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EU takes first formal step to harmonise regulation of European foundations

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  • EU takes first formal step to harmonise regulation of European foundations

EUROPE - The European Commission has taken its first formal step in creating a single European legal form for foundations to conduct public benefit activities across the EU.

Michel Barnier, internal market commissioner, unveiled the proposal for a European Foundation Statute (EFS) on 8 February.

The 'European Foundation' (FE) would be fundamentally the same in all member states, making it easier and less costly for foundations to carry out activities and channel funding throughout the EU.

The foundation sector in Europe has €350bn worth of assets and annual expenditure of €83bn, according to the Commission.

At present, several legal and tax barriers hamper the cross-border activities of voluntary organisations, costing them €90m-102m a year, according to the Commission.

The process of opening a branch in another country, for example, can be lengthy - and therefore costly - if a separate legal entity has to be established.

And foundations operating in other countries may find they are subject to less favourable tax treatment than domestic foundations, while donors in those states may not receive the same tax relief as when they are giving money to domestic foundations.

According to the proposal, an FE would benefit from the same tax treatment as applied to domestic foundations. Donors supporting FEs would be entitled to the same tax benefits as they would if donating to a foundation established in their own member state.

In both cases, member states would need to regard the FE as equivalent to public benefit purpose foundations established under their own national legislation.

Recognition of foreign foundations is another problem for the sector. The Statute would provide an FE with a European label and image, increasing recognition and encouraging cross-border activities and donations.

The Statute applies only to the public benefit purpose foundations, but these make up the great majority of the foundation sector in Europe. There are now 110,000 public benefit purpose foundations in Europe.

'Public benefit' includes work in the arts, historical preservation, environmental protection and civil or human rights.              

The Statute lays down the main requirements for the FE. Each foundation would need to prove its public benefit purpose, operate (or intend to operate) in at least two member states and possess founding assets of at least €25,000.

There will be several ways of forming an FE: from scratch, by converting a national foundation into an FE or through a merger of national foundations.

An FE would have legal personality and legal capacity in all member states and be able to carry out activities outside the EU.

It would also be able to perform economic activities, provided that profits are used exclusively to pursue its public benefit purposes, for example, where a health sector foundation runs a hospital.

An FE would also be able to carry out some economic activities unrelated to its purpose, provided these did not make up more than 10% of its annual net turnover.

Gerry Salole, chief executive at the European Foundation Centre, said: "A European Foundation Statute would reduce the amount spent on needless administration and instead allow the money to be spent furthering foundations' philanthropic work. 

"This new European legal tool would be used by those who need it to expand or start cross-border activities and collaborative ventures.

"It would enable them to pool resources and give a European scale to their work, while reducing costs and legal uncertainties."

The start of the legislative process is the culmination of several years of campaigning, particularly by organisations such as the European Foundation Centre and Donors and Foundations Networks in Europe.

The proposal for regulation will now be passed to the Council of Ministers and the European Parliament.

Adopting the Statute will require the unanimous agreement of member states, as well as the consent of the European Parliament.

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