Legal Mechanisms to Encourage Development Partnerships

Country Reports: Western Europe

The International Journal
of Not-for-Profit Law

Volume 1, Issue 1, September 1998

Region; England and Wales; Germany; Ireland; Italy


Tax Legislation

The Europhil Trust, a European NGO dedicated to the civil society, organized a Round Table in March 1998 under the auspices of the International Bureau of Fiscal Documentation. The Round Table discussions focused on the tax treatment of NGOs and ways to encourage a more favorable environment for cross-border giving, particularly within Europe. A subsequent meeting of the Steering Committee on the Tax Treatment of NGOs was held in July 1998 and working groups were formed to address such issues as multilateral tax treaties, bilateral tax treaties, legal recognition, and value added taxes. The report of the March Round Table and the Amsterdam Mandate it issued as well as information on the succeeding events can be obtained by contacting Frits Hondius, Chief Trustee of the Europhil Trust. (33 388) 56 16 46 (tel) and 56 12 10 (fax).

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1. Framework Legislation

By Lindsay Driscoll

In May 1998, the Charity Commission published a consultation document on the Review of the Register of Charities. This followed some earlier consultation on the draft document. The Review will test whether all the organisations on the Register of Charities are genuinely charitable today and whether it is possible within the law to include new organisations as charities. The Charity Commission has legal powers to interpret the legal rules on charitable status and has stated that it will “use this power flexibly in order to respond to changes in social circumstances.”

The Review of the Register is to be carried out in the context of a Framework document. This will set out the basic characteristics of a charity, the additional characteristics of a well-run charity and other characteristics that may legitimately feature in a charity. The consultation is seeking views on what people value in charity and the boundaries within which charities should work and be governed, to feed into this framework.

The reaction in the voluntary sector to the Review and particularly the draft Framework document has been mixed. There has been some criticism from the National Council for Voluntary Organisations that the Commission may be seeking to reform the law by administrative means and that there is a danger of confusion between legal requirements and matters of good practice. It also queries the introduction of a new term of “recognised social value” in the Framework document which has no legal precedent and queries the Commission’s emphasis on gauging public opinion is a means of finding about modern social needs.

The Charity Law Association’s initial comments also expressed concern about the possible confusion between the law and good practice and emphasises that the Charity Commission has no power to alter the law relating to charitable status, but only to interpret and apply the law. There is also concern about the legal and fiscal consequences of removal of a charity from the Register. The CLA is publishing a detailed legal response next month.

Apart from the Framework document, the Charity Commission has also published two consultation papers on Urban and Rural Regeneration and the Relief of Unemployment. In the first case, the Commission has been considering how charity law can be interpreted so that promotion of urban or rural regeneration for the public benefit in areas of social and economic depravation can be accepted as a charitable purpose in its own right. The unemployment paper considers the relief of unemployment as a charitable purpose in its own right. The unemployment paper considers the relief of unemployment as a charitable purpose in the light of a recent case IRC v. Oldham Training and Enterprise Council. These papers have both been widely welcomed in the sector.

There is a growing interest in wider principles of charity law reform at present in England and Wales. NCVO is holding a conference in September to examine the intellectual case for a special status for some types of organisation or activity. This is part of their wider programme of work reviewing the law on charitable status.

Lindsay Driscoll is a solicitor practicing with:
Sinclair Taylor & Martin
9 Thorpe Close
Portobello Road
London W1O 5XI.
Tel: 0181-969 3667
Fax: 0181-969-7044

2. Tax Legislation

For an in-depth discussion of the changes made by the Finance Bill 1998 in the taxation of charities and their donors, see the article by Robert Venables, QC, in TAXATION NOTES AND NEWS in The Charity Law and Practice Review, Vol. 5, Issue 2, at page 143.

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A New Legal Framework for NPOs in Germany
By Rupert Graf Strachwitz

German NPOs are subject to 2 distinct sets of legislation – civil and fiscal. Both have developed over the years with numerous amendments having been adopted in the course of time. Most of these have been passed with the aim to promote voluntary action, while, on the other hand, the tax authorities have been careful to keep the sector in a niche and not treat it as an important aspect of society. Furthermore, while fiscal law is always federal, foundations, which in Germany are considered part of the Third Sector, have federal and state legislation to follow, while other NPOs have federal law only. And, to make things just a bit more complicated still, voluntary organisations (associations) are expressly protected by the constitution, while foundations are not, their incoporation being considered – in theory – as an act of government grace.

Recently, it has become more and more obvious that changes and reforms are called for, especially, as the Third Sector, too, increasingly has to observe the making and interpretation of law by the appropriate institutions of the European Union, especially as regards competition. Also, the proposed fundamental reform of our tax system will undoubtedly have effects on the fiscal treatment of donations to NPOs as well as on the whole issue of tax exemption. This big reform failed to become law at the beginning of this year, but it can certainly be assumed that after the general elections on 27th September, a new effort will be made to pass the necessary legislation, regardless which party or coalition will then be in government.

In November 1997, the Green party proposed a reform of our foundation law, among other things removing the grace and favor aspects of government intervention and providing for greater transparency. The proposals, now widely discussed among experts, in the media and indeed in parliament, have raised a number of important questions, and many of these are, at this point, unanswerable. How, for instance should the legal obligation for every foundation to publicize its activities and financial situation, be administered? How can federal and state law be combined (given the fact that the state governments will have to consent to the changes in federal law, while of course not all belonging to the same political party)? How can the aspects of civil and fiscal law be adjusted to be two sides of the same coin, while at the same time incorporating fiscal reforms into an overall reform of our tax system that aims at less tax and fewer exemptions? And, most importantly, how can the government’s effort to increase its tax income be brought to match the development of civil society with its drive towards more voluntary action and private philanthropic initiative?

These coming months – as soon as the new government is in power – will certainly be exciting for the sector and for those individuals and corporations who are aware of their responsibilities to their community. But while the sector’s professional lobbyists are already busy digging their trenches, politician’s attention will in fact turn towards independent think tanks and experts from whom they may expect an unbiased opinion as to how a forward looking model of society can be promoted by means of a new framework for non governmental, non-profit-distributing organisations.

Rupert Graf Strachwitz M.A. is the director of the Maecenata Institute for Third Sector Studies in Berlin. Maecenata Institute publishes a German language newsletter online, which deals with current issues and events concerning the not-for-profit sector in Germany. That can be accessed through the website The database of German foundations can be found at

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Framework Legislation

NGO and charity leaders and academics in both the Republic of Ireland and Ulster are working together to develop proposals to improve and harmonize the existing legal framework legislation. They will be responding in part to the 1996 Report of the “Advisory Group on Charities/Fundraising” for the Republic of Ireland. For further information on this initiative, please contact Arthur Williamson at the University of Ulster

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By Dr. Alceste Santauri

On December 4, 1997 the Italian Parliament enacted new legislation affecting organizations classified as Non-profit Organizations of Social Utility (ONLUS). Law No. 460 of 1997 added a new regulatory system under which ONLUS will be overseen by a regulatory body patterned after the Charity Commission of England and Wales, but which is part of the Ministry of Finance. The new body will oversee both the tax preferences accorded to NGOs and the general regulation of their activities. Unfortunately, however, of the date of this writing the Commission has not yet been formed. There are conflicting ideas about the role of the Commission – one group of commentators believes it should be more of a watchdog, while others seek a wider mandate similar to that of the Charity Commission (fulfilling educational and training roles as well). The following outline describes the most important provisions of the new legislation.


Associations (voluntary and non-governmental organisations)
Co-operative societies (social co-ops)
Other private non-profit entities


State authorities
Banking foundations
Political movements and parties
Trade unions


1. social care
2. health care
3. charity
4. school
5. training
6. non professional sports
7. protection, promotion and advocacy of assets of artistic and historical interest
8. protection and advocacy of nature and environment
9. culture and arts promotion
10. civil rights
11. scientific research of particularly social interest


Exclusively pursuing a social solidarity aim
Constraint not to carry out activities other than those listed above, except for those directly related to such activities
Non-distribution constraint during the organisation’s life
Any profits must be invested in the institutional and related activities
Assets after winding-up to other ONLUS or for public purposes
The drafting of yearly balance-sheets is compulsory

Disadvantaged persons (physical, phsycological, economic, social or familiar problems)
Foreign communities (humanitarian aids)
No members, associates, founders, or donors may be benefciaries of ONLUS, but members, founders, and associates may be the beneficiaries if they are “disadvantaged persons.”


Although not for the benefit of disadvantaged people, the following activities are ALWAYS regarded as “non profit”:

1. social and health care
2. charity
3. protection, promotion and support of assets of artistic and historical value
4. protection and support of nature
5. scientific research of particularly high social interest carried out by foundations or universities
6. promotion of culture and arts (only if financially supported by the central government)


1. Institutional activities carried out by the ONLUS are not considered to be commercial (i.e. they are tax exempt).
2. Income coming directly from related business activities is also tax exempt.


Individual donations:

Up to a cap of 4 million lire, each individual is entitled to claim a tax allowance of 22%

Corporate donations:

Cash dponations up to a cap of 4 million lire or up to 2% of the total income are deductible from the company’s income.
The cost of employees’ time spent volunteering can also be deducted up to 5 lire per thousand lire of the total amont of labor costs. This incentive is in addition to the normal deduction for salaries.


As stated above, the Commission has not yet been formed because of conflicts about its proper role. These are expected to be resolved shortly.

By Dr. Alceste Santauri
Istituto Studi Sviluppo Aziende Non Profit (ISSAN)
Università degli Studi di Trento

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