Public Benefit Organizations

The Public Benefit Commission: A Comparative Overview

The International Journal
of Not-for-Profit Law

Volume 8, Issue 2, November 2005

By David Moore1

Fundamental to an active civil society is the right to pursue any legal purpose, including both mutual benefit and public benefit interests. The legal framework for non-governmental, not-for-profit organizations (NGOs) typically permits organizations to be created in different forms and to pursue a broad range of legitimate goals.

Most countries, however, identify a subset of NGOs as deserving a range of state benefits, based on their purposes and activities. By providing benefits, the state seeks to encourage certain activities, usually related to the common good or public benefit. NGOs pursuing such purposes and activities may be given various labels, including “tax-exempt organizations” or “charities” or “public benefit organizations.” Further, although some countries may not explicitly define such status in the law, they nonetheless link state benefits to certain purposes and activities. Here we use the term “public benefit” to refer to this special status – however described in the national context – and the term “public benefit organization,” or PBO, to refer to organizations legally recognized as having this status.

Who decides which organizations qualify for public benefit status? What, if any, discretion is allowed in making this decision? These questions have critical implications for the regulation of public benefit organizations and the entire nonprofit sector. The decision-maker has the authority to grant public benefit status, often the authority to revoke public benefit status, and in some countries the authority to supervise and support the work of public benefit organizations. By granting public benefit status, the decision-maker lays the foundation for distinct regulatory treatment – treatment that entails both benefits (usually tax exemptions) and obligations (more stringent accountability requirements).

There is no single right answer to the question of who should make the public benefit determination. Instead, countries have adopted a variety of approaches. In some countries, this authority is vested in the tax authorities. In other countries, the judiciary or a governmental entity, such as the Ministry of Justice, confers public benefit status. Still others empower independent commissions to decide the question. What makes sense in a given country depends on local circumstances.

One innovative approach is the public benefit or charity commission. Although very few countries have adopted the commission model, it is a source of ongoing interest to countries around the world that are drafting, amending, and refining laws and regulations to govern public benefit organizations or charities. The longest-running and most famous example of the independent commission is the Charity Commission of England and Wales. In Moldova, the 1996 enactment of the Law on Associations established a Certification Commission responsible for recognizing qualified organizations as PBOs. For a third variation on the public benefit commission we turn to Armenia, where a governmental commission qualifies projects – not organizations – as public benefit.

Poland and Latvia offer examples of a different kind of public benefit commission. Poland’s 2003 Law on Public Benefit Activities establishes a Council for Public Benefit Activities. The Council is not the decision-maker, but rather “an opinion, advising and supporting body” for the Ministry of Social Security, the responsible decision-maker. Similarly, the 2004 Latvian Law on Public Benefit Organizations contemplates the creation of a Public Benefit Commission; the Latvian Commission, like its Polish counterpart, acts as an advisory body for the Ministry of Finance, which is the decision-making body.

The following articles provide overviews of the three decision-making commissions in Europe and the neighboring areas of the former Soviet Union: England & Wales, Moldova, and Armenia.2

The overviews highlight the similarities and differences between the three nations’ approaches, including the following:

The Role and Purpose of the Commission

  • The Charity Commission (CC) of England & Wales registers organizations as charities; for organizations meeting the legal test for charitable status, registration is both a right and a legal requirement.
  • The Certification Commission of Moldova qualifies organizations as public benefit organizations, based on the voluntary application of organizations.
  • The Armenian Government Commission qualifies programs, not organizations, as charitable, meaning that a single organization must apply to the Commission multiple times for multiple programs.

The Measure of Independence of the Commission

  • The CC of England & Wales offers the best-known example of an independent commission. The Commission is an “autonomous ” government department established under statute, currently the Charities Act 1993. The CC is a non-ministerial governmental department. As such, the CC exercises its powers and responsibilities independent of governmental control and direction.
  • The Certification Commission of Moldova is a nine-member commission, whose members are selected by the President, Parliament, and Government. One-third of the Commissioners must be representatives of public associations. The mixed nature of the Commission aims to ensure some measure of independence from the government and political process.
  • The Armenian Governmental Commission is not designed as an independent commission, but is instead fully controlled by the Armenian Government, with Commission members appointed by the Prime Minister.

The Accountability of the Commission

  • The CC of England & Wales is accountable to the courts, and, solely with regard to its efficient use of public resources, to the Home Secretary and government. The draft Charities Bill contains a proposal to establish a Charity Tribunal, which would hear appeals of substantive decisions of the CC.
  • The Moldovan Commission has a less developed system of accountability; indeed, there is no external reporting obligation.
  • The Armenian Commission, as a governmental commission, is accountable directly to the government.

Notes

1 David Moore is a Program Director for the International Center for Not-for-Profit Law. This special section on Public Benefit Commissions was made possible through support provided by the U.S. Agency for International Development, under the terms of Award No. EDG-A-00-01-00002-00. The opinions expressed herein are those of the authors and do not necessarily reflect the views of the U.S. Agency for International Development.

2 Also note that Scotland enacted the Charities and Trustees Investment Act in July 2005 (to be effective in 2006), which creates the Scottish Charity Regulator (OSCR). Looking beyond Europe, the New Zealand Charities Commission was established by the Charities Act (2005) (www.charities.govt.nz).