Improving Legal Framework for Civil Society: A comparative perspective for Moldova European Center for Not-for-Profit Law (ECNL) This presentation has been produced with the financial assistance of the European Union under the project “Strengthening the Legal Framework for Citizen Action through Freedom of Association,” implemented by the European Center for Not-for-Profit Law. The contents of this presentation are the sole responsibility of ECNL and can under no circumstances be regarded as reflecting the position of the European Union. Copyright © 2008 European Center for Not-for-Profit Law

Stages of Regulatory Development Level I Basic Legal Framework - Registration process - Basic activities, basic benefits Level II Public Benefit Status and Fiscal Privileges - Fiscal privileges for PBOs, donor incentives - Government grant mechanisms - Contracting out services Level III Relationships with stakeholders and society - CSO sector cooperation & support strategy - Incentives for volunteering - Percentage tax mechanism, national funds Level IVSelf-regulation

I. Basic Legal Framework Registration Process –Quick, easy, inexpensive –Eligible founders –Capacity of registration authority Basic Activities –Public benefit and mutual benefit –Economic activities –Public policy activities

Re-registration Allow for sufficient time Provide actual notification Reduce burden Eliminate fees Limit government discretion

II. Public Benefit Status Rationale for PB Status Context of Regulatory Approaches Definition and Qualifying Criteria Decision-making Body Benefits and Obligations

Rationale and Regulatory Context Rationale = to promote public benefit activity Alternative Approaches –Tax legislation (Germany, Netherlands, Estonia) –Law/s on associations & foundations (Bulgaria, Bosnia, Romania) –Specific laws (England & Wales, Italy, Hungary, Latvia, Poland)

Definition of “Public Benefit” Enumeration of types of activities that benefit the public (open-ended list) Organized and operated “principally” for public benefit –“Organized”: governing docs. –“Operated”: annual reports, tax filings –“Principally”: More than 50% vs. exclusively

Financial Conditions and Internal Governance Collective governing body Supervisory body / auditing committee Accurate books and records Safeguards against CoI, self-dealing Subject to audit requirement –For certain categories of PBOs

Decision Making Responsible Authority –Tax authorities: Germany, Netherlands –Ministry: Bulgaria –Court: Hungary –Public benefit commission: E&W Principles of Good Decision Making –Specialized expertise –Independent, apolitical, objective –Consistency

Public Benefit Commission ADVANTAGES NGO representation specialized expertise consistency easier communication with NGOs DISADVANTAGES challenge of proper mechanism to delegate or elect NGO representatives can be politically sensitive (legitimacy) expensive centralized access

Potential Benefits Tax Benefits –Exemptions from income, profits, property, gift, inheritance taxes (and VAT) –Tax allowances on income from economic activities, investments –Customs duties exemptions –Donor incentives –Entitled to receive income tax designations

Potential Benefits Non-tax benefits Preferred status for Government funding and contracting Use of public property Free media air time Recognition and support of volunteers

Obligations Record-keeping Reporting (financial, programmatic) Publicly available reports Subject to audits and inspections – due process important

III. Relationship with Stakeholders Strategy document for civil society development Legal framework for volunteerism Percentage philanthropy

Percentage Philanthropy Mechanism Taxpayer decides whether to designate portion of tax paid to entitled organization. * tax allocation * (indirect) government support

% laws around the region Historical context –Spain, Italy The Percentage Group –Hungary (1996) –Slovakia (2001) –Lithuania (2002) –Poland (2003) –Romania (2003) Abandoned idea: Bulgaria, Georgia, Macedonia

Issues to be considered Elements of the mechanism… – who can designate? – how much/to how many? – to whom, what are the criteria? – how? – what for?/accountability. … and its advantages, challenges and philanthropic nature.

Potential impact of the 1% law Policy rationalePotential for success Taxation self- determination Good (with some limitations) Civil society development High (but much depends on implementation) Development of philanthropy Questionable (likely but so far no visible impact)

T he challenges Low % of sectoral income Limited resources Limited pool of donors, limited beneficiaries “Unfair” and “Unjust” “Donor behavior reflex” or “i did my share” Traditional tax incentives Administrative issues

Thank you European Center for Not-for-Profit Law