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IPE special report May 2018

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European Foundation Statute takes step closer to reality

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  • European Foundation Statute takes step closer to reality

EUROPE - A single European legal form for foundations drew closer to becoming a reality last week, when the European Economic and Social Committee (EESC) adopted an opinion on the proposal for a European Foundation Statute (EFS), presented by the European Commission.

The EESC pointed out that, while goods, services, capital and people can generally move freely across borders within the EU, resources devoted to public benefit purposes cannot.

The EFS would provide a single set of rules helping to reduce costs and uncertainty for public benefit foundations working across borders.

It also aims to provide a level of transparency and accountability to individual foundations set up under its framework.

It would not, however, replace existing national laws, but would be optional and complementary.

The result, says the EESC, would be to help foundations pool and scale up their resources, and stimulate cross-border donations, allowing more funding to become available.

At present, there are an estimated 100,000 foundations in Europe, spending more than €100bn per year on projects, and employing as many as 1m Europeans. 

The proposal lays down the main features of a European Foundation (FE) formed under the statute, methods of formation and rules concerning its structure.

An FE would have to have an identifiable public benefit purpose and serve the public interest at large.

Supervision would be delegated to competent designated authorities in the member states, with minimum supervisory powers set within the regulation.

The proposal includes tax elements that do not create a new regime but automatically place European foundations on an equal footing with national public benefit entities.

There could, however, be certain requirements for spending.

The EESC said: "Given their public benefit character and tax status, FEs set up in perpetuity should spend their annual income in a reasonable period of time - within a period of four years, for example - while securing the possibility of allocating part of their resources … to maintain the value of and/or to grow their endowment. The latter would not apply to FEs set up for a limited period or to a spend-down foundation."

The EESC has recommended that the European Parliament and Council adopt the proposal "without delay".

This latest stage in 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.

Rui Esgaio, secretary-general at the Calouste Gulbenkian Foundation, said an EFS would help remove national barriers that hamper transnational activities.

The foundation operates branches in London and Paris, as well as grant-making programmes throughout the EU.

"Running branches in two different countries is expensive, and requires continuous advice to keep up with the changing legal, financial and accounting environment in each country," Esgaio said.

"In addition, the two branches have a different legal status in the UK and France, which creates uncertainty about the foundation's legal status in these countries. These barriers influence the dimension and budget of our EU-wide activities, which could otherwise be larger."

He said that, in addition, investment income from abroad was taxed at a higher rate than for domestic organisations.

"For instance, the UK tax authorities consider that we have a UK permanent establishment, which is liable to UK corporation tax, disregarding our tax-exempt status in Portugal," he said.

"This discrimination is in conflict with the EC Treaty, as we would be eligible for UK tax-exempt status if we were a UK domestic foundation."

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

The earliest date for the EFS to become law is likely to be mid-2013.

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