Contribution to the European Foundation Statute Public Consultation April 2009

Contribution to the European Foundation Statute Public Consultation April 2009 Information about the respondent A. Name of the foundation and your function Fundacja TechSoup. Contacts: Thomas Chow, Legal Counsel (San Francisco, CA, USA) Toni Mickiewicz, Affiliate Program Manager (Warzawa, Poland) B. Address and register ID number of registered organizations UI.Marszalkowski 68/70 lok 29,00-545 Warzawa, Poland C. The legal form, field of activity and country of origin of your organisation Foundation, organized under the Foundation Act of Poland. The field of activities, as stated in the Statutes of Foundation, includes: Other consultancy related to conducting business activity and management Other professional, scientific and technical activities, not classified elsewhere Activities related to the organisation of trade fairs, exhibitions and conventions Other activities supporting the conduct of business activity, not classified elsewhere Activities of other membership organisations, not classified elsewhere Publishing books Publishing lists and directories Publishing magazines and other periodicals Other publishing activity Publishing activity relating to other software Software-related activity Activity relating to consultancy in information technology Public relations and communication Other out-of-school forms of education, not classified elsewhere Education-supporting activity Other welfare support without accommodation, not classified elsewhere Activities of professional organisations D. If you are answering for a foundation: 1. Does your foundation conduct cross-border activities in the EU/EEA area? If yes, in which form does your foundation conduct these activities (e.g. foreign foundations, branches, subsidiaries, provision of services, export/direct sales of goods, fund raising, grant making)? Yes, the foundation conducts cross-border activities in facilitating a capacity building, social enterprise model. The foundation conducts the following activities within Poland and the EU/EEA: community and network, capacity building services technology and knowledge services in-kind, technology product donations grant making to other foundations and NGOs/nonprofit enterprises fund raising activities 1

2. Does your foundation plan to expand its activities to other Member State(s) in the foreseeable future? If yes, in which form (e.g. foreign foundations, branches, subsidiaries, provision of services, export/direct sales of goods, fund raising, grant making)? Please indicate to which Member State(s). Yes. The foundation plans to conduct many or all of its activities listed above provision of community and capacity building services, technology services, in-kind product donations, grant making, and fund raising in the Czech Republic, Slovenia, Romania, Bulgaria, and Slovakia. Fundacja TechSoup is a major component of a global network of partner and affiliate NGOs/non-profit organisations that spans over 30 countries, and is rapidly expanding. The foundation is planning to conduct activities in a number of European neighbourhood countries, such as Ukraine, Turkey, Africa, and the Middle East. If the organization was able to attain European Foundation status, it might expand its activities to encompass more Member States and a much broader global network of countries. 3. Please indicate the approximate yearly expenditure of your foundation. The foundation is newly formed and has not conducted a review of reportable expenditures yet. However, the current anticipated expenses are approximately 350,000 Euros for the foundation s 2010 Fiscal Year. 4. Please indicate whether the purpose of your foundation is (1) public benefit only, (2) mixed public benefit and private or (3) private only. The purpose of the foundation is for the public benefit only. 2

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. 105-111): 1) Recognition of foreign foundations (pp. 105-107), 2) Recognition of trusts (p. 107), 3) Cross-border transfer of the Real Seat (pp. 107-110), 4) Cross-border transfer of the Registered Seat (pp. 110-111). Do you agree with these findings? I agree with all of these legal barriers, which are listed in the study concerning existing barriers to the crossborder activities/ establishment of foundations. The most relevant for the foundation is recognition of foreign foundations, due to its cross-border activities Q 1.2) Do you see any further civil law barriers/difficulties? Please specify. Apart from these legal and administrative burdens, the following difficulties and obstacles apply to the foundation: Administrative burden and cost to foundations of dealing with a diversity of national rules, which requires additional internal strategy, design, and staffing. Administrative burden and cost to foundations of the setting up several branches in other countries, which requires continuous legal advice and creates both confusion and hardship. Lack of trust in foreign-based foundations. The ability to operate under a foundation form known and recognised in all Member States would be seen as easing EU-wide operations, as public perception of foreign foundations may be detrimental. Cross-border financial transactions are rendered very difficult by legal and bureaucratic differences in invoicing, contracts and legal frameworks. Q 1.3) Please rank the civil law barriers in order, starting with the one you find the most important. In order, the most important are: Recognition of foreign foundations Cross-border transfer of the Real Seat Cross-border transfer of the Registered Seat Recognition of trusts Other barriers that are nearly as important as recognition of foreign foundations are: Legal insecurity over national recognition of general interest nature or public benefit status of resident foundations cross-border work. Difficulty in recognising foreign foundations legal personality recognition procedures exist in several Member States. Lack of possibility of transfer of seat to another Member State either the real seat or the registered seat. 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? While Fundacja TechSoup is a foundation, it has not yet encountered these difficulties in its operations. However, the foundation s parent entity, TechSoup Global, has encountered issues with recognition of 3

foreign non-profit entities, tax issues, customs issues, and the set up involved in registered the foundation in Poland. TechSoup Global dealt with these difficulties by working with partners in country, as well as hiring experienced legal counsel, CMS Cameron McKenna. This process has influenced plans to conduct cross-border activities in a negative way as TechSoup Global has discovered that cross-border entity formation consumes time, resources, and staffing at amounts greater than originally anticipated. 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. Not applicable. Q 1.6) The study identifies eight categories of tax law barriers/difficulties for the crossborder activities of foundations in Europe (pp. 111-122): 1) Income taxation of foreign foundations (pp. 112-114), 2) Income taxation of domestic foundations operating abroad (pp. 114-115), 3) Income taxation of domestic donors of foreign foundations (p. 116), 4) Income taxation of foreign donors of domestic foundations (p. 117), 5) Income taxation of foreign donors of foreign foundations (pp. 117-118), 6) Income taxation of affiliated beneficiaries (p. 118), 7) Inheritance taxation (pp. 118-120), 8) Further taxes (pp. 120-121). Do you agree with these findings? If not, please explain why. Yes. Each of these categories is a barrier for foundations. Q 1.7) Do you see any further tax law barriers/difficulties? Please specify. Yes. Other taxes include customs and VAT, and taxes upon payments. Q 1.8) Please rank the tax law barriers in order, starting with the one you find the most important? The most important tax barriers in order are: Income taxation of foreign foundations Income taxation of foreign donors of foreign foundations Income taxation of foreign donors of domestic foundations Further taxes Income taxation of domestic foundations operating abroad Income taxation of domestic donors of foreign foundations Income taxation of affiliated beneficiaries Inheritance taxation Other tax barriers that may also apply are: higher taxation of foreign-sourced income of public benefit foundations no tax incentives for donations to public benefit foundations established in other Member States 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? While Fundacja TechSoup is a foundation, it has not yet encountered these difficulties in its operations. However, the foundation s parent entity, TechSoup Global, has encountered a number tax issues, including VAT and customs tariffs. TechSoup Global dealt with these difficulties by working with partners in country, as well as hiring experienced legal counsel. The organization also has to research and investigate 4

execution formalities, has been required to have stamped copies of documents, taxes on a variety of payment methods, and a range of other issues. This process has influenced plans to conduct cross-border activities in a negative way as TechSoup Global has discovered that cross-border operations causes the organization greater and more complex tax liabilities. Having to deal with tax law barriers may require an additional 30 to 40% in resources, time, and staffing required. In addition, the foundation may have cross-border investments (foreign sourced income) and may be taxed at a higher lever than local organisations in most Member States. Q 1.10) Do you consider the civil law barriers or the tax law barriers more important? Both civil law and tax barriers are equally important. Q 1.11) Why do foundations set up additional organisations/structures in other Member States in your view? Foundations set up branches in other Member States for policy, managerial as well as legal and fiscal reasons. Because foreign foundations are either not legally recognized or they lack the trust of citizens/companies/authorities in the other Member States, foundations have decided to set up additional legal structures. Such a process encourages wasteful spending of time, resources, and staffing. 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? Tax barriers are one motivation to set up branches in different Member States among others, but the civil law barriers are equally compelling for foreign foundations attempting to conduct cross-border activities. In Fundacja TechSoup s experience, both sets of barriers have been an issue in forming a foundation. Question 2) What solutions would be most appropriate Q 2.1) The study assesses five different options to deal with the barriers/difficulties identified. The options assessed are (p. 178-194): 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? No other options are anticipated. 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? Yes, the conclusion of the study stating that the European Foundation Statute is the preferable policy option. Maintaining the status quo would leave foundations and their funders with existing barriers both civil and tax barriers. Legal costs and spending of resources is a clear problem. As well, harmonisation of foundation laws is not feasible or practical. The process to harmonise a number of countries laws with one another would be a monumental task one that appears nearly impossible. The Treaty option (bi-lateral or multilateral) is unrealistic as experience shows that not all countries choose to sign such treaties, and thus, civil and tax law barriers still apply in many cases. Further, treaties are not uniformly adopted in the same way. 5

Q 2.3) If you do not agree, what do you consider as the preferable policy option? Why? Not applicable. 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? A European Foundation Statute will enable cross-border work with less formality and bureaucracy. However, an EFS that does not include tax elements only mitigates some of the many problems outlined above. The most effective solution is almost always a more comprehensive and complete one. Q 2.5) Do you believe that an accreditation system (pp. 179-180) could be a proportionate solution to the problems for cross-border activities that foundations face today? Why/why not? No. An accreditation system such as a code of conduct or a third-party regulated model may reduce costs. However, such approaches do not provide the necessary legal certainty required to conduct cross-border operations in a convenient manner. As well, any accreditation system will fail to include the assurance of actual legal implementation, and thus, require foundations to bear risks even after obtaining legal counsel. The prospect of incurring risk while still having to bear the cost of an accreditation that is not guaranteed to work in each Member State is not nearly as attractive as the EFS. 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? A European label could provide the follow benefits: provide a positive public perception to all citizens and organizations within the Member states, regardless of Member state of origin help foundations and their donors to extend their cross-border work and cooperation increase the trust for all foundations within the EU 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 reduce legal costs and expenses incurred to register multiple entities in a variety of Member States, and avoid tax liability issues for doing cross-border activities 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 only proper method would be a through a specific European legal form, such as the EFS. An accreditation system would not provide the necessary legal certainty or assurance in cross-border operations. 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 6

3) No membership 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. 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. 195-196)? 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 (e.g., labour law, insolvency law). A more comprehensive law means fewer ambiguities and conflicts with national laws of each of the Member States. Foundations would greatly benefit from taking less risk in cross-border activities when a statute like the EFS is clearly defined, covers a wide range of topics, and provides strong protection against tax liabilities. Q 3.3) Should an initial endowment be required (p. 199)? If yes, how large an endowment should be required? Yes, a minimal amount of capital should be required. Not only would a European Foundation have more credibility with a certain start up capital requirement, but the capital requirement would also ensure that only foundations which actually conduct cross-border activities would register. The EFS should not become a system to evade regulation altogether. Further, a two tier capital requirement may be beneficial. Start up capital should not be strictly limited to cash, but could also be supplemented by the fair market value of services to be rendered or other goods within a foundation s possession. For example, the EFS may require that a foundation have (1) minimum start up assets and capital of 10,000 Euros in cash or (2) a combination of minimum assets of 5,000 Euros in cash, and 5,000 Euros in services or goods. A two tier system would allow greater flexibility for many smaller foundations that often operate on thin budgets. Q 3.4) What should be the rule on economic activities by the European Foundation itself (p. 204)? A European Foundation should be able to undertake economic activities either directly or through another legal entity, but only provided that any income is clearly and directly related to the furtherance of its public benefit purposes. Other unrelated business income should be taxed at standard rates. Again, the EFS should not become a system that fosters evasion of local tax regulations. Q 3.5) How should the supervision of a European Foundation be arranged (pp. 200-203)? A European Foundation should be regulated by a governing body that consists of members of multiple Member States from different geographic regions. Such a governing body would have greater legitimacy and could develop uniform standards of oversight that resemble already-implemented methods of regulations. Q 3.6) On what conditions should an existing foundation be able to transform itself into a European Foundation (p 184)? An existing foundation should be able to convert to a European Foundation as long as it can demonstrate that it has some cross-border activities that are related to and further its primary scope of activities. Q 3.7) If you think that the European Foundation should have other characteristics, please specify which ones. Not applicable. 7

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? Yes. Q 4.2) On what criteria would the decision of the board depend? The board would require: A European Foundation legal form being available The legal form add some benefit to the foundation, such as cost savings or ease of entering more countries to conduct cross-border activities If it is legally possible to do such a transformation The public perception of the European Foundation within the Member States and abroad Q 4.3) What do you think the benefits and drawbacks of a transformation in the case of your foundation would be? The benefits would include: A uniform and flexible structure, which would be recognised in all Member States An appropriate tool for cooperation with partners also from other Member States More trust and recognition by partners and funders Less civil law and tax liabilities when conducting cross-border activities The convenience of forming a single entity that spans the EU as opposed to forming separate legal entities in each Member State The only drawback is the administrative and legal costs (time, resources, and staffing) incurred to undergo such a transformation. 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? No. However, such a transformation would allow Fundacja TechSoup to more easily expand activities to other Member States and not limit strategies and opportunities based upon geographic region. Q 4.5) In case your foundation already operates cross-border, would this possibility lead to a substantial increase of cross-border activities? Yes. Question 5) Any other comments No further comments. 8