Download Public Benefit – definition and understanding

The role and model of public benefit organizations
Public benefit and foundations
June 8th, 2009 | Zielna Conference Centre I Warsaw
Dr. Burkhard Küstermann, LL.M.
Initiative Bürgerstiftungen | Haus Deutscher Stiftungen | Mauerstraße 93 | 10117 Berlin
Public Benefit – definition and understanding
• roughly 535,000 associations,
of which around half are non-profit.
• of the more than 15,000 legal foundations,
around 95 per cent of them have a non-profit status.
in 2007 and 2008 more than 1.000 foundations were
established per year
 non-profit organisations are in particular foundations and
associations. In exceptional cases, other types of company
(e.g. public limited companies or corporations) can exist in
non-profit form.
Public benefit – definitions and understanding
the conditions which an organisation needs to
fulfil in order to be recognised as non-profit, are
clearly defined by law. These are based
exclusively on tax law regulations which are
found in the General Fiscal Law, the fundamental
tax law.
 The tax law was reformed in 2007, so since
then it is even more attractive to establish a
foundation
The procedure of acquiring public benefit status
Conditions
an organisation can be considered as non-profit when it
supports tax-privileged purposes according to its
statutes and its actual business operations

responsible: tax office
1.
2.
Material conditions
Formal requirements for tax privileges
1. Material conditions
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Tax-privileged purposes
Serve the common good
Prinicple of Selflessness
Immediacy principle
Principle of exclusivity
The principle of timely use of resources
a) Tax-privileged purposes
According to the General Fiscal Law, tax
privileged purposes are:
• Non-profit purposes
• Charitable purposes
• Ecclesiastical purposes
examples of non-profit purposes:
Supporting science and research, national and vocational
training, education, art and culture, religion, understanding
among nations, development assistance, protection of the
environment, historical buildings and monuments, local
heritage and local history; supporting work with young
people and the elderly; public health systems, general
support of the democratic political system in Germany;
supporting the breeding of livestock and plants, gardening
and traditional customs
 even purposes may be recognised as non-profit if they are
not listet in law, BUT in reality, however, this possibility
has never been made use of yet.
b) The “common good”
an organisation is classed as a non-profit entity:
“when its function is oriented towards selflessly supporting the
common good in the material, spiritual or moral field.”
an organisation doesn’t serve the common good:
- the group of those being supported is fully enclosed (exclusive
support of family members or company staff)
- the group of those being supported will remain small long-term,
purely due to spatial or occupational restrictions.
c) Principle of selflessness
organization does not primarily pursue own
economic interests
 if you only want to increase your individual
income or asset you cannot be considered as noprofit
 the principle allows a corporation to make
profits the entirety of business operations should
not be oriented primarliy on increasing assets
d) Immediacy principle
The foundation must itself implement its purpose
but:
the foundation’s purposes may also be
implemented by auxiliary staff; their
involvement can be seen as the foundation's own
action.
counter-example:
The running of a hospital pharmacy only indirectly
serves towards promoting health. The primary goal
is the realisation of profits.
e) Principle of exclusivity
the foundation may only pursue its purpose as laid out in
its statutes
 resources must not be mobilised for other goals.
exceptions:
- a foundation can use a proportion of its income, at the
most a third, towards supporting the livelihood of the
founder and his/her dependents.
- this also includes caring for the grave of the founder
and his/her dependents, as well as honouring his/her
memory.
f) The principle of timely use of resources
non-profit organisations are strictly obliged to use all yields on assets
immediately for tax-privileged purposes.
exceptions:
– foundations can place a specific proportion of resources into the
available reserves fund or route them directly to their assets to
constitute an adjustment due to inflation
– if donors consent, foundations can direct grants as capital to the
assets of the foundation.
– the project reserve fund allows foundations having to forgo
spending a complete or partial amount of its resources until a
project has been completed
2. Formal requirements for tax privileges
Necessary conditions have to been created in the statutes:
- the purposes which an organisation pursues must be
clearly defined in the statues
- it must be clear who decides upon whether or not the
organisation can be disbanded
- the decision must be made to appoint a legal person who
should be entitled to use the remaining foundation assets
for tax-privileged purposes
3. Procedure
newly established organisations can apply for a
provisional certificate confirming the fulfillment
of the statutory conditions for a tax-privileged
status
 at the end of the calendar year, the tax office
checks whether actual business operations
correspond to the legal non-profit requirements.
Pracitcal implications of public charity statuts
• the financial authorities check whether actual business
operations orient towards the exclusive and immediate
fulfilment of the statute’s purpose
• on principle, tax-privileged organisations are obliged to
submit tax declarations on an annual basis
• the relevant tax office always requests the organisation to
submit an income/expenditure balance sheet and/or an
annual financial statement together with the tax
declaration.
• the organisation’s figures should be accompanied by a
business or activity report
Tax advantages for non-profit foundations
For donors
Donations
a donation has to be spent in a timely manner for its
statutory purposes
 donations are tax-deductable by up to 20% of the total
amount of the donor’s income
Endowment contribution
donations, which are channeled into the capital of a nonprofit foundation can be deducted in the year of the
donation and in the following nine years up to a total
amount of Euro 1 million
II. Tax advantages for non-profit foundations
For the foundation
• Non profit foundations are exempt from paying corporate
and commercial tax. This tax exemption can be rescinded
if the foundation is commercially active, i.e. operates a
profit-making business where the income or surpluses
exceed the tax exempt amounts.
• Tax-privileged operations are exempt from capital gains
tax
• Should tax-privileged foundations have landed property at
their disposal and use this directly and exclusively for the
realising of their statutory purposes, they are then also
exempt from paying property tax
Thank you for your attention!
Dr. Burkhard Kuestermann
Initiative Buergerstiftungen
Bundesverband Deutscher Stiftungen
Mauerstraße 93
10117 Berlin