directive. There are some very specific reliefs from input VAT which are made available by VAT Regulation and VAT Ministerial Orders to organisations which have been granted charitable tax exemption.
- Motor Vehicles for Disabled Persons. The Disabled Drivers and Disabled Passengers (Tax Concessions) Regulation 1994 provides for the refund of VAT incurred on the acquisition of a motor vehicle (subject to certain criteria being satisfied) where the driver is a disabled person or the vehicle is to be used for the transportation of disabled persons.
- Radios for the Blind. Section 20(2) of the VAT Act 1972 provides for the repayment of VAT in respect of radios purchased for use by blind persons.
- Humanitarian Goods for Export. The VAT (Refund of Tax) (No. 18) Order 1981 enables a refund of VAT to be made in respect of any goods which have been exported from Ireland within four months of their acquisition by qualifying persons (i.e. a non-profit making organisation involved in humanitarian, charitable or teaching activities abroad).
- Donated Medical and Research Equipment. The VAT (Refund of Tax) (No.23) Order 1992 provides for a refund of VAT paid by a hospital or donor on the purchase of new medical equipment and appliances (excluding means of transport) where the cost exceeds 23,395 euros. The goods must be for use solely in medical research, diagnosis, or the prevention or treatment of illness and must not have been part funded by the State. A similar provision is made in respect of the purchase or importation of research equipment, acquired through voluntary donations, by a research institution or university, school or similar educational body engaged in medical research in a laboratory.
- Sea Rescue Craft and Equipment. VAT can be reclaimed on certain specified small craft, ancillary equipment and special boat buildings and also on the hire, repair and maintenance of such by qualifying sea rescue groups.
5.2.6 Tax Incentives for Donors
Any donation must be to an ‘eligible charity’. It must also be: in the form of money; not be repayable; not confer any direct or indirect benefit on the donor or any person connected with the donor; and it must not be conditional on, or associated with, or part of an arrangement involving the acquisition of property by the approved body, otherwise than by way of gift, from the donor or any person connected with the donor.
The actual application of the tax relief depends on whether the donor is an individual PAYE (Pay As You Earn) taxpayer or an individual on self-assessment or a company.
- Individual PAYE taxpayer. The donation will be treated as having been received by the approved body “net” of income tax and the approved body may subsequently reclaim the tax from the Revenue Commissioners. The tax refund paid to the approved body will be limited by the amount of tax actually paid to the Revenue Commissioners by the donor.
- Individual on Self-Assessment. The individual will claim the relief in his or her tax return for the year of assessment in which the donation is made.
- Company. The donation is treated as a deductible trading expense or as an expense of management in computing the total profits of the company. The company may make a claim with its tax return for the accounting period in which the donation was made. Tax incentives for all donors, whether individuals or companies, are now governed by the Finance Act 2001; s 45 of which inserted s 848A and Schedule 26A into the Taxes Consolidation Act 1997. Tax relief is available under s 848A in respect of donations made to eligible charities consisting of a minimum of 250 euros in any one accounting period. The charity to which the donation is being made must be an ‘eligible charity’ i.e. it must have held exemption for a period of three years or more and be authorised by the Revenue Commission for the purposes of the scheme. In November 1998 the Revenue Commission published a list of some 216 organisations which it recognised as ‘eligible charities’.
5.3 Rates Laws
In Ireland rates are levied by local authorities on the occupiers and, in some cases, the owners of property in the area of the local authority. Rates are assessed on the basis of the net annual value of the property. The Commissioner of Valuations is responsible for ruling on entitlement to charitable exemption from rateability in Ireland. The Valuation Tribunal was established by the Valuation Act 1988 to hear appeals against disputed rulings.
The Irish courts have held that the grounds for exemption from rates are to be found in section 63 of The Poor Relief ( Ireland) Act 1838 and section 2 of The Valuation ( Ireland) Act, 1852 and 1854.
Section 63 of the 1838 Act specifies the hereditaments deemed to be rateable subject to the following exemption clause:
“Provided also, that no church, chapel, or other building exclusively devoted to religious worship or exclusively used for the education of the poor; nor any burial ground or cemetery; nor any infirmary, hospital, charity, school, or other building used exclusively for charitable purposes, nor any building, land or hereditament dedicated to or used for public purposes, shall be rateable, except where any private profit or use shall be directly derived therefrom, in which case the person deriving such profit or use shall be liable to be rated as an occupier according to the annual value of such profit or use.”
The relevant provision of section 2 of the 1854 Act is as follows:
“In making out the Lists or Tables of valuation … the Commissioner of Valuation shall distinguish all hereditaments and tenements, or portions of the same, of a public nature, or used for charitable purposes or for the purposes of science, literature, and the fine arts … and all such hereditaments or tenements, or portions of the same so distinguished, shall, so long as they shall continuer to be of a public nature, and occupied for the public service, or used for the purposes aforesaid, be deemed exempt from assessment for the relief of the destitute poor in Ireland and for Grand Jury and County Rates.”
The 1838 and 1854 Acts have been construed as one and in particular it has been held that s 2 of the 1854 Act is subject to s 63 of the 1838 Act. The result is that, in Ireland, the expression “charitable purpose” has a much narrower meaning when determining eligibility for exemption from rates than the meaning given to those words in Income Tax Special Purposes Commissioners v. Pemsel when determining eligibility for tax exemption.
The effect of this legislation has been an entitlement to exemption from rates in respect of premises used for either charitable purposes or public purposes. Case law has confirmed that the buildings must be used exclusively for charitable purposes and only for those purposes specified in s 63. Similarly, exemption from rates can be obtained where the buildings are used for public purposes only. Again the case law confirms that exemption is available only where the buildings are used for purposes in which all members of the public were or could be interested. The outcome has been that because of the specified restrictions in s 63 of the 1838 Act, not all charities in Ireland qualify for rates exemption on their premises.
Summary of Issues for Charity Law Review in Ireland and Some Reflections Regarding the Future Strategic Relationship Between the State and the Sector.
This article has identified and discussed a number of issues which will clearly have to be addressed by the government if Ireland is to have a modern charity law framework that fits its particular pattern of contemporary social need and promotes greater effectiveness, transparency and accountability in the practice of its charitable organisations. Some issues are more important than others. The lack of any significant development in law or processes since the 1960s arguably now provides a more open opportunity to ensure that a new framework is sensitively tailored to fit the requirements of modern professional practice. This jurisdiction is less encumbered than its neighbours by layers of legislation and agency bureaucracy. There is a clearer site to build in.
However, the relationship between the State and the sector reflected in its present charity law framework is manifestly not the type of relationship that can be represented in any new law. The step from legislating for the third sector in the 1960s to providing for its needs into the new millenium is one that will require considerable dexterity. How this process is managed will both determine and demonstrate the type of relationship to be given effect within a revised charity law framework.
6.1 Summary of Issues
There are several important and non-controversial matters that require reform. These include:
- The absence of a coherent/cohesive legal framework that differentiates between and governs the activities of charities and all other not-for-profit bodies;
- The absence of a system for registering charities;
- The absence of a system to regulate charities and to provide for greater transparency and accountability in relation to their fiscal affairs;
- The multiplicity of agencies and lack of any co-ordination of their respective areas of responsibility in relation to charities;
- The absence of modern and consolidated legislative provisions relating to fundraising particularly as regards the involvement of professionals, the use of telethons and the relevance of the criminal law;
- The lack of any logical congruity between the grounds for charitable exemption from tax and from rates.
- The unsuitability of current legal structures/forms for much modern charitable activity; and
- The weak legislative provisions currently governing the powers and duties of trustees.
Other matters of either less importance or more controversial, or perhaps both, that also in the view of this writer require reform include:
- The definition and bearing of the public benefit test;
- The subjective test of a donor’s charitable intent;
- The restricted application of cy-pres and its outdated financial thresholds;
- The retention of the advancement of religion as a charitable head or, at least, the continued statutory exemption of religious organisations and their activities from the public benefit test;
- The constraints on political activity by charities;
- The constraints on trading by charities; and
- The lack of any co-ordination with charity law in Northern Ireland, particularly as regards addressing common problems of peace and reconciliation and social inclusion.
It should be noted, at least in the view of this writer, that whereas it may be judged to expedient in the interests of partnership to leave some of these issues to self-regulation by the sector in accordance with good practice guidelines, most must be the subject of legislation and assigned to a government body for enforcement.
6.2 The Charity Law Review Process and the State / Sector Partnership
The Government and the sector are now engaged in a process intended to conclude with the introduction of new legislation governing charities and their activities. This will occur within the context of the Government’s policy strategy for supporting voluntary activity of which a central concern is to “promote sound principles and best practice models for the effective functioning of the State/ Community Voluntary Sector relationship”52. Indeed, from several different perspectives this process of engagement is important:
- From the perspective of the ‘partnership’ ethos, the process provides a test bed for taking stock of the current developmental stage of the state/sector relationship in terms of how the conduct of the parties conforms to the principles of ‘partnership’ and whether the benchmark principles of the White Paper are satisfied.
- From a political perspective, the re-aligning of charity law with a truly contemporary interpretation of social need presents a significant challenge that, for example, may call into question the long-standing privileged position of religious organisations in this context. The probable introduction of regulatory and registration systems for charities may itself be perceived by the sector as a significant political development.
- From a practice perspective, the methods employed by the Dept to identify and fully engage with representative ‘voices’ in the sector, to ensure that the interests of the socially disadvantaged are ascertained and properly taken into account in the framing of provisions that address their needs, will be instructive.
- From a strategic management perspective, the structures, processes and procedures being piloted in this process may well offer a model for future co-operation between the Government and the sector.
- From an academic perspective, how the sector develops an advocacy capacity sufficient to permit the effective and equitable participation of its various disparate constituencies and ensure that issues of social justice and social inclusion are addressed will be of considerable interest.
6.3 The Challenges Facing the State / Sector Partnership
Ireland has an enviable track record of Government and third sector collaboration in the provision of public service facilities. In fact much of the nation’s education and health and social care infrastructure currently administered by the State was established and staffed by the sector, primarily through the contribution of religious organisations. As elsewhere, the Government is now in the process of retraction from any pretence at assuming responsibility for cradle to grave service provision and is actively cultivating the involvement of nfps in strategies to share the onus of future public service provision. Charities, because of their resources, knowledge and networks within their constituency of the socially disadvantaged are well positioned to play a key role in such strategies. A new charity law framework and the process whereby this is achieved are, therefore, of crucial importance for the future of any State/Sector partnership.
This, inevitably, gives rise to certain questions including
- Is the sector sufficiently organised to engage strategically with Government?
- Can the sector ensure that its interests will be safeguarded and promoted during the course of the charity law review process?
- Are the agendas of Government and sector sufficiently similar and complementary to permit Ireland’s social inclusion issues to be adequately addressed?
The answer to the first question depends very much on who is asked. Leadership in the sector is problematic and prone to varying at least across time, place and issue if not also in accordance with the professional or other interest groups involved. There are many different sets of interests represented in the composite term ‘community and voluntary sector’ and it cannot be assumed that particular umbrella bodies or assertive personalities necessarily have a mandate to speak for the sector. On the other hand, Government has to negotiate with someone and it is most expedient to do so with the high profile persons or bodies choosing to engage with it.
At the heart of the second question lies the issue of the independence of the sector and its constituent bodies. The more complicit the relationship between Government and sector the more problematic it becomes for the latter, or for particular nfps, to retain autonomous integrity. The drift into contract culture and increased dependence on State sources of funding has led to implicit Government colonisation of the sector accompanied by a commensurate disempowering of nfps some of which have lapsed into proxy Government bodies. This has triggered a situation where resulting market forces have caused the demise or merger of some nfps while others have been compromised in terms of their freedom to determine activity and to dissent from Government policy. More fundamentally, it risks leaving the sector and its ethos to be shaped by the changing needs of Government.
The third question raises a thorny issue – why should there be congruity between the agendas of State and sector, or more to the point, in what circumstances is this less likely and then so what? The answer, in part, turns on the status of socially marginalised groups and the process whereby their cause may become legitimated. There is always some slippage between identifying need and arranging appropriate public service provision. There are also always some types of socially disadvantaged groups that are more amenable to recognition by Government as ‘deserving’, some of which will be found to be more so than others. The greater the degree of non-conformity with the prevailing status quo, whether in terms of politics or social values, the greater likelihood that a group will have difficulty in acquiring the status of worthy recipient of public resources/services. It then becomes more probable that such a group will become alienated from and thereafter possibly come into conflict with the State. In the process it is likely to build up grassroots support within the third sector and remain accessible to intervention from that quarter. It is these groups which are both the most vulnerable and potentially pose the most danger in a civil society context. Where the State cannot confer legitimacy and resources it must be careful not to pre-empt the possibility of the sector extending the assistance necessary to prevent a socially marginalised group from becoming alienated. For this reason it is important that the State and sector, in the course of their charity law review negotiations, acknowledge the asymmetry in their social inclusion agendas. The next step is to then provide the legal provisions necessary to remove existing obstructions on and facilitate future mediation by charitable organisations that choose to address the needs of such groups. This will include measures such as removing obstacles to assertive advocacy by and user control of charitable bodies. It will also require the introduction of positive measures such as the conferring of charitable status on bodies that have as their purposes the promotion of peace and reconciliation or rural regeneration. An explicit recognition that the sector can reach those parts of society which the State cannot will pave the way for a more complementary partnership between the two.
* Dr. O’Halloran is Research Director of the Centre for Voluntary Action Studies at the University of Ulster and author of many books and treatises on related subjects. Dr. O’Halloran can be reached at KJ.OHalloran@ulster.ac.uk.
1 See, Council of Europe, Fundamental Principles on the Status of Non-governmental Organisations in Europe, the Secretariat Directorate General of Legal Affairs, Strasbourg, April 2002.
2 See, Programme for Government where it is stated that “A comprehensive reform of the law of charities will be enacted to ensure accountability and to protect against abuse of charitable status and fraud”, June 2002, p 29.
3 Responsibility for charities and charity law matters transferred from the Dept of Justice, Equality and Law Reform to the current Dept in 2001 and, as we go to press, we are advised that a further Departmental transfer is imminent.
4 See, Supporting Voluntary Activity: a White Paper for Supporting Voluntary Activity and for Developing the Relationship between the State and the Community and Voluntary Sector, 2001, (the ‘White Paper’). Also, see, Supporting Voluntary Activity: a Green Paper on the Community Voluntary Sector and its Relationship with the State, Department of Social Welfare, Dublin, Stationery Office, 1997 (the ‘Green Paper’).
5 The commissioned report Charity Law Review: a Report for the Department of Social, Community & Family Affairs, April 2002, was compiled by Arthur Cox, Solicitors (Dublin) and the Centre for Voluntary Action Studies (University of Ulster) acting in partnership. The present author contributed an ‘Irish Legal Study’ to that report and this was supported from the CVAS side of the partnership by studies of the law in other jurisdictions: Prof Karla Simon (the United States, South Africa and Canada); Mr Richard Fries ( England & Wales and Scotland); and Ms Emma Fitzgerald ( Australia and New Zealand).
7 See, Report of the Inquiry into the Definition of Charities and Related Organisations, Canberra, August 2001. Note that the recommendation has been accepted by the Government
8 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 85. Also, note the recommendation that the concept of public benefit be redefined to include ‘altruism’ at p 90.
9 See, Income Tax Special Commissioners v Pemsel  AC 531.
10 See, Sir William Grant MR in Morice v. The Bishop of Durham(1804) 9 Ves 405. He then stated that a fixed principle existed in the law of England that purposes deemed to be charitable are those “which that Statute enumerates” and those “which by analogies are deemed within its spirit and intendment”.
11 See, the Poor Relief ( Ireland) Act 1838 and the Valuation ( Ireland) Acts 1852 and 1854.
12 The leading Irish case in this context is In re Cranston, Webb v. Oldfield [ 1898] 1 IR 431.
13  1 ILRM 161.
14 See, Attorney General v. Pearce (1740) 2 Atk 87, per Lord Hardwicke LC who declared that it was extensiveness that constitutes a public charity. See, also, In re McEnery, O’Connell v. Attorney General  IR 323, per Gavan Duffy J.
15 See, Re Tree  1 Ch 325, 327, per Evershed J.
16 See, Verge v. Somerville, op. cit . per Lord Wrenbury at p. 499 and IRC v. Baddeley  AC 572, per Lord Simmonds LC at p. 593.
17 See, Trustees of Sir HJ William’s Trust v. IRC (1944) 27 TC 409, per Lawrence LJ at p. 418.
18 See, Re Drummond  2 Ch 91 per Eve J at 97; Verge v. Somervilleop. cit. per Lord Wrenbury at p. 499; Trustees of Sir HJ William’s Trust v. IRC, op. cit. per Lawrence LJ at p. 418; Re Tree, op. cit. per Evershed J at p. 327; IRC v. Baddeley, op. cit. per Lord Simmonds LC at p. 593; and Davies v. Perpetual Trustee Co. Ltd.  AC 439, per Lord Morton at p. 456.
19 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 57.
20 See, A.-G. v. Dublin Corp (1827) 1 Bligh NS 312, per Lord Redesdale at p. 347 and Incorporated Society in Dublin for Promoting English Protestant Schools in Ireland v. Richards (1841) 1 Dr & War 258.
21 See, Boyle v. Boyle (1877) IR 11 Eq 433.
22 See, Jackson v. Attorney General (1917) 1 IR 332 and Moore v. The Pope (1919) 1 IR 316.
23 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, pp 85 – 86.
24 See, Norris v Attorney General  IR36 for judicial comment, if obiter, on the preferential standing given to the Roman Catholic Church.
25 Although Article 44 of the Constitution was amended by the Fifth Amendment of the Constitution Act 1972 the judicial view in Norris, ibid, was that this did not excise the favoured standing of the Roman Catholic Church, relative to all other religions, in Irish law.
26 See, Gilmour v. Coats  AC 426.
27 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 76.
28 Ibid , see above at note 19.
29 Ibid , at p 75.
30 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 230.
31 See, the report of the Scottish Charity Law Commission, Charity Scotland, May 2oo1, p 24.
32 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 209.
33 As we go to press, it seems probable that responsibility for charities and charity law will again be transferred between government departments.
34 See, the Report of the Committee on Fundraising Activities for Charitable and Other Purposes, Stationery Office, Dublin, 1990, (also known as the Costello Report).
35 See Report of the Advisory Group on Charities/Fundraising Legislation, Department of Equality and Law Reform, November 1996.
36 See, Re Denley’s Trust Deed  1 Ch 373. Also, see, Byrne R., and McCutcheon J.P., The Irish Legal System, (3 rd ed.), Butterworths, Dublin, 1996 at paras. 3.54 – 3.60.
37 See, ss .11 and 12 of the Companies (Amendment) Act 1982 as amended by s. 245 of the 1990 Act.
38 A small company is defined by the Companies Act 1986 as having a turnover of up to £3 million, total assets of less than £1.5 million and less than 50 employees. I f a charity satisfies two of these criteria for two consecutive years, it falls within the accounting requirements outlined above.
39 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, pp 128 – 161.
40 See, The Law of Fundraising: Time for Change (1997) 15 ILT 154. For further information on the type of problems associated with fundraising see: the National Council for Voluntary Organisations, Lotteries and Gaming: Voluntary Organisations and the Law, and also Malpractice in Fundraising for Charity, NCVO, London, 1986; and the Woodfield report.
41 s. 23 of the Gaming and Lotteries Act 1956.
42 Ibid , s. 27.
43 Ibid , s. 28.
44 Ibid , s. 24 and s. 25.
45 Government publication, The Report of the Committee on Fundraising Activities for Charitable and Other Purposes, Stationery Office, Dublin, 1990.
46 Government publication, The Advisory Group on Charities/Fundraising Legislation, Dept of Equality an d Law Reform, Dublin, 1996.
47 Raised to £10,000 in March 1987 (SI No. 72 of 1987).
48 See, SI No. 212 of 1961; Articles 2, 5 and 7 require all winning tickets to be returned to the gardai.
49 See, Charity Law: the Case for Reform, the Law Society’s Law Reform Committee, Dublin, July 2002, p 182.
50 See, also, Morris, D., An Education in Charity Law, op. cit., Chapter 7.
51 See, Revenue Commissioners v. Sisters of Charity of the Incarnate Word  2 IR 553.
52 See, the Department of Social, Community and Family Affairs, Supporting Voluntary Activity: a White Paper for Supporting Voluntary Activity and for Developing the Relationship between the State and the Community and Voluntary Sector, the Stationery Office, Dublin, 2000.