CONSULTATION ON A POSSIBLE STATUTE FOR A EUROPEAN FOUNDATION

Transcription

1 EUROPEAN COMMISSION Internal Market and Services DG MARKT/ CONSULTATION ON A POSSIBLE STATUTE FOR A EUROPEAN FOUNDATION Consultation by the Services of the Internal Market Directorate General Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 FOR A EUROPEAN FOUNDATION Consultation document of the Services of the Internal Market Directorate General Preliminary Remark The following document has been drafted by the Services of the Internal Market Directorate General in order to assess the need for a European Foundation. It does not reflect the views of the European Commission and will not prejudice its future decisions, if any, on further measures concerning the European Foundation. 2

3 1. INTRODUCTION In its Action Plan of 2003 on Modernising Company Law and Enhancing Corporate Governance in the EU 1, the Commission foresaw, as a medium term priority, the assessment of the need for the creation of a statute for a European Foundation. A public consultation and hearing on future priorities for the Action Plan was carried out in spring demonstrating a need for further work in this area. In addition the European Parliament invited the Commission to continue its preparation of Community legislation providing for legal forms of entrepreneurial organisation, such as the European Foundation 3. The Commission consequently undertook to launch a study aimed at an in-depth assessment of the feasibility of such a statute. Following an open tender, a feasibility study was commissioned by the Commission in November 2007, to be carried out jointly by the Max Planck Institute for Comparative and International Private Law in Hamburg and the University of Heidelberg. The Commission has taken no decision as to the need for a European Foundation Statute or the content or structure of a possible statute. If a European Foundation Statute were to be proposed, the objective would be similar to that sought with other European legal forms, i.e. to make possible the use of a single legal form instead of up to 27 national ones. The European Foundation would be parallel to the national legal forms and its use would be optional. In order to assess these issues better, the Services of DG Internal Market have decided to make the feasibility study public on its website and simultaneously to launch a specific related public consultation. The purpose of the consultation is twofold: to get feedback on the feasibility study itself and on the need for a European Foundation Statute, and to get more in-depth information on the operational problems that foundations face when operating cross-border. The responses will be taken into account in assessing the need for and impact of a new legal form. There are two parts to the questionnaire. - -Part I contains general questions about the need for and desirability of a new legal form, together with questions about the content of a possible European Foundation Statute. It also contains questions targeted specifically at foundations, aimed at getting concrete information about difficulties and hindrances foundations face in the Internal Market, as well as about their interest in a possible statute. Where appropriate the questions refer to the relevant pages of the feasibility study. The Commission Services are aware that many foundations have already answered the survey which was included in the feasibility study. Careful consideration has therefore been given to ensuring that responses supplement rather than duplicate the information already provided by foundations through the feasibility study Responses to this consultation should be concise, focused specifically on the questions raised and sent no later than 15 May The answers to Part I of the questionnaire (to be found below) should be sent to DG Internal Market and Services, Unit F2, European Commission, B-1049 Brussels. Responses may also be sent by to: markt-consultation-ef@ec.europa.eu. 1 European Commission» Internal Market» Company Law» Modernisation of Company Law and Enhancement of Corporate Governance 2 European Commission» Internal Market» Company Law» Consultation on future priorities for the Action Planhttp://ec.europa.eu/internal_market/company/consultation/index_en.htm 3 3

4 Part II is targeted at donors to, and founders of, foundations and aims at obtaining information on how a potential European Foundation Statute might affect founders' and donors' attitudes. Part II of the questionnaire, which is targeted at donors and founders takes the form of an online questionnaire. Link to the questionnaire, Part II Respondents to this part are kindly asked to note that the responses cannot be saved before submitting them and that the time allowed for answering is 90 minutes. 4

5 2. THE QUESTIONNAIRE, PART I Information about the respondent Information about the respondent A. Name of the foundation/company/organisation/person and your function Asociación Española de Fundaciones (AEF). Isabel Peñalosa, AEF Legal and Tax Consultancy Service B. Address and register ID number of registered organisations General Castaños, 4-4ª, Madrid Register ID number: Registro Nacional de Asociaciones, Ministerio del Interior, registration number C. The legal form, field of activity and country of origin of your organisation Spanish non-profit and public benefit association of foundations. D. If you are answering for a foundation N/A 5

6 Contribution to the European Commission public consultation on a European Foundation Statute The Asociación Española de Fundaciones (AEF), Spanish Association of Foundations, is a non-profit and public benefit private association, officially acknowledged as of general interest, which gathers more than Spanish foundations of all sizes and fields of interest. We promote the quantitative and qualitative development of the foundational sector, its visibility and transparency. To achieve this objective we: Represent and defend the interests of the sector upon society and public administration. Provide services to the associates. Facilitate mutual knowledge in order to promote synergies, collaboration and networking. The AEF fully supports the key conclusion of the Feasibility Study stating that a European Foundation Statute is the most cost-effective policy option for addressing the administrative and legal barriers that foundations face in their cross-border activities. Against this background, the AEF would like to make a substantive contribution to Part I of the questionnaire: 6

7 Question 1: Barriers to the cross-border activities/establishment of foundations Q 1.1 The study identifies four categories of civil law barriers/difficulties for the cross-border activities of foundations in Europe (pp ): 1) Recognition of foreign foundations (pp ), 2) Recognition of trusts (p. 107), 3) Cross-border transfer of the Real Seat (pp ), 4) Cross-border transfer of the Registered Seat (pp ). Do you agree with these findings? The AEF as a privileged observer of Spanish foundations has analysed existing civil and tax laws and agrees with the legal barriers which are listed in the Feasibility Study concerning existing barriers to cross-border activities/establishment of foundations. The AEF has concluded: Difficulty in transferring the seat to another Member State either the real seat or the registered seat. Difficulty in recognising foreign foundations legal personality recognition procedures exist in several Member States. Legal insecurity over national recognition of general interest nature or public benefit status of resident foundations cross-border work. Q 1.2 Do you see any further civil law barriers/difficulties? Please specify. Apart from these legal burdens, we would like to emphasize the following administrative barriers: Administrative burden and cost to foundations of dealing with a diversity of national rules. Administrative burden and cost to foundations of setting up several branches in other countries, which requires continuous legal advice. Lack of a European legal instrument for foundations and lack of knowledge regarding 27-EU national rules on foundations, entail a legal insecurity in relation to cross-border foundation activities and hinder the possibility of transfer of seat or of setting-up branches in other Member states. Q 1.3 Please rank the civil law barriers in order, starting with the one you find the most important. 1. Recognition of foreign foundations 2. Cross-border transfer of the Registered Seat 3. Cross-border transfer of the Real Seat 7

8 4. Recognition of trusts Q 1.4 If you are answering for a foundation, please give concrete examples of the civil law barriers and/or difficulties you have encountered. How do you deal with these barriers/difficulties? Have they influenced your plans to conduct cross-border activities? The AEF is aware of a series of foundations which face practical obstacles and added costs in their everyday cross-border activities. Some prominent cases are: A) A Spanish foundation had the intention of setting up an office or a branch in Portugal. The Portuguese Civil Code did not provide a legal definition of an office of a foreign foundation. Furthermore, the Portuguese legal system did not envisage an administrative procedure to set up the above mentioned branch. Nevertheless, the creation of a new foundation in Portugal, according to Civil Code, was the possible alternative. The above-mentioned case is a clear example of a barrier to the cross-border activities. On the contrary, and as we can see in the Feasibility Study, Spain applies a special recognition proceeding. According to the Spanish Foundation Act, legal recognition is given to all foundations legally constituted in another country, and occasional activities are permitted without any additional requirements, but permission to operate regularly in Spain requires: establishing a formal delegation in Spain, registration in the competent public body, and purposes of general interest and accomplishment of legal requirements for foundation according to Spanish Law. When the foreign foundation s sole activity in Spain is fundraising, Spanish civil law does not allow formal registration. As follows Spanish Law, national foundations pursue general interest. If a foreign foundation has the purpose of setting up an office in the Spanish territory, the state supervisory authority (the so-called Protectorate) must determine, on a mandatory and binding basis, if foreign foundation s purposes are in accordance with general interest. Q 1.5 If you are answering for a foundation and have tried to transfer your real or registered seat cross-border, have you experienced any problems? Please specify your reasons for wanting to transfer the seat and the problems experienced, if any. N/A Q 1.6 The study identifies eight categories of tax law barriers/difficulties for the cross-border activities of foundations in Europe (pp ): 1) Income taxation of foreign foundations (pp ), 2) Income taxation of domestic foundations operating abroad (pp ), 3) Income taxation of domestic donors of foreign foundations (p. 116), 8

9 4) Income taxation of foreign donors of domestic foundations (p. 117), 5) Income taxation of foreign donors of foreign foundations (pp ), 6) Income taxation of affiliated beneficiaries (p. 118), 7) Inheritance taxation (pp ), 8) Further taxes (pp ). Do you agree with these findings? If not, please explain why. The AEF agrees with the findings of the study regarding points 1 to 8. The following three cases have been considered as being potentially in conflict with the EC Treaty: non-tax incentives for donations to charities established in other Member States higher inheritance or gift tax for legacies and gifts to charities in other Member States and higher taxation of foreign-sourced income of charities In relation to tax treatment of non-resident foundations by the state of source, the Feasibility Study establishes that the rules in most Member States provide that non-resident foundations do not benefit from all or any tax benefits which domestic legislators have granted to resident foundations. However, Spain has an explicit provision in its domestic tax law according to which a local representative office (delegation) in Spain of a non-resident foundation is placed on equal footing with a resident foundation. Nonetheless, there are important and complex problems to carry out the respective inscription in the Register of Foundations, as follows in Q.1.4.A. Regarding to Income taxation of domestic donors of foreign foundations, the AEF agrees with the findings of the Feasibility Study on tax treatment of donors. Individual and corporate donors are eligible to claim income tax relief for charitable donations in most jurisdictions, but not in all 27 European Member States. Furthermore, in most EU countries, donations to foundations in other countries do not qualify for tax relief to the donor. There seems to be some changes in a few countries which have or are introducing tax incentives for cross-border donations, but we claim to introduce more incentives for giving. As to Income taxation of foreign donors of domestic foundations, the AEF agrees with the findings of the Feasibility Study regarding tax treatment of foreign donations to domestic foundations. The situation in which a Spanish foundation receives a donation from abroad (by a foreign donor with non taxable income in the state of the foundation) has often been reported to us (see an example below in Q 1.9). In that case, indeed, most Member States leave it up to the country of taxpayer s residence to take these into account 9

10 (which, in turn, might deny any deduction). The interaction of two tax systems may lead to less tax incentives for the donor. Nevertheless, if the donor had a taxable income in the state where the foundation has its seat or place of actual management, she/he would try to receive tax privileges. The AEF agrees with the findings regarding the tax treatment of foreign donors to foreign foundations. A Member State can also have an impact on non-resident donors of non-resident foundations if, and to the extent that, these donors are subject to domestic income tax because they generate income in this State. If the worldwide income of the taxpayer (which is usually the basis for his income tax due, or at least the tax rate, in his state of residence is zero or negative) the donor may not receive any tax incentive because of the fact that his income stems from more than one jurisdiction while no tax would have been due had he earned his entire income within one state. The AEF opinion is that the current tax situation puts significant barriers to cross-border public benefit. Q 1.7 Do you see any further tax law barriers/difficulties? Please specify. No. Q 1.8 Please rank the tax law barriers in order, starting with the one you find the most important. Major tax barriers are as follows: 1) Income taxation of domestic donors of foreign foundations 2) Income taxation of domestic foundations operating abroad 3) Income taxation of foreign foundations 4) Income taxation of foreign donors of domestic foundations 5) Income taxation of foreign donors of foreign foundations 6) Income taxation of affiliated beneficiaries 7) Inheritance taxation 8) Further taxes Q 1.9 If you are answering for a foundation, please give concrete examples of the tax law barriers and/or difficulties you have encountered. How do you deal with these barriers/difficulties? Have they influenced your plans to conduct cross-border activities? According to ECJ case law, as soon as a foundation has cross-border investments (foreign sourced income), the foundation is taxed at a higher lever than local organisations in most Member States. As soon as a foundation has or wishes to attract founders/funders from different Member 10

11 States the lack of tax deductibility of cross-border donations and the less favourable gift and inheritance tax treatment becomes an issue. One case reported to the AEF: A Spanish foundation receives a donation from abroad (by a French donor without taxable income in the state of the foundation). In that case, Spain leaves it up to France, the country of taxpayer s residence to take these into account (which, in turn, might deny any deduction). The interaction of two tax systems may lead to less tax incentives for the donor. If the respective donor is a French resident in Spain, the French legal regime shall determine the possibility of applying a tax incentive treatment, in the case of a donation in favor of a non-profit entity resident in Spain. Nevertheless, if the donor is a Non-resident Income tax payer in Spain (the donor is not a resident in Spain, but he actually has domestic-sourced income in Spain), he will benefit from a tax deductible treatment because of the donation made in favor of the Foundation (in accordance with Tax Spanish Act). Regarding other cases, the French legal regime shall be applied. Q 1.10 Do you consider the civil law barriers or the tax law barriers more important? Both civil and tax barriers are important. Existing legal and tax law barriers are in conflict with the EC Treaty and national legislators could be forced to remove these barriers. Current judicial rulings and infringement procedures focus on tax problems while the European Foundation Statute would offer an appropriate tool for cross-border cooperation free of red tape. Q 1.11 Why do foundations set up additional organisations/structures in other Member States in your view? Setting up branches in other Member States grants legal certainty to Foundations with cross-border activities due to the fact that in some Member states the status of foreign foundations is not granted. Foundations find many difficulties on operating by their national Legal entity in other member States. Q 1.12 The study seems to identify tax barriers as the main reason for foundations setting up additional organisations/structures in other Member States (p. 122). Do you agree with this finding? If not, what do you think is the main reason for foundations setting up additional structures/organisations in other Member States? The AEF agrees partly with this finding, to the extent that the lack of legal certainty entails tax barriers. See reply to Q Question 2 What solutions would be most appropriate 11

12 Q 2.1 The study assesses five different options to deal with the barriers/difficulties identified. The options assessed are (p ): 1) Status quo combined with soft law instruments 2) Harmonization 3) Bilateral or multilateral treaties 4) A European Foundation Statute without tax elements, and 5) A European Foundation Statute with tax elements What other options for solving the problems do you see if any? Q 2.2 The study suggests that of the above options, the European Foundation Statute seems to be the preferable policy option (p. 1). Do you agree? Why/why not? The AEF fully agrees with the conclusion of the study stating that the European Foundation Statute is the preferable policy option. The European Foundation Statute seems to be the preferable option because of: A European Foundation Statute shall enhance the EU legal framework on Foundations, A European Foundation Statute shall reduce legal and administrative barriers, A European Foundation Statute shall enhance transparency, A European Foundation Statute shall make donation procedure smoother, both cross-border activities of particulars and corporations, A European Foundation Statute shall contribute to the Economic Integration Process and consolidate a European civil society, in the current globalized context in which threats and common challenges claim for a European approach to get definitively solved, And, in any case, an enhancement of the European regulatory framework on Foundations shall benefit the Spanish Foundations legal regime and their own framework, independently of the scope of the activities carried out by them. Q 2.3 If you do not agree, what do you consider as the preferable policy option? Why? N/A Q 2.4 Would you consider a European Foundation Statute which does not include tax elements (for instance a tax-exempt status in all EU Member States, p.191) as a useful/attractive instrument? Why/why not? The AEF believes that a European Foundation Statute will permit crossborder work free from red tape and will help foundations to unleash its full 12

13 potential. This will be independently of whether the Statute includes tax elements or not. However, should any tax elements be included in the Statute, they would not lead to an unfavourable tax treatment for the European Foundation compared to national foundations. Therefore we consider that a non-discriminatory approach would be the most appropriate solution. Q 2.5 Do you believe that an accreditation system (pp ) could be a proportionate solution to the problems for cross-border activities that foundations face today? Why/why not? The AEF does not believe that an accreditation system, supposing voluntary codes of conduct or accreditation models, will provide the necessary legal certainty. Q 2.6 What added value do you think a "European label" (obtained for instance through a European legal form like the European Foundation) would bring for the foundations? The European label, that such a European legal form would imply, would: help foundations and their donors to extend their cross-border work and cooperation. increase the trust into the so-labelled foundations. set a benchmark in terms of accountability, transparency and good governance. help clarify the concept of foundation and provide a common definition of public benefit purpose foundations across the EU. See reply to question 2.2. Q 2.7 In your view, the benefits attached to a "European label" for foundations: can only be achieved through a specific European legal form (European Foundation Statute) can be achieved through an accreditation system can already be achieved through national foundations (e.g. through their names, statutes, marketing) can be achieved through other means, which ones? The AEF does not believe that a European label could be achieved by other means than a European Foundation Statute. Question 3: Content and form of a possible statute for a European Foundation Q 3.1 According to the study the European Foundation should have the following five main characteristics (p.194): 1) Legal personality 2) Promotion of a public benefit purpose 3) No membership 13

14 4) State supervision, and 5) Establishment by registration Do you agree that a European Foundation should have these five characteristics? If not,please explain why. Yes, the AEF fully supports the five basic elements outlined by the Feasibility Study. Q 3.2 How detailed should the European Foundation Statute be? Should it be as comprehensive as possible (as is the case for the Commission proposal for a European Private Company Statute) or should it only contain basic rules and refer to national laws on other issues (as is the case for the European Company Statute) (pp )? The AEF believes that the Statute should be comprehensive as regards most aspects of foundation law and should only refer to national law in as few legal fields as possible. It is about the consideration of the European Foundation Statute as a completely independent and autonomous legal instrument. Q 3.3 Should an initial endowment be required (p. 199)? If yes, how large an endowment should be required? The AEF is of the opinion that a certain minimum amount of capital should be required, because it may be seen as a sign of the seriousness of the purpose and that a European Foundation thus capitalised may be regarded as more trustworthy than a European Foundation without any initial assets of substance. We believe, as well, such a minimum capital should however not prevent smaller initiatives to start operations. Q 3.4 What should be the rule on economic activities by the European Foundation itself (p. 204)? The AEF believes that a European Foundation should be able to undertake economic activities, either directly or through another legal entity provided that any income or surpluses are clearly and directly used in pursuance of its public benefits purposes. Q 3.5 How should the supervision of a European Foundation be arranged (pp )? As the study suggests, we believe that a central European State supervisory authority can develop a uniform standard in its supervisory practice. Alternatively, the oversight over European Foundations could be delegated to national level. Q 3.6 On what conditions should an existing foundation be able to transform itself into a European Foundation (p 184)? 14

15 As regards the question of transformation from a national Foundation into a European Foundation, as the legal comparative analysis shows, all Member States have procedures for fundamental decisions and the most common procedure for such a decision is that the relevant majority of board members agree, and that the state supervisory authority finds that the transformation is in line with donor/founder intent. It could seem to be quite a difficult task to decide whether the founder of an existing national foundation would have preferred the European Foundation as an organizational form, which did not exist when he made his endowment. In a few cases, the future possibility of a transition to European Foundation may actually have been mentioned in the foundation deed. Further indication of donor intent may be that the purposes of the foundation are purely European and/or that a comparatively high level of cross-border activities is necessary in order to pursue that purpose. However, there may be cases where it is questionable whether the transformation would meet the more or less fictive will of the donor. Thus, it may be reasonable that the respective national legislator establishes additional procedural rules for the existing foundations. Such procedural rules could give the board of the foundation an option whether it wants to transform its legal form from a national foundation to a European Foundation. If it were necessary to amend the statutes of the national foundation, the national rules for such amendments might be applicable. Q 3.7 If you think that the European Foundation should have other characteristics, please specify which ones. See reply to Q.5.2. Question 4:Potential transformation of existing foundations into a European Foundation If a European Foundation Statute were introduced, the possibility of transforming existing foundations into a European Foundation would seem to depend on several factors e.g. the statutes of the foundation ("will of the founder"), the agreement of the board of the foundation, the approval of the supervisory authority, the scope of cross-border activities and existing barriers, as well as on the content of a possible European Foundation Statute (p.184). Q 4.1 If you are answering for a foundation, would you consider transforming your foundation into a European Foundation if possible? Q 4.2 On what criteria would the decision of the board depend? Q 4.3 What do you think the benefits and drawbacks of a transformation in the case of your foundation would be? Q 4.4 Would the possibility to transform itself into a European Foundation be decisive in order for your foundation to expand its activities to other Member States? Why/why not? Q 4.5 In case your foundation already operates cross-border, would this possibility lead to a substantial increase of cross-border activities? 15

16 The Feasibility Study does not address in much detail how a conversion of an existing foundation to a European Foundation could work. See reply to question 3.6. If the European Foundation Statute considers such transformation into, member States would have to take steps to permit conversion of existing public benefit foundations into European foundations. Question 5: Any other comments 1. As the Feasibility Study suggests the globalisation of economy is having some influence on the foundation sector as well, and consequently, the number of foundations, founders and donors already engaged in cross-border activities or who want to develop transnational cooperation has significantly grown over the last decade. 2. According to the Feasibility Study on a European Foundation Statute, the AEF is aware of the differences as regards the requirements must be fulfilled in all Member States during the Foundation formation procedure. Most Member states, such as Spain, require the form of a public deed by a notary public (Belgium, Bulgaria, Czech Republic, Estonia, Greece, Italy, Latvia, Luxembourg, Malta, the Netherlands, Slovakia). Nevertheless, several other Member States only require a written declaration or even more, making the declaration in writing is not always require in order to create a charitable trust, such as in England and Wales and Ireland. The AEF considers the legal requirement of a binding public deed by a notary public will constitute the adequate instrument for lawfulness control and emphasize the necessary legal certainty as regards cross-border activities within a common legal framework. Madrid, 12th May