“Comparative Highlights of Foundation Laws” are launched – the most comprehensive overview to date of legal and fiscal regulation of philanthropy in Europe

On 1 October 2021 the Philanthropy Advocacy initiative – led by Dafne and the EFC – launched the most comprehensive overview to date of the legal and fiscal regulation of foundations and philanthropy in Europe.

The launch event provided a unique space for a discussion over the key findings of the 2021 “Comparative Highlights of Foundation Laws”, a comparative overview of the diverse legal and fiscal environments for foundations from across 40 countries. The event convened more than 100 participants from philanthropy, academia and the EU institutions.

A panel consisting of academics and members of the Advisory Committee on one hand and EU policymakers on the other launched the publication and discussed topical issues for the philanthropic sector such as anti-money laundering legislation, cross-border philanthropy, the tax treatment of philanthropic donations and innovative approaches to philanthropy.

Max von Abendroth, Executive Director of Dafne and co-lead of the Philanthropy Advocacy initiative, Chair of Dafne Carola Carazzone and Chair of the EFC Angel Font greeted the participants by saying that there is no better way to celebrate the European Day of Foundations and Donors than the launch of the fifth edition of this landmark publication. In his opening remarks, Prof. Helmut Anheier from Hertie School, who also wrote the introduction of the publication, noted that “the Comparative Highlights of Foundation Laws provides a very good and convincing argument that we need to get active in modernising the regulation of philanthropy in Europe.”

Ludwig Forrest, responsible for international philanthropy at King Baudouin Foundation, summarised the report’s main findings and insights:

“More and more foundations can act with economic activities and support social businesses. We will use Comparative Highlights whenever we want to help someone set up a foundation, a legacy, or a donation. It will give the first point of call for people who want to act in this space. It will trigger and foster philanthropy.”

Missed the event? Watch the recording:

Some of the key findings are:

Laws are failing to keep up with the constant evolution of philanthropy’s toolbox of actions. For instance, foundations are wanting to do impact investing, offering not only grants but also loans to social businesses, and they want to do more mission-related investments. The legal frameworks, however, are not keeping pace.
Some countries have become more flexible when it comes to requirements for foundations’ capital. Ensuring that organisations have a reliable source of income to pursue a public-benefit purpose seems to have become more important than a fixed amount of starting capital.
Self-regulation, codes of conduct and quality labels are being discussed as effective approaches towards internal and external governance alongside state supervision. In general, authorities have no discretion in the setting up process of foundations, but discretion may exist in the interpretation of certain legal terms.
Overregulation seems to be an issue as public-benefit foundations are being lumped together with other entities in intensifying international EU and national regulation efforts such as policies developed to fight money laundering and terrorism financing, as well as tax evasion. This has led to foundations being subject to increased reporting and due diligence requirements
Barriers remain for cross-border philanthropy. While it is easy for goods and services to move freely across Europe, it remains a challenge for philanthropic organisations to move their seat and for individual and corporate donors to give across borders.

Related reading: To find out more about the key trends and findings of the “Comparative Highlights of Foundation Laws”, please read this blog.

The event was moderated by Hanna Surmatz, the legal expert and co-lead of the Philanthropy Advocacy initiative who conducted snapshot interviews with academics and policymakers on the findings of the report on the thematic issues:

Cross border philanthropy

a) Legal

Oonagh Breen, University College Dublin, emphasised: “The legal barriers come across yet again in the report launched here today. There is an increased cross-border activity, but the ability to operate in other Member States than your own often impaired. The ECJ ruling on free movement of philanthropic capital and non-discrimination on the ground of taxation, while accepted in principle by everyone conceptually, in reality there remain great difficulties in the Member States, when it comes to clarity of what “comparability” means.” She also underlined the importance of empirical data for researchers and policymakers.

Wino van Veen, Free University of Amsterdam, echoed that legal frameworks should enable the cross-border activities of philanthropic organisations and that “From a legal perspective, there is no doubt that philanthropic organisations should be able to engage in cross-border migrations, mergers and actions, as do for-profit companies (…), the only requirement is that they are economically active, there is no requirement of making a profit. Philanthropic organisations are economic actors and therefore can act in the same matter.” He also made a reference to the joint publication by PA and ECNL How to use EU law to Protect Civic Space as a tool for modernisation of foundation law across Europe and while addressing the existing barriers at the courts.

The topic of legal barriers to cross-border philanthropy was also addressed by MEP Sergey Lagodinsky (Greens, Germany) who presented his proposal on the European Statute for Associations and the Directive on the minimal standards for civil society organisations, which is currently being discussed in the European Parliament’s JURI Committee.

He explained that:

“One of the most important principles enshrined is to get to a definition of public-benefit status. I have proposed the principle of equal treatment, regardless of which Member State civil society, including philanthropic organisations, are registered in: non-arbitrary treatment based solely on sources of financing, field of activities or legal set-up. Now we need this as a general principle in European law.” He urged adherence to the principles of cross-border continuity and mobility, free movement of services and free flow of capital, an ability to move seat across borders without founding a new legal person, and the option of cross-border mergers. He stressed that “cross-border funding should be possible in accordance with free movement of capital.” “The EU is not just about the market, it is also about democracy and civil society”, said Lagodinsky in his final remarks.

b) Tax

The tax aspect of cross-border philanthropy was elaborated by Giedre Lideikyte-Huber from University of Geneva and Katharina Burlafinger, assistant to MEP and Vice-President of the EP, Renew Group, Nicola Beer.

According to Giedre “almost all countries are at least informally compliant with ECJ case law – applying the reciprocity principle, subject to comparability assessment. The good news is that the majority of countries indicate that although they grant tax concessions, it is surprising to see that some countries still indicate that they do not apply equal tax treatment to activities of comparable EU-based entities operating in their respective jurisdictions, which is not in line with ECJ case law.”

Katarina Burlafinger reinforced the findings of the study, confirming that there are “not only legal, but also administrative and fiscal barriers. It’s important for us to achieve safe banking channels and obtain tax deductions so as to incentivise people to be and stay active in the public good. We want to tackle foreign funding restrictions. Own-initiative procedure (INI) now turned into motion for resolution, which we will soon launch in the European Parliament.” She confirmed the efforts of Vice-President Beer to tackle the tax barriers of cross-border philanthropy via soft law approaches such as guidance to the Member States.

Social Economy Action Plan

Miia Rossi from DG EMPL, European Commission continued the conversation, underlining the importance of foundations as actors in the social economy:

“Philanthropy is considered part of the social economy field, and foundations that act as funders and investors of social business and initiatives are very important players to us. The EU is now seeking to reinvent an economic model based on fair and sustainable growth and sees the social economy as an important element in this field. The political momentum is very high at the moment. What brings all social economy actors together is their objective to put people first.”

Related reading: European Commission is planning to publish the EC Social Economy Action Plan in early December. If you are interested in the PA contribution to the consultation on Social Economy Action Plan, you can read more here.

Anti-money laundering policies

The final point on the agenda was the EU anti-money laundering policy and the new legislation presented by the European Commission this summer. Hanna Surmatz interviewed the Advisory Committee member Kateřina Ronovská from Masaryk University of Brno as well as Juan Antonio Salazar from DG FISMA, European Commission.

Kateřina presented a critical perspective based on the data gathered in the mapping exercise on the universal beneficial owner, the concept required by the EU Anti-Money Laundering Directive (AMLD). AMLD requires the EU Member States to introduce registers of the so-called beneficial ownership (BO) of all legal entities. While in the case of private-interest foundations, a beneficial owner, e.g. a family members, might be easily identified, this is less clear, when it comes to public-benefit foundations.

Kateřina stated that: “regarding national registries of beneficiary ownership there were no exact rules on how to establish them, which led to the existence of many different registries and incompatible data. Also, the question of ‘if’ and ‘how’ to apply the BO concept to NPOs and public-benefit foundations was not clearly set out. BO is any person having ultimate benefit or someone who controls the benefit directly or indirectly. Unfortunately, the directive is not very clear and shows a lack of understanding of interpretation of rules across Member States. It highlights that there is no common approach to find BO of foundations across countries and that the data is not really compatible.”

Juan Antonio understood the call for clarification of the beneficial ownership and he made clear that “building on previous contributions, our work is rooted in the freedom of movement of capital and also the principle of non-discrimination. We are strongly committed in this area and want to engage with you as has been our previous experience.”

This fruitful event was closed by Delphine Moralis, CEO of the EFC, who reiterated that important work done by foundations needs an enabling environment for philanthropy across Europe, and we can see that we cannot take this for granted since there are old and new barriers and there is a need for lawmakers to also adapt to new realities. Clearly businesses can operate easily across borders, move and merge, while philanthropic organisations are still lacking a level playing field. Supranational legal forms to facilitate philanthropic engagement could be considered as well as other ways to overcome existing barriers. Tax effective giving and investments by philanthropic actors is still complex. The application of the freedom of capital, coupled with the non-discrimination principle to facilitate cross-border philanthropy, must be better implemented.

Download our infographic about the existing barriers to cross-border philanthropy in Europe and what’s needs to change.

What has become clear is that European funders and philanthropy infrastructure organisations have to be vigilant to maintain and shape their space in order to be able to operate as freely and independently as possible, both now and in the future. We will continue to work on this agenda with experts, researchers, practitioners and policymakers, making sure that the voice of civil society and philanthropy is heard.

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