The tax provisions contained in the proposal for a European Foundation Statute (EFS) have been withdrawn, following a meeting of COREPER – the group of EU member states’ political representatives – on 8 November.
The EFS proposal, currently going through the EU legislative process, establishes a constitution for a pan-European foundation (FE) operating across borders, removing the requirement for foundations operating in different jurisdictions to set up separate legal entities in each country.
It is generally supported by the European foundation sector because it would provide a single set of rules for European foundations, helping to reduce the costs and uncertainty involved in cross-border activities.
It could also stimulate cross-border donations, and 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 tax elements in the original proposal provided for automatic equivalency between FEs and national foundations, which would have included access to tax breaks where these are available to public benefit entities in individual countries.
But they have been a major stumbling block in the path towards achieving directive status, with some experts warning that the provisions threaten to halt its progress at the final hurdle.
The European Foundation Centre (EFC), which advocated the case for an EFS for several years, said the recent changes would lead to “a good compromise text”, taking on board views from the foundation sector to produce an accessible and trustworthy legal tool, and also taking a pragmatic approach on issues including proportionate audit rules, disbursement practices and economic activities.
However, Emmanuelle Faure, European affairs senior officer at the EFC, said: “While the withdrawal of the tax provisions is viewed as a welcome compromise by the vast majority of the member states, it may lead a few others to question the value of the revised proposal.”
She added: “There is certainly no doubt in the sector. The sector is sending a strong signal to the European Commission, the EU Presidency and national ministries that it wants no further delay on the statute and urges them to adopt it by the end of 2014.”
Work on producing a text that is more likely to get unanimous approval had accelerated over the summer.
The decision to drop the tax provisions followed the presentation of a compromise text by the Lithuanian EU presidency to member states’ technical experts in early September.
Other changes included a more restrictive approach to the formation of FEs, especially in relation to mergers; the redrafting of annual disbursement provisions; and the clarification that normal asset management is not an economic activity (which could otherwise affect the non-profit making status of foundations under the directive).
The EFC is now calling on foundations throughout Europe to ask their own national government and permanent representations in Brussels to back the statute, by 31 November.
The Lithuanian EU presidency will redraft the EFS proposal for review by national experts on 6 December, with the focus on the non-tax-related provisions.
The final step in the process to create a regulation will be a vote by all 28 member states, which must be unanimously in favour for the proposal to become law.