The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

France

Adoption by the French Senate of a Bill Enabling the Dissolution of Religious Sects by Presidential Decree

On December 16, 1999, the Senate passed a bill “on the reinforcement of the penal dispositions against associations or groups representing, through their illegal actions, a threat to public order or a major danger for human being”, which if adopted as such by the National Assembly, will amend:

• The sanctions provided in the Law of 1901,
• The Law on Combat Groups and Private Militia of 1936,
• The Public Health Code.

The only requirement for the creation of an association provided in the Law of 1901 is that “two or more persons gather together their knowledge for a purpose other than the sharing of profits.” (§1). Associations acquire legal personality by declaration procedure and the Act does not provide any activities as grounds for refusal to register an association.[1] However, if an association carries out activities of an illegal character; which contradict law or morality; or threaten the national territorial integrity and the republican form of government- its registration will be considered null (§3) and its dissolution will be pronounced by the court. (§7). The Law on Combat Groups and Private Militia was adopted in 1934 in order to enable the administrative dissolution of particularly threatening associations.[2] The dissolution by Presidential decree of associations carrying out activities such as armed public demonstrations, terrorism, or racially motivated violence (§1), enables a more expeditious pronouncement of dissolution when the state is confronted with such urgent matters. Such a dissolution may be appealed to the Conseil d’Etat, which is thereby instructed to make its decision urgently.

1. Amendments to the legislation brought by the draft law

1.1. Amendments to the Law on Combat Groups and Private Militia

Article 1 of the draft law provides for new activities to be added to the list of infractions which will result in a pronouncement of dissolution of associations. Such dissolution would henceforth be possible when:

1. the association has been condemned repeatedly for:
   • Involuntary homicide,
   • Involuntary injuries leading to work disability,
   • Exposing individuals to life threatening situations or bodily harm,
   • Carrying out biomedical research on individuals without their consent,
   • Procuring prostitution,
   • Subjecting individuals to undignified working and living conditions,
   • Invasion of privacy
   • False accusations resulting in disciplinary, administrative or judicial sanctions of an individual,
   • Interfering in a legal adoption, the relationship of a couple with a surrogate mother, or secretly exchanging babies at birth,
   • Providing primary education in a manner not in compliance with state education regulations,
   • Corruption of a minor,
   • Robbery,
   • Extortion and blackmail,
   • Swindle and abuse of confidence,
   • Illegal practice of medicine and pharmacology.
2. directors of the association have repeatedly been condemned for the above-mentioned violations to the law as well as for:
   • Voluntary homicide,
   • Practicing torture on individuals,
   • Sexual assault,
   • Neglecting persons who are physically or psychologically vulnerable,
   • Failure to assist persons in immediate danger,
   • Inciting individuals to suicide,
   • Kidnapping,
   • Endangering the life of children,
   • Illegal practice of medicine and pharmacology,
   • Fiscal fraud

   
   1.2. Amendments to the Public Health Code

The Public Health Code provided that physical persons could be criminally liable for the illegal practice of medicine or pharmacology. The draft law provides that legal entities will also be liable and establishes sanctions to be applied in such cases.

1.3. Amendments to the Law of 1901

The draft law increases the maximum sanction for maintaining or illegally reestablishing an association that has been dissolved by the court from a fine of FF 30,000 to FF 300,000, and from one year to three years imprisonment. This amendment will harmonize the law with sanctions established in the penal code.

2. Motivations Behind the Adoption of Such Amendments

The first version of the draft was entitled “Draft Law on the Reinforcement of the Penal Dispositions Against Associations or Groups of a Sectarian Character Representing, Through Their Illegal Actions, a Threat to the Public Order or a Major Danger for Human Beings.”[3] The French government started showing concerns regarding activities endangering the lives of sect members in 1983, when Mr. Vivien, deputy at the National Assembly was commissioned to write a report on the matter. The product was a study called Les Sectes en France: Expression de la liberté morale ou facteur de manipulation? (“Sects in France: Expression of Moral Liberty or Manipulation Factor?”). In 1995, an investigative commission was established in the National Assembly to study remedies to the matter. Recently, there have been several draft initiatives that would address the activities of sects, including the draft presented to the National Assembly on March 1, 2000 on the protection of persons vulnerable to reprehensible activities of sects, and the draft law discussed in this article.

However, the Law Commission modified the draft law, noting several problems that could arise from the language employed in its drafting.[4] The Commission’s concern regarded the protection of two principles: the freedom of belief protected in article 11 of the French Declaration of Human and Citizens Rights and the freedom of association protected by the Constitutional Council’s decision of 1971. All mention of the term “sect” in the draft was removed because it was believed that the lack of a precise definition of the term could lead to its possible abuse.

Nevertheless, the Investigative Commission established in 1995 identified several activities particular to such organizations that constitute violations of the law. Examples of such activities include the mental destabilization of members, threats to public order, fiscal fraud, antisocial discourse, threats to the physical integrity of individuals, and the indoctrination of children.[5]

The draft law attempts to include as a ground for dissolution systematic violations of the law that are performed carried out by these organizations. In proposing the inclusion of these provisions on dissolution in the law on Combat Groups and Private Militia of 1936 instead of the Law of 1901, the legislators indicate they favor the urgent dissolution procedure (administrative dissolution) over the usual dissolution procedure pronounced by the court, which has not enabled such dissolutions to take place in an effective manner in the past. In its report, the Law Commission also highlighted the fact that with regard to the problem of sects, no legal person had yet been condemned for their illegal actions and that mainly individuals were prosecuted.[6] The provisions of the draft law describing the violations of the law by associations as new grounds for their dissolution will reinforce the implementation of possible penal prosecution of legal entities provided in the new Penal Code of 1994, which has not yet been used against sects.

Illegal actions committed by not-for-profit entities can be of great concern to some states committed to protect the principle of freedom of association. These actions can be carried out by sects, as is being discussed currently in France, but also by terrorist organizations. In Canada and the United States for example, some charities are currently suspected of serving as a cover for terrorist organizations. The government of the United States is currently investigating several charities as a measure of its counter-terrorism efforts, while the Canadian government prepares anti-terrorism measures, to be presented to Parliament soon, which include the creation of a body whose competence will include the confiscation of assets of charities acting as front for terrorism.[7]

Notes

[1] This rule does not apply to associations registered in Alsace Moselle, which are governed by the Germen Civil Code.

[2] This law was adopted in reaction to the emergence of destabilizing movements in the ‘30s called “leagues” with the purpose of threatening the Republic.

[3] Senate, appendix to the minutes of the session of December 14, 1999, report prepared by Senator Nicolas About.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Judith Miller, “Some Charities Suspected of Terrorist Role, US officials See Muslim Groups Linked to bin Laden and Others”, New York Times, February 19, 2000.

Germany

Tax Legislation

On March 15 the Bundestag Committee on Media and Culture sanctioned the proposed foundation tax reforms during a meeting that was led by the Committee Chair, Elke Leonhard, SPD. The reforms are as follows:

1. The existing deductibility allowances of 5% to 10% of taxable income found in the personal income tax and the corporate tax will remain unchanged, but individuals and corporations will also be able to deduct up to 40,000 DM per year without regard to the percentage restrictions.
2. It will now be possible to create a foundation up to two years after the death of a decedent, and for a wide range of public benefit purposes (Gemeinnützige Zwecke).
3. The reserve allowance for foundations will be increased to one-third of income; this rule presently permits a German foundation to retain up to 25% of its income from investments and use that amount use for investment purposes.
4. There will no longer be a capital gain tax on the increase in value of corporate stock donated to foundations.

While these reforms are limited to foundations, they indicate a willingness in Germany to regard the “third sector” as one of increasing value in German society. Further reforms of the tax laws and the civil law are expected in the coming months.

ICNL is grateful to Volker Then of the Bertelsmann Stiftung for information about these reforms. The text of the legislative proposal in the German Bundestag (in German) can be obtained by emailing Karla Simon at ksimon@icnl.org. For further information (in the German language) about the proposed reforms and the process of reform, see pages 2-5 in Maecenata Actuell No. 21.

the United Kingdom

A. Legal Framework

The Charity Commission has issued three new publications on the subjects of insolvency, user trustees, and social housing organisations.

(CC12 “Managing financial difficulties and insolvency in charities”, December 1999; CC24 “Users on board: Beneficiaries who become trustees”, March 2000; and “Guidance for chartable registered social landlords”, February 2000)

The Charity Commission has rejected the application of the Church of Scientology for registration as a charity.

(Decision of the Commissoners, December 1999)

In answer to a parliamentary question on the tax status of community sports clubs, the Financial Secretary stated that the Charity Commission intends to consult during 2000 on the extent to which sport is a charitable purpose in its own right.

(HC Written Answer, Vol. 340 col. 521, 7 December 1999)

B. Taxation

The Chancellor of the Exchequer announced his Budget proposals for 2000-2001 on 21 March 2000. The measures relating to charities go further than the preliminary proposals included in the Pre-Budget Report to parliament on 9 November 1999 (see IJNL, Vol. 2, Issue 2). In particular, the following new proposals were announced:

• an extension of the new income tax relief for charitable gifts of shares to cover a wider range of shares and securities;
• an amendment of the Gift Aid rules to allow non-resident individuals and companies with UK source income to participate in this scheme;
• an extension of the existing VAT exemption to cover more fundraising events;
• an extension of the existing zero rate of VAT for the sale or hire of donated goods.

As expected, most of the measures aim to encourage charitable giving, and will apply from 1 April 2000 to companies and from 6 April 2000 to individuals. They include the following:

• relief for gifts under deeds of covenant will be abolished and replaced by the new Gift Aid regime;
• there is no minimum or maximum limit on the allowable donation, but the value of any benefits received by the donor must not exceed £250 in any tax year (the limit on benefits is proportionately reduced for smaller donations);
• individual donors will only have to make a single declaration covering a series of donations (by post, fax, telephone or Internet) either before the donation or up to 6 years after the donation;
• charities will remain responsible for maintaining a full record of the donors and their donations (and supporting details) which may be subject to a tax audit;
• charities will continue to reclaim basic rate income tax

on donations received (with the rate now 22% for 2000-2001, charities can reclaim £28 tax for every £100 donated net of tax);

• individual higher rate income taxpayers (the higher rate is currently 40%) will be able to set off donations against their capital gains as well as their income;
• partnerships (which do not have separate legal personality in England, Wales & Northern Ireland) can now authorise a single partner to make donations on behalf of all the partners;
• corporate donors (including charity subsidiary companies) will no longer be required to withhold basic rate income tax from their donations and will not have to complete a Gift Aid declaration;
• there is now no limit to the maximum amount that employees can donate to charity though a payroll giving scheme operated by their employer, and for the 3 years ending 5 April 2003 charities can claim from the government a cash payment equal to 10% of the payroll donations that they receive;
• the new relief for gifts of quoted shares and securities now covers holdings in domestic and foreign investment funds, and unlisted shares that are traded on a recognised stock exchange; howewver, the relief available to individuals is limited to a deduction for income tax purposes only.

It was also announced that the Inland Revenue will no longer seek to tax income foregone by those making interest free or subsidised loans to a charity.

The previously announced exemption of small scale charity trading profits will apply in addition to the existing reliefs and where the charity has a reasonable expectation that its annual turnover from trading activities will not exceed the greater of:

• £ 5,000; and
• 25% of the charity’s total gross income from all soources (including grants and donations), subject to a maximum of £ 50,000.

The existing extra-statutory concession ESC C4 exempting small fundraising events from income tax continues but has been amended with effect from 1 April 2000 to align the definition of qualifying events with that used for VAT purposes (see below).

Despite a long running campaign for relief, the government has declined to introduce any scheme to compensate charities for their (increasing) burden of irrecoverable VAT. However, a few specific reliefs have been granted with effect from 1 April 2000:

• VAT zero-rating will apply to all advertising (including recruitment adverts) in all media by charities and the current list of conditions for this relief to apply will be scrapped;
• the existing zero-rated relief for supplies of aids to people with disabilities is extended to the provision, extension or adaptation of bathrooms in charity day centres where at least 20% of the users are disabled or chronically ill, and in sheltered flats and houses occupied by people with disabilities;
• the existing zero-rated relief for the donation of goods to charity for sale or export is extended to apply to donated goods that are made available for hire rather than sale, and where the goods are available only to people with disabilities or receiving means-tested benefits.

In addition, the definition of fundraising events that qualify for exemption is broadened to include up to 15 events each year of any one kind and in any location, including Internet-accessible events. The exemption will not be granted, however, to events where accomodation is provided for more than 2 nights and events that are likely to distort competition with commercial enterprises.

(HM Treasury, Inland Revenue and Customs & Excise Press Releases 21 March 2000 and Inland Revenue Press Release 3 April 2000)

Also announced in the Budget was a new exemption from stamp duty (a tax on documents evidencing transfers of property) for transfers and leases of land and buildings to non-charitable social housing organisations.

(Inland Revenue Press Release REV 5, 21 March 2000)