COMMISSION STAFF WORKING PAPER

IMPACT ASSESSMENT

Accompanying the document

Proposal for a Council Regulation on the Statute for a European Foundation (FE)

This document is a European Commission staff working document for information purposes. It does not represent an official position of the Commission on this issue, nor does it anticipate such a position.

TABLE OF CONTENT

1........... Procedural issues and consultation of interested parties. 4

1.1........ Procedural issues. 4

1.2........ External expertise and consultation of interested parties. 4

2........... Policy context, problem definition and subsidiarity. 6

2.1........ Scope. 6

2.2........ Data on foundations. 7

2.3........ Background and context 8

2.4........ Problem definition. 13

2.5........ Baseline scenario: expected development if no action is taken. 21

2.6........ The EU's right to act 22

3........... Objectives. 23

4........... Policy options and analysis of impacts. 25

4.1........ Baseline scenario. 25

4.2........ Launching an information campaign and a voluntary quality charter 26

4.3........ Statute for a "European Foundation" 27

4.4........ Harmonisation of Member States' laws on foundations and the tax treatment of foundations and donors 35

5........... Comparing the options and summary of the impacts. 37

5.1........ Comparing the policy options on the basis of objectives (taking into account the political acceptability of each option) 37

5.2........ Comparing policy options on the basis of impacts on stakeholders (including administrative burden) 39

5.3........ Comparison tables. 42

5.4........ Conclusion. 43

6. ......... Monitoring and evaluation. 44

Annex 1: Number of foundations. 46

Annex 2: Description of national civil and tax laws for foundations in Member States. 47

2.1. Civil law.. 47

2.2 Tax law.. 52

Annex 3: Description, analysis and comparison of sub-options, and instruments, for the Statute for a European Foundation 53

3.1. Description, analysis and comparison of sub-options for the Statute. 53

3.2. Instruments to be used for the Statute. 63

Introduction

Foundations play an important role in the EU, particularly in civil society. Through their various activities in numerous areas, they make a major contribution to the fundamental values and objectives of the Union, such as respect for human rights, the protection of minorities, employment and social progress, protection and improvement of the environment or the promotion of scientific and technological advances. Their contribution to society's public benefit is significant. In this context, they make a substantial contribution to achieving the ambitious goals of smart, sustainable and inclusive growth set by the Europe 2020 strategy[1]. They also enhance and facilitate a more active involvement of citizens and civil society in the European project.

Foundations have traditionally been active at national, regional or local level, and the rules and procedures to which they are subjected are deeply rooted in the national environment. Studies and consultations carried out by the Commission[2] show that in recent years, foundations have become more active on a cross-border basis in the EU. Yet the variety of national rules makes these cross-border operations costly and cumbersome, and the cross-border channelling of funds to public benefit purposes through foundations is largely under- exploited.

The Single Market Act Communication[3] adopted in April 2011 highlighted the need to put an end to market fragmentation and to eliminate barriers and obstacles to the movement of services, innovation and creativity in order to deliver growth and employment, and promote competitiveness. It stressed the importance of strengthening citizens' confidence in the single market and of ensuring that its benefits are passed on to citizens. In the context of foundations' contribution to the social economy and to financing innovative initiatives of public benefit, the Single Market Act called for action to remove obstacles that foundations face in operating on a cross-border basis. The same call was made in the EU Citizenship report 2010 "Dismantling the obstacles to EU citizens' rights"[4], which stressed the importance of enhancing the European dimension of the activities of public benefit purpose foundations with a view to promoting citizen action at EU level.

The Commission also underlined the importance of developing European legal forms for entities in the social economy sector (e.g. foundations, cooperatives or mutuals) in its "Social Business Initiative" Communication of 25 October 2011[5]. The Social Business Initiative aims to support the development of businesses that primarily focus on creating social impact through their activities and its actions also address and benefit those social economy entities (including foundations) that meet the general criteria for a "social business" in the Communication.

This impact assessment report analyses different options for overcoming problems foundations face when operating in the single market, including the option of the Statute for a European Foundation.

1. Procedural issues and consultation of interested parties 1.1. Procedural issues

The formal work on the Impact Assessment (IA) started in autumn 2010, led by the Directorate General for Internal Market and Services.[6] Data gathering and preparatory work had already started in 2008. An Impact Assessment Steering Group (IASG) was set up with the participation of the following DGs and Services: Secretariat General, Legal Service, DG ECFIN, DG ENTR, DG COMP, DG EMPL, DG ENV, DG RTD, DG TAXUD, DG EAC, DG SANCO, DG JUST, DG HOME, DG TRADE and DG DEVCO. The IASG met four times (9 December 2010, 3 March, 15 April and 5 May 2011). Comments provided by DGs have been taken into account to a very large extent. Minutes of the last meeting have been submitted to the Impact Assessment Board[7] (IAB) of the Commission.

The draft IA report was discussed with the IAB on 6 July 2011. This updated report reflects the IAB's recommendations in the following way:

- more explanation about the gap between current and required practices was added in section 2.4, e.g. by clarifying the nature of the "comparability test" and types of costs involved;

- a description of legal issues and their pracatical implication was further clarified in section 2.3.1;

- references to potential indirect impacts of the preferred policy option, and a more detailed explanation of risk mitigation features (e.g. of the supervisory powers which the Statute would give to national supervisory authorities), were included in section 4.3;

- an effort was made to explain the estimated costs and benefits more clearly and carefully throughout the report (including the introduction of a new section 2.2 on data);

- the conclusion to section 5 was updated to summarise more clearly the rationale for the preferred policy option;

- more references to stakeholders' views were added in section 1.2 and in the analysis of the preferred policy option in section 4.3;

- other comments by the IAB were reflected throughout the report.

1.2. External expertise and consultation of interested parties

In preparing the Impact Assessment, the Commission relied widely on external expertise and engaged comprehensively with different stakeholders. It also based itself on the reflection carried out in the context of the 2003 Commission Action Plan on Modernising Company Law and Enhancing Corporate Governance[8].

First, a feasibility study — by a Consortium consisting of the Max Planck Institute for Comparative and International Private Law in Hamburg and the University of Heidelberg (Centre for Social Investment)[9] — was carried out and published in 2008. Out of the five policy options which it considered (status quo, harmonisation of national laws, bilateral or multilateral treaties, a Statute for a European Foundation with or without tax exemptions), the study suggested that a Statute for a European Foundation (with or without tax exemptions) would be the preferable policy option to address the problems identified.

Subsequently, the Commission put the recommendations of the feasibility study to a public consultation between February and May 2009. Among the 226 replies, the biggest number (around 87%) came from the non-profit sector, i.e. foundations, charities, trusts, associations involved in social economy or philanthropy, and their networks and umbrella organisations. Other replies came from business associations, public authorities and law firms. In their contributions, foundations expressed strong support for the idea of a European Statute. They argued that it would facilitate their cross-border activities and make it easier for donors to channel private funds for public benefit purposes within the EU. Most of them perceived the civil and tax law barriers identified in the feasibility study as real problems; although there were also some respondents who reportedly did not experience significant problems in their cross-border activities.

National authorities from six Member States[10] and, to some extent, business organisations were more sceptical as to the need for - and feasibility of - such a legal form. They questioned the magnitude and relevance of the cross-border problems identified in the feasibility study[11] and the potential problem-solving capacity of a Statute for a European Foundation[12].

Improvements to cross-border activities of foundations were also subject to another consultation, on the Communication "Towards the Single Market Act" between October 2010 and February 2011[13]. According to the overall online results, the action calling for improvement of the legal status of entities in the social economy (including foundations) was seen by respondents as the second most important of the proposed Single Market Act actions, showing strong support for an initiative in this area[14].

In addition, the Commission gathered further information about concrete problems encountered through bilateral discussions with foundations, in particular during the "European Foundation Week" in June 2010 and via contacts with the European Foundation Centre (EFC)[15]. All interlocutors consulted saw a need for a Statute in the light of the concrete problems they faced when trying to carry out activities and/or receive tax benefits in other Member States.

The Commission also collected information on the relevant national legislation from national authorities through a questionnaire and subsequent discussions within the Company Law Expert Group (CLEG)[16] in 2009, 2010 and 2011. Many Member States expressed reservations towards the Statute, stating they did not see a need for a new legal form including for foundations, and calling for a careful analysis and consultation before any new initiative was proposed. Some stressed that they were not aware of difficulties related to cross-border activities experienced by their national foundations; thought that national systems were already flexible enough; or were concerned about potential circumvention of national rules.

The idea of a Statute for a European Foundation has received strong support from the other EU institutions. The European Parliament called for an appropriate legal framework for foundations (as well as for mutual societies and associations) - to give them a European status and prevent legal uncertainty - in its resolution responding to the Commission's Single Market Act; argued in favour of introducing Statutes for these legal entities in its written declaration 84/2010 of March 2011; and urged the Commission to work towards this objective in its previous resolutions of 2006 and 2009[17]. The European Economic and Social Committee advocated a Statute in its 2010 own initiative opinion[18], which set out its reflections on how such a Statute should be developed, and the Committee of the Regions supported the Commission's announcement of the initiative on foundations in the Single Market Act[19].

2. Policy context, problem definition and subsidiarity 2.1. Scope

There is no universal definition of a "foundation" or "public benefit purpose foundation" across the EU. Definitions in national laws vary considerably.

The overall definition of a foundation used for the purpose of this report follows the one put forward in the feasibility study. The authors developed a definition based on the lowest common denominator of the legal definitions in the Member States. Accordingly, a foundation:

· is an independent entity (generally with its own legal personality);

· has no formal membership[20];

· is supervised by a State supervisory authority;

· serves a specific purpose;

· has a founder who provided an endowment and determined the foundation's purpose and statutes[21].

Moreover, there are a number of different typologies of foundations, including classification on the basis of the purpose that they pursue or the type of activities that they perform[22].

For the following reasons, this report focuses on public benefit purpose foundations. First, such foundations benefit a broadly defined group of recipients - the public at large (compared to the private benefit purpose foundations that focus only on the members of a family or on a closed circle of beneficiaries) – and therefore, focusing EU action on their activities would benefit European citizens and the EU’s economy to a larger extent. Secondly, such scope seems to respond well to the needs of the foundation sector; a great majority of foundations in the EU have public benefit purpose and most of those follow a purely public benefit purpose. Finally, public benefit purpose foundations constitute the most common type of foundations and they are present and recognised in all Member States (with only half of the jurisdictions in the EU recognising private benefit foundations), making such scope of the iniatitive more acceptable.

2.2. Data on foundations

The data in this report stems from the feasibility study, which, in turn, was based on the available figures on foundations in the EU (including the research carried out by the EFC[23]) and a survey conducted by the contractors for the purpose of the feasibility study. The data from the study is supplemented in this report by, among others, further information from the EFC and anecdotal evidence from individual foundations and national authorities.

All the figures quoted below are intended to provide an impression – rather than a complete picture - of the foundation sector in the EU. This is due to the difficulty with obtaining data about European foundations, caused by inconsistent definitions and substantial differences in how foundations are defined in national laws across the EU, and inconsistent data[24]. In addition, many surveys - including the EFC research and the survey carried out for the feasibility study - suffer from low response rate[25] and lack representativeness. For those reasons, the data quoted below should be seen as an indicator and an estimate rather than representative and exact figures. The additional individual examples and cases are also used for illustrative purposes only.

The estimates for the overall number, growth and economic weight (assets, expenditures) should be seen as referring to public benefit purpose foundations but should be taken as indicative because, among others, the dataset used might have also included small numbers of other types of foundations[26].

2.3. Background and context 2.3.1. Nature and size of the market concerned[27]

Foundations are important actors in the EU economy. Although it is difficult to provide exact figures, the calculations carried out in the feasibility study estimate the assets of the public benefit purpose foundations in the EU to amount to about €350 billion and their annual expenditures to €83 billion (lower end estimates)[28]. On the basis of further research and extrapolations, the study suggests that upper end estimates could be approximately €1,000 billion for assets and €153 billion for expenditures. It is worth mentioning that while the size of foundations can vary considerably, assets and expenditures tend to be heavily concentrated in a number of large foundations[29].

Overall, the foundation sector in Europe consists of approximately 110,000 public benefit purpose foundations[30]. Their distribution varies significantly: there are fairly high numbers of foundations (over 10,000) in Hungary, Germany, Romania, Spain or Sweden, while fewer foundations (below 200) are active in Estonia, Ireland, Latvia or Slovenia[31]. The number of public benefit purpose foundations has seen substantial growth in the recent years, e.g. between 28% and 40% of all foundations in Member States such as Germany, Finland, France and Belgium were founded in the last decade. Similarly, according to the EFC research[32], in nine countries (Belgium, Estonia, France, Germany, Italy, Luxembourg, Slovakia, Spain and Sweden) around 43% of foundations (over 18,000 in absolute numbers) were set up during the last two decades[33].

The foundation sector plays a significant role in the EU labour market, both directly – by involving employees and volunteers in their projects – but also by indirectly supporting employment and volunteer work in the organisations and activities they fund. According to EFC research[34], in ten and seven EU countries respectively, some 34,400 foundations directly employ about 311,600 employees, and some 31,800 foundations engage 231,600 volunteers – amounting to an average of about nine employees and seven volunteers per foundation. On the basis of this research and additional data and extrapolations, the feasibility study suggests that there are between 750,000 and 1 million full time employed staff working for the foundation sector across the EU[35] and a further 1 million persons involved in their projects as volunteers. The numbers could be higher in practice given that the study does not carry out analysis on part-time staff, freelancers or consultants also working for foundations[36]. Direct employment varies per country (according to the feasibility study, the United Kingdom, Germany, Spain, Poland and Hungary account for about 80% of foundation employment in Europe).

Foundations are active in a number of key areas benefiting European citizens and the EU economy, but their contribution, as well as their potential to generate social and economic added value, is not always easy to quantify and it often risks being underestimated. According to the feasibility study, education and research dominate the profile of public benefit purpose foundation activity in the EU, with an average of 30% of activity focused in this area[37]. Foundations are an important source of funding for some research activities and could be an important element to achieve the European Research Area[38]. On the basis of results of the FOREMAP project[39], there are likely to be over 10,000 foundations in Europe supporting research activities, with the amount of their support varying between Member States (with Denmark, France, Germany, Italy, Sweden and the UK accounting for 88% of research expenditure funded by private non-profit sector). Moreover, foundations have close links with universities, the latter seeing foundations as one of the principal sources of their funding and many universities (31% of surveyed universities according to a recent study[40]) creating foundations to handle fundraising activities.

Social and health services appear to be the next biggest areas, with an average of 25% of public benefit purpose foundations activity in the area of social services, and 17% in the area of health. In addition, according to the EFC research in seven EU countries, surveyed foundations appear to spend most on social and health services, e.g. 49% of overall support provided by surveyed French foundations goes to health services, and 36% to social services; and 31% of all support of surveyed Dutch foundations focuses on social services[41]. Arts and culture is the next significant area of activity after health; it is the most important area in Spain with 44% of Spanish foundations involved in this field; and is relatively prominent in a number of other countries (such as Finland, Germany, Italy, Portugal, the Czech Republic and Poland).

Other areas include environmental protection and climate change - from the EFC research in six Member States it appears that over 5% of foundations surveyed support environmental issues[42] - but also development and migration issues. Foundations also play an essential role in promoting active civil society in Europe as many of the areas in which they engage are closely linked to citizens' concerns[43]. Furthermore, by acting across borders and engaging directly with citizens they promote dialogue among different actors and cultures at local level.

In all these areas foundations are active through making their resources available to citizens or organisations for a specified purpose (i.e. grant-making foundations) and/or running their own operations and programmes, e.g. some private universities, hospitals, museums or research projects or institutes (i.e. operating foundations). Both grant-making and operating foundations are present – to a varying degree - across Europe. In some countries – e.g. France or Italy – the foundation sector mostly includes "operating" rather than "grant-making" foundations, and in others, such as the UK, there is a predominant grant-making culture with hardly any operating foundations. Overall, it appears that many foundations in Europe combine both operating and grant-making to pursue their objectives and the number of these "mixed" foundations is increasing. Examples of such foundations include the Gulbenkian Foundation in Portugal, the BBV Foundation in Spain or the Bosch Foundation in Germany[44]. For example, out of 232 EFC members, 73% (169 members) both give grants and operate their own programmes; 14.6% (34 members) do only grant-making; and 12.5% (29) only operate their own programmes[45].

Foundations also mobilise - through partnerships and by pooling funding - other philanthropic actors, business or public sectors to address specific issues (e.g. develop and support health children programmes), which multiplies the impact of their work[46]. Partnering and co-funding with foundations can be attractive for public bodies as foundations can complement the actions of governments.

Foundations have traditionally been more active at national, regional or local level. However, the numbers of foundations and donors operating on a cross-border basis, or expressing willingness to be engaged in such operations, have increased significantly during the recent decade.

Anecdotal evidence from bilateral discussions with foundations in 2010[47] suggests there are a number of foundations that see activities abroad as an important part of their activities. For instance, the European Climate Foundation explained that it had donors all across the EU; cross-border activities of the King Baudouin Foundation amounted to about 25% of their activities, and those of the Calouste Gulbenkian to 20%; and the Open Estonia Foundation estimated that more than half of its activities were cross-border.

Furthermore, the number of EU-wide projects currently in place provides evidence of growing interest among foundations for European level cooperation. These include, among others, the creation of Donors and Foundations’ Networks in Europe (DAFNE) in 2006, which now includes 16 networks across several EU countries, a number of projects introduced by the EFC in specific areas of interest (such as HIV/AIDS, disability, etc.), or other initiatives such as the Network of European Foundations (NEF) for innovative cooperation or the European Venture Philanthropy Association (EVPA), which aim to develop cooperation and networking between philanthropist entities in Europe[48]. In the survey carried out for the feasibility study, 46% of the surveyed foundations stated that they conducted international activities "regularly"[49]; and about half of the surveyed foundations which conduct international activities "at least occasionally" indicated that they planned to expand those activities further. These survey results provide an example of the growing interest of foundations in cross-border activity in Europe, even if the figures should be considered as indicative[50].

As regards donations, figures for gifts channelled through the "Transnational Giving Europe" (TGE) mechanism, which during 2010 grew by 25% and exceeded €4.2 million, indicate that there is growing potential for cross-border giving[51].

2.3.2. Overview of the legislative framework

At EU level

There is no EU legislation in the area of foundations. However, their activities may fall under the provisions of the Treaty on the Functioning of the European Union (TFEU) relating to freedom of establishment (Article 49 TFEU), freedom to provide services (Article 56 TFEU) or free movement of capital (Article 63 TFEU). According to Article 49 TFEU, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. According to Article 56 TFEU, restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person for whom the services are intended.

It should be noted, however, that Article 54 excludes legal persons that are non-profit-making from the right of establishment. Nonetheless, in the light of the Court of Justice of EU case-law[52], a non-profit making foundation can invoke freedom of establishment when it engages in economic activities.

Being unremunerated, the awarding of grants (which is the main or exclusive type of activity of certain foundations) would not be considered an "economic activity" under the Treaty provisions relating to establishment and services or under Directive 2006/123/EC on services in the internal market[53] (hereafter the Services Directive) - and would not therefore be covered. As far as funding in general is concerned, if this is defined as a payment of contributions for a non-profit purpose, it would not be considered an economic activity either; in contrast fund "raising" may well be an economic activity (i.e. renting out property, selling handicrafts or organising sports activities for which participants or spectators are charged entry fees).

According to Article 63 TFEU all restrictions on the movement of capital between Member States and between Member States and third countries are prohibited. Gifts, endowments, inheritances and legacies are listed under "Personal Capital Movements" in Annex I of Directive 88/361/EEC which constitutes an indicative, non-exhaustive list of what is covered by free movement of capital. Funding, fund raising and grant-making in these forms can benefit only from the free movement of capital provided that they are cross-border[54].

Secondary legislation - "the Services Directive" - ensures that both service providers and recipients benefit more easily from the fundamental freedoms guaranteed in Articles 49 and 56 TFEU. The implementation of the Services Directive should make the establishment of foundations performing economic activities easier by eliminating requirements governing access to or exercise of service activities that were discriminatory, unjustified or disproportionate. This means, for example, that their establishment should not be made subject to: discriminatory requirements based directly or indirectly on nationality (i.e. relating to the registered office of the foundation or nationality or residence requirements for the staff); restrictions on the freedom to choose between a principal or secondary establishment; or restrictions on the freedom to choose between establishment in the form of an agency, branch or subsidiary.

In addition, foundations undertaking economic activities should be able to provide cross-border services in other Member States without any national requirements governing access to or exercise of that activity being imposed upon them, unless they are non-discriminatory, justified by reasons of public policy, public security, public health or protection of environment, and proportionate. Requirements such as the obligation to have an establishment in the Member State where cross-border services are provided will not be justified in most cases.

In conclusion, foundations developing economic activities may benefit from the freedom of establishment and the freedom to provide services, as guaranteed by Articles 49 and 56 TFEU (as well as the Services Directive), while foundations carrying out non-economic activites (e.g. grant-making) may benefit the free movement of capital, as guaranteed by Article 63 TFEU.

At national level

At national level, civil laws set out requirements which foundations need to fulfil in order to be able to operate. More detailed information about national legislation can be found in Annex 2.

Foundations and their donors are also subject to the relevant tax rules of the various Member States. Tax law may function both as an incentive and a disincentive for donors (depending on whether or not tax benefits are provided for donations made to foundations) and is also relevant for the investments of foundations (as tax benefits may be provided for income earned by foundations). This is true mainly for income taxation, but it may also be relevant for inheritance taxation (i.e. gift, inheritance and/or estate taxes, which may be applied at both the level of the foundation and of the donor). In most Member States, in order to qualify for tax benefits, foundations have to meet certain requirements that are additional to those provided under civil law.

2.4. Problem definition[55] Inefficient use of funds for public benefit purposes through foundations in the EU

As illustrated in the previous sections, foundations make, through their activities in key areas, a major contribution to the achievement of a number of the EU's objectives. Their role in performing public benefit activities has always been important, but it has gained even greater significance in the aftermath of the recent economic and financial crisis due to the growing expectations of citizens. Yet, support from the private sector to public benefit causes is not fully exploited across the EU.

One of the main reasons for this appears to be that foundations – which are important sponsors of public benefit causes - cannot pool and distribute funds efficiently on a cross-border basis in the EU. When they decide to operate across borders, foundations have to spend part of the resources they collect on legal advice or on fulfilling different legal and administrative requirements laid down by national laws (see section on costs below). This means that less funding is available for public benefit activities. This was confirmed by the public consultation carried out by the Commission in 2009[56], in which respondents underlined that part of the funds of foundations active abroad is used to cover operation costs instead of being channelled for public benefit purposes.

In addition, these legal and administrative requirements have a strong deterrent effect on foundations initiating or developing operations across borders, with the result that the scope of their activity is narrower than could be expected from their full potential and their expansion ambitions.

For instance, the Fondation d'Entreprise du Groupe SEB affirmed that it limited its activities abroad as a consequence of the existing barriers, and the Calouste Gulbenkian Foundation stated that the civil law obstacles it encountered influenced the dimension and budget of its EU-wide activities, which could otherwise be larger[57].

The problems described above can be further divided into the following sub-problems: a) uncertainty about recognition as a public benefit purpose foundation in other Member States, b) costs for pooling and distributing funds on a cross-border basis and c) limited cross-border donations.

a) Uncertainty about recognition of foreign foundations as public benefit purpose entities in other Member States

The national definitions of public benefit vary across the EU. Certain Member States have a closed list of public benefit purposes, although most of them have either an open one or no definition at all.

In a number of cases, Member States seem to require foreign foundations which have activities in their territory to fulfill the public benefit purposes as foreseen by their legislation.

In certain cases, in order to be granted the status of public benefit, foundations need to follow a specific procedure of recognition or to obtain permission. For instance, a special recognition authorisation (via a decree issued by the Minister of the Interior, after having received the approval of the State Council) is foreseen for foreign foundations which envisage operating as "public benefit purpose foundations" in France whereas, in Spain, the state supervisory authority determines whether the purposes of a "formal delegation" of a foreign foundation are in accordance with "general interest". In some other countries e.g. Poland and Slovakia, the purposes of a representative office of a foreign foundation need to be in line with national law requirements. For example, in Poland, checks are carried out to verify whether purposes are in line with the national definition of "public benefit" before permission is granted by the competent Minister to set up a representative office.

Such cases can lead to some legal uncertainty as to whether a foundation will be recognised across borders as a public benefit purpose one. Similarly, tax barriers and restrictions[58] can also cause uncertainty regarding recognition and, consequently, whether a foundation will be eligible for the same tax benefits as those available to domestic foundations. Such uncertainty might dissuade foundations from operating in other countries.

b) Costs for channelling funds on a cross-border basis

The national legal and administrative requirements affect both the setting up and the running of foundations' activities, as foundations are obliged to dedicate additional human and financial resources to tackling these requirements. It is difficult to provide an overall estimate of the costs faced by foundations, as some of these costs (e.g. administrative or staff costs) will depend on specific cases and are, therefore, difficult to quantify.

According to the calculations carried out in the feasibility study, the overall costs of the barriers foundations face in their international activity could amount to a minimum of between €90 and €102 million a year. This figure is based on calculations of costs of legal and fiscal counselling for setting up a new entity abroad (in case this is necessary to operate abroad) and for keeping abreast of changes in national legislations when already running operations abroad. The calculations are based on assumptions of one-off legal counselling costs of €10,000 - 16,000 for setting up a new entity and ongoing legal yearly costs of €3,000 for monitoring changes in national legislations per foundation. In addition, assumptions as regards numbers of foundations which might need to establish new entities to operate abroad (750 - 1,200 per year) and those that might need counselling when running operations abroad (27,500) are estimates on the basis of a survey of 134 foundations. Due to the data uncertainty involved, the figures for costs are to be seen as assumptions only and are used for illustrative purposes [59].

Although this report will use the above figure when talking about overall costs, it is important to point out that the overall set-up and running costs abroad might be higher when other costs are also taken into account. Looking at the EUSTORY and Carpathian Foundation case studies mentioned in sections 2.4.1 and 4.3, setting up an additional entity abroad amounted to €40,000 (or even up to $100,000) and running it – to €30,000 (or $25,000) when other costs, such as registration fees, administrative expenses, travel and accommodation costs, costs of internet presence and of public relations abroad, were also taken into account. Furthermore, should the establishment of a new entity in other Member States be required, the feasibility study suggests that costs could amount to between €138 and €179 million when an average amount of minimum founding assets currently required in the EU is included in the calculations.

c) Limited cross-border donations

Donors' lack of trust in, and knowledge of, foreign foundations, and tax law barriers or restrictions are also reported as being a barrier to cross-border donations.

2.4.1. Causes and drivers of the problems

Civil law barriers or restrictions for foreign foundations

There are significant divergences in Member States' approaches towards the setting up and operating of foundations. This means that foundations are subject to different requirements across the EU in terms of, inter alia, minimum founding assets, internal governance, supervision, activities allowed, etc. For instance, certain Member States foresee strict requirements regarding minimum founding assets (e.g. €1 million in France or €250,000 in Portugal) whereas in others, these requirements might be lower (e.g. over €30,000 in Denmark or €25,000 in Finland) or no founding assets may be required at all (e.g. in Estonia or Latvia). This requirement exposes founders to a potential cost because it can oblige them to put up more money than is actually necessary to establish. In particular, in certain cases it may prove to be difficult, if not impossible, for the founders to establish a small foundation if it has to respect, for example, a very high minimum founding assets requirement such asthose mentioned above.

Furthermore, it appears that some Member States only allow specific forms of establishment for foundations[60] (i.e. Slovakia, Latvia) or that they allow their establishment under conditions of reciprocity (i.e. Italy). Moreover, there are also cases where the host Member State requires the residence on its territory of a person authorized to act on behalf of the foreign foundation (e.g. in Malta), while some others require evidence that the value of assets corresponds to their national legal requirements when a foreign foundation establishes a branch (e.g. in the Czech Republic and Slovakia).

In addition, difficulties and costs when a foundation wants to transfer its seat to another Member State were mentioned in the feasibility study and the responses to the 2009 public consultation.

Certain Member States (e.g. Czech Republic) appear to prohibit the cross-border provision of services by foundations, thereby making it difficult for foundations to operate on a temporary basis across the EU.

Moreover, there are national requirements on foundations when receiving donations (e.g. in Lithuania a "status of a recipient of sponsorship" from the Register of Legal Entities for providing and receiving donations is requested whilst in Belgium and Luxembourg authorisations are requested for donations exceeding certain amounts). Provisions also exist which require foreign foundations to reside on the territory of a particular Member State in order to perform fund raising and grant making.

The example below provides a specific illustration of the difficulties and costs encountered due to divergences in national (civil and tax) laws for foundations across the EU:

Example: History Network for Young Europeans EUSTORY[61]

EUSTORY was founded in September 2001 on the initiative of the Körber Foundation. It is a common platform of non-governmental organisations from civil organisations in 22 European countries, which supports teaching history to young people across the EU.

Since its founding, it has struggled to find the appropriate legal structure for its pan-European public interest objective. In order to avoid linking symbolic EU-wide activities with a single national law, until 2008 it operated as a non-registered association. However, this became an obstacle to its development in an increasing number of EU countries due to the fact that it was not contractually capable (e.g. it could not submit an application for EU funding, nor attract sponsors).

The only available option to create an independent entity with legal personality at EU level was to establish itself as an international association under Belgian law, which EUSTORY did in June 2008. However, the costs of establishing and maintaining the association during 2008-2010 proved disproportionate for the Körber Foundation, to the extent that a discussion at a general assembly is foreseen in 2011 to consider the dissolution of the association. The examples of such costs include:

- costs of setting up and providing for a legal seat in Belgium of €40,000[62] in 2008, part of which would not have been sustained if a foundation under European law could have been set up in Germany (where the secretariat of the Körber Foundation is based);

- costs of around €30,000 a year in 2009 and 2010 for administrative expenses of the EUSTORY association[63], part of which were due to the fact that the Körber Foundation had to operate with the association in the context of foreign (civil and tax) law. These would have been avoided, had it been possible to set up a European Foundation in Germany.

Tax law barriers or restrictions for foreign foundations and their donors

Member States enjoy broad freedom to design their tax systems and allocate taxation powers between themselves. Thus, it is for each Member State to determine whether it will provide for tax incentives for public benefit purpose foundations and their donors and, if so, what kind of general interests it wishes to promote by such tax incentives. According to the case law of the Court of Justice of the EU, once a Member State decides to provide such tax incentives, it should provide for non-discriminatory tax treatment of comparable foreign foundations and their donors, as required under the fundamental freedoms enshrined in the TFEU.

In the past, in many Member States, foreign foundations were not able to benefit from the same advantages with respect to income taxes which were granted to domestic foundations (even if they fulfilled the relevant requirements provided by the national tax law). Similarly, in many cases, domestic donors could not benefit from tax deductions which were available for donations made to domestic foundations when they made a donation to a comparable foreign foundation. Discriminatory tax treatment of foreign foundations and donors also occurred with respect to inheritance, estate and gift taxes. This situation resulted in tax law barriers to foundations operating across borders. This is confirmed by the results of the 2009 public consultation. On the question of tax law barriers encountered by foundations in carrying out cross-border activities, a majority of respondents indicated "income taxation of foreign foundations and of domestic foundations operating abroad" followed by "inheritance taxation" and "tax treatment of donors" as the most important tax law barriers. Asked for concrete examples, most respondents referred to the fact that foreign foundations were taxed at a higher level than local entities in most Member States, to the fact that foundations found it difficult to attract foreign donors due to lack of tax advantages for cross-border donations, and to the less favourable gift and inheritance tax treatment.

The Court has ruled on cases which correspond to the situations identified as representing the most significant tax law barriers to cross-border activities of foundations. In the Stauffer case[64], the Court affirmed that where a Member State gives tax exemptions to domestic foundations, it should extend these advantages to comparable foundations in other Member States which meet the same conditions as domestic ones. In the Persche case[65], the Court stated that where a Member State grants tax incentives for donations to certain domestic foundations, the conditions for these tax incentives must apply in a comparable way to cross-border donations to foreign foundations. In the very recent Missionswerk Werner case[66], which concerned the applicability of reduced rates for succession duties, the Court decided that a Member State granting certain tax advantages to domestic foundations had to apply the same tax treatment to foreign foundations that satisfied the conditions laid down by that Member State concerning the types of domestic foundations entitled to the tax advantages.

Following the above-mentioned judgments in the Stauffer and the Persche cases and a systematic examination of national laws in this field by the European Commission, infringement proceedings have been opened against a number of Member States whose tax legislation discriminated against foreign foundations by not granting them or their donors certain tax advantages which were available to comparable domestic foundations and their donors. As a consequence, many Member States amended their tax rules in this area with a view to bringing them into line with the TFEU. Some Member States are still in the process of doing so, and it still remains to be seen how these rules will be applied in practice. The example below illustrates the problems regarding tax issues encountered in practice by a specific foundation.

Example: the Fondation INSEAD (Institut européen d'administration des affaires)[67]

The Fondation INSEAD was established in France as a "fondation reconnue d'utilité publique" in order to collect donations from the network of alumni, recruiters and friends of INSEAD Business School and use them to fund scholarships and research. INSEAD Business School has a European (and now a global) focus, and therefore, the alumni network is very international with a strong European basis[68].

The Fondation INSEAD believes that, over the years, it has lost potential donors due to the fact that prospective foreign donors are often discouraged from making donations to foreign foundations because of unfavourable tax treatment. It also states that it often has to seek legal advice on the tax treatment of donations from donors who are resident in other EU Member States (e.g. recently in the case of Italy and the Netherlands), and such consultations can amount to between €10,000 - €15,000.

As a consequence, the Fondation INSEAD has had to create domestic foundations or trusts in other countries as "collecting agents" with local alumni, and this has incurred costs (variable per country and context). Because of these costs, the Fondation INSEAD is likely to create domestic foundations only in countries with high fund raising potential, thus excluding potential donors from other countries.

Even in cases where the same tax advantages are provided for in the relevant tax law and are therefore available to foreign foundations and their donors, benefiting from them might still prove costly and difficult. Foreign foundations and their donors need to prove that they pursue a public benefit purpose and meet the other requirements imposed in the domestic legislation of the host Member State. The example below illustrates how such a "comparability test" works in practice and what obligations foreign foundations and their donors may have to meet.

How the "comparability test" works in practice

A donor who is tax resident in the UK and makes a donation to a foundation established in Spain (which does not have a secondary establishment in the UK) needs to prove to his tax administration that the foundation is "comparable" to a foundation established in the UK in order to obtain tax relief for this donation. This could involve the following steps and related costs:

- the donor might first need to find out about the conditions under which a UK foundation is considered as a charity (and therefore donations made to it are subject to beneficial tax treatment), which might involve costs for legal advice;

- the donor will need to provide documentary evidence that the foreign foundation satisfies the above-mentioned conditions, which could lead to translation costs and notary costs for certifying documents. In most cases, he will have to ask the foreign foundation for the relevant documents, with evident logistic and linguistic difficulties. For example[69], the King Baudouin Foundation made a request to the French authorities to be exonerated from inheritance taxes on a legacy received from a testator having property in France (which is possible according to the legislation in force if a foundation is deemed comparable to a French one). In this particular case it took more than a year to pass the "comparability test" and be recognized as comparable to a French foundation. In addition to the lengthy procedure, the estimated cost for the services of a lawyer and notary amounted to €3000-4000.

- the donor's national tax administration will need to check the submitted documents and, should it not consider them sufficient, may need to ask the tax authority of the Member State where the foundation is established for more information (via the administrative cooperation channels), which could lead to administrative costs for national authorities.

The procedure for passing the "comparability test" may prove to be particularly difficult for foundations wishing to operate in several Member States and having to undergo the "comparability test" in all of them. In addition, should the national authority decide that the beneficiary foreign foundation is not comparable to domestic ones, the foundation may encounter further administrative and legal costs for adapting to the requirements (e.g. by changing statutes).

According to one foundation, the "comparability test" is seen as a lengthy and costly procedure amounting to a barrier – in particular for smaller foundations; this is also the case for bigger foundations with only a few foreign donors in a particular Member State[70]. For instance, some foundations will only undergo the "comparability test" procedures if they are sure they will receive sufficient donations from donors in a certain Member State; otherwise, many continue to use other solutions such as the Transnational Giving Europe network when receiving foreign donations.

Lack of trust by donors in foreign foundations

One of the problems foundations are confronted with when raising funds for public benefit purpose activities is the insufficient knowledge and lack of trust by foreign donors. Some donors find it easier to donate money to domestic foundations, whose purposes they can find out about more easily and whose legal form is well known to them. Others, for instance those interested in donating to EU-wide purposes, might lack assurance that their donations to foreign foundations will effectively benefit such purposes. In both cases, they might donate less or not at all to foreign foundations.

2.5. Baseline scenario: expected development if no action is taken

Whether an action is proposed at EU level or not, a number of initiatives will continue, with different impacts on the legal framework relevant for foundations.

· Ongoing infringement cases and work in the tax area, and related changes to national tax legislation

In the area of taxation, the Commission will continue its infringement actions against Member States discriminating against foreign foundations and their donors; Member States should, therefore, amend their legislation in compliance with EU law[71]. In this regard, it can already be assumed that this process will have considerable impact on the tax treatment of foreign foundations and will allow them and their donors to benefit from tax benefits given to national public benefit purpose foundations.

However, the pace and scope of change is difficult to predict. It remains to be seen how easy it will be in practice for foreign foundations and their donors to prove and pass the "comparability test" (as described in section 2.4) with a view to obtaining tax benefits.

The implementation of the new Directive 2011/16/EU on administrative cooperation in the field of taxation[72] is likely to strengthen the cooperation between national authorities in the area of direct taxation and therefore provide Member States with an efficient tool to check whether foreign foundations can be considered as "comparable" to domestic ones. However, it is likely that improved cooperation would not be sufficient to simplify the "comparability test" for foreign foundations.

· Implementation of the Services Directive

The implementation of the Services Directive constitutes an important step forward in terms of the lifting of barriers to establishment and services within the single market. Numerous discriminatory, unjustified or disproportionate requirements for established and cross-border service providers have been abolished throughout the EU. In addition, several Member States have set up specific mechanisms to prevent the creation of new barriers in the future (i.e. internal notification obligations, guidelines for future legislation or "Single Market tests" in the impact assessment of new requirements[73]). The Services Directive also strengthens the rights of recipients of services, both consumers and businesses.

However, it is important to recall that benefits related to the implementation of the Services Directive will normally only affect foundations when they carry out economic activities. Rules that do not govern access to or exercise of a service activity (such as grant-making and part of fund-raising) will not fall under the Directive's scope.

· Ongoing foundation sector and Commission initiatives in the area of research and development

Efforts will continue to facilitate transnational cooperation and information exchange regarding philanthropic support for research, e.g. through the work of the European Forum on Philanthropy and Research Funding[74], following comprehensive discussions and analysis which have been taking place since 2005 in order to encourage support from the philanthropy sector to research within the EU[75]. Mapping of the activities of research foundations across the EU – so far via the 2009 FOREMAP project - is in the process of being extended to the rest of the EU Member States, bringing a better overview to those concerned. Such efforts might alleviate certain obstacles to operating cross-border by facilitating networking and making more data available, but they will not tackle the main obstacles.

· Ongoing foundation sector initiatives to support cross-border giving

The ongoing private sector initiatives aiming to encourage cross-border giving are likely to become better known and to cover more countries. The "Transnational Giving Europe" network, which currently brings together a number of prominent grant-making entities in 13 Member States and Switzerland,[76] allows donors from the participating countries to provide cross-border donations to public interest entities while benefiting from the tax advantages available in their country of residence for a fee of 5% of the donation's value. The current members want to extend the network further in the near future, which would potentially lead to an increased amount of cross-border donations. So far, the gifts channelled through the network exceeded €4.2 million in 2010 (an increase of 25%). However, it is difficult to predict whether and how quickly new foundations will join and to what extent new donors will make use of the network.

The "Giving in Europe" website run by the King Baudouin Foundation[77], which provides free practical information for donors, intermediaries and beneficiaries regarding legal and fiscal aspects of cross-border philanthropic transactions, and covers 23 countries, might also make it easier for donors or foundations to engage in cross-border giving.

Nonetheless, both sector initiatives are geographically limited to only some Member States and the services are not a substitute for legal advice; they might not therefore lead to a substantial decrease in costs for donors and foundations.

2.6. The EU's right to act

An action at EU level is needed in order to ensure the functioning of the single market.

The legal base for a Regulation on the Statute for a European Foundation would be Article 352 TFEU, which provides the appropriate legal base when no other provision in the Treaty gives the necessary powers for EU institutions to adopt a measure.

Article 352 is the legal base of the existing European legal forms, i.e. the European Company, the European Economic Interest Grouping and European Cooperative Society. The Court of Justice of the EU confirmed in a case[78] relating to the European Cooperative Society that Article 352 was the correct legal base.

Should the chosen option be to harmonise Member States’ laws in the field, Article 114 TFEU would be the appropriate legal basis.

The proposed action fully complies with the principle of subsidiarity. An EU action is needed in order to remove the current national barriers and restrictions encountered by foundations when operating across the EU. The current situation demonstrates that the problem is not properly addressed at national level and its cross-border character requires a common solution to enhance foundations’ mobility.

The objectives of the proposed action are better achieved by action from the Union, which will ensure clear and coherent rules for foundations across the EU.

The respect of the proportionality principle will be addressed in the context of the comparison of options.

3. Objectives

The policy objectives for the initiative in the area of foundations are presented in the figure below. The main objective of the future initiative would be to allow foundations to more efficiently channel private funds to public benefit purposes on a cross-border basis across the EU, which should increase the amount of funding available for public benefit activities, and in turn benefit European citizens and the EU economy. This objective translates into several specific objectives, responding to the specific problems and drivers described in the problem definition section (2.4) and presented in the problem tree.

4. Policy options and analysis of impacts 4.1. Baseline scenario

Description

In this option no new initiative would be proposed at EU level and impacts would only be those of already ongoing initiatives as described in section 2.5.

Assessment

The ongoing initiatives would, to a certain extent, respond to the problems foundations are confronted with but will not be sufficient to meet the policy objectives as described in section 3.

The implementation of the Services Directive has removed numerous barriers and restrictions to establishment and cross-border provision of services and therefore substantially decreased civil law related costs. Nonetheless, it will not address non-economic activities carried out by foundations[79].

Infringements in the tax area should substantially remove discriminatory tax treatment of foreign foundations and their donors, but the cross-border activity could still continue to be costly, in particular due to the need to satisfy the "comparability test". Foundations may therefore continue to have difficulty being recognised as public benefit purpose foundations in other countries and might still be required to set up a secondary establishment abroad, which is usually costly.

In addition, infringement proceedings take place on a case-by-case basis and they only result in the removal of the discriminatory tax provisions of the Member States concerned. They are therefore not able to provide an EU-wide solution that is applicable in all Member States. It may also take time to deliver solutions, depending on the length of the infringement proceedings and/or the time needed for the ruling by the Court.

Non-legislative initiatives focused on improving the available information on the relevant national regimes will indeed alleviate some of the problems foundations and donors are confronted with. Nonetheless, such initiatives will not impact on the national requirements themselves and will not eliminate the need and costs of legal advice. They will not be a substitute for a trustworthy label which could increase donors' trust and give a European image to foundations with EU-wide activities. In addition, it is important to underline that those initiatives are geographically limited to some Member States, therefore not covering the whole EU.

4.2. Launching an information campaign and a voluntary quality charter

Description

This option would first seek to improve foundations’ and founders' knowledge of their rights and obligations under relevant national laws when operating across borders and, secondly, to encourage foundations to ensure the quality and trustworthiness of their activities on a voluntary basis.

An information campaign on the civil and tax requirements and on opportunities for foundations to operate across the EU could, therefore, be launched. It could be conducted through a Europe-wide website or through specific publications. It could be run and financed either by the Commission, by the foundation sector, or by the latter with the Commission’s support.

In addition, foundations could be encouraged to sign up to a quality charter, on a voluntary basis. Such a charter, to be drawn up by the foundation sector with the support of the Commission, would establish a set of common rules and criteria to be complied with by foundations (for instance, on reporting, transparency and disclosure). Compliance with the charter could be subject to independent, objective scrutiny by a third party. Moreover, the sector could be encouraged to broaden the scope of the charter by agreeing on a common definition of what a public benefit purpose foundation is. In order to improve public awareness of the quality charter and the visibility of the foundations complying with its standards, these foundations could be awarded a "European quality label".

Assessment

The measures described above would only remove some of the difficulties in foundations' cross-border activities. In particular the information campaign would help to address the problems relating to the lack of knowledge of Member States' rules and administrative procedures on foundations. The more topics of interest it covered and the more backing from the EU institutions ithad, the more added value it would be able to bring as compared with the initiatives in place (e.g. the existing "Giving in Europe" website[80]). At the same time, an information campaign would call for a comprehensive information gathering effort and would, therefore, involve costs (i.e. to present a complete overview and to keep the information up-to-date). For example, establishing the "Giving in Europe" website cost about €90,000 and keeping it up-to-date amounts to about €15.000 per year[81]. The costs would be higher for the proposed information campaign given its wider scope (involving civil law issues and foundations' activities), although the exact amount would depend on the extent to which it would be linked with the existing initiatives. Although it could help to cut down some of the costs of legal advice for the foundations, it would not lead to a substantial decrease because – as it can be seen on the basis of the experience of "Giving in Europe" - this information would not fully replace specific legal advice.

A voluntary quality charter would facilitate, through voluntary common rules across the EU, an integrated perception of how foundations operate, thereby enhancing to a certain extent the confidence of public authorities and donors (be it donors from the EU or from third countries). It could thus increase donors' willingness to donate to foundations signed up to the charter as well as national authorities’ trust in those foreign foundations. This may have an indirect effect on tax authorities who might be less strict in performing the "comparability test" with a view to granting tax benefit to foreign foundations which have signed up to the charter. The better known foundations become through the information campaign and the voluntary charter, the easier their operating should be in – and outside of - the EU.

However, as a soft law instrument it would not bring uniform effects across the Member States, as national authorities would be free to decide whether or not to recognise the label. Despite potential marginal changes, national laws would overall remain as currently in place. The uncertainty as to which treatment chartered foundations would find in which Member State would still leave substantial uncertainty as to whether foundations would be recognised as public benefit purpose entities abroad. For the same reason, potential cost reductions for foundations are difficult to estimate. In the replies to the 2009 public consultation most respondents did not think this solution would reduce the costs foundations face, nor that it would bring sufficient legal certainty. All in all the measures would not be sufficient to solve the problems currently faced by foundations and donors.

4.3. Statute for a "European Foundation"

Description

A. Statute without tax elements

Under this option, a new European legal form, the "European Foundation" (FE), would be created. It would be an alternative and additional legal form for foundations; it would not call for changes to the existing national foundation forms and its use would be voluntary for foundations. The choice as to whether to include tax elements in the Statute or not is developed below. The other sub-options relating to the cross-border dimension, minimum founding assets, employees' involvement, supervision and economic activities are described and assessed in Annex 3 and only the preferred sub-options are presented below.

In order for the European Foundation to be trustworthy in the eyes of the donors and the public authorities and to prevent circumvention of national laws on foundations, the Statute needs to introduce high standards not only for accountability and transparency but also as regards other main characteristics of the FE, including what is recognised as public benefit purpose. The Statute would lay down the main requirements for the FE, which would have a legal personality across the EU. For the sake of trustworthiness and accountability, the FE would have to have founding assets equivalent to at least €25 000. Its assets would be dedicated to a public benefit purpose, as defined in the Statute through an exhaustive list of commonly accepted purposes in most Member States. Each foundation wanting to use this legal form would need to prove its cross-border dimension in terms of activities or intentions thereof in at least two Member States. The FE would be free to act in pursuit of its purposes in any lawful manner allowed in its statutes, consistent with its public benefit purpose and in line with the Regulation on the Statute for a European Foundation. It would have the capacity to carry out activities within any Member State and outside the EU. It would be free to engage in economic activities provided that any profit was exclusively used in pursuance of its public benefit purposes. However, economic activities unrelated[82] to the FE’s public benefit purpose would only be permitted up to a threshold, which would be determined in the Statute. In order to distinguish the income arising from related and unrelated activities, the latter would need to be presented separately in the accounts.

An FE could be created from scratch, by conversion or by merger between two public benefit purpose entities, meaning public benefit purpose foundations and/or similar public benefit corporate bodies without membership formed in accordance with the law of one of the Member States. The Statute would stipulate which documents or particulars could be required for the applications for registration by the national registration authority. Furthermore the Statute would include rules regarding disclosure, internal organisation, dissolution as well as rules regarding information and consultation of employees. FEs would be able to transfer their registered office to another Member State. To ensure high standards regarding transparency and accountability, the FE would need to keep records of its financial transactions, and its annual accounts would need to be audited and disclosed to the public.

Supervision would be carried out by designated national supervisory authorities in the Member State in which an FE has its registered office. The Statute would define the powers of supervisory authorities. These powers would have to be proportionate, yet robust enough to enable the supervisory authorities to also effectively oversee the cross-border activities of the FEs they are responsible for. Supervisory authorities would have the duty to ensure that the governing board acts in accordance with the FE's statutes, the Regulation of the Statute for a European Foundation and applicable national laws. They would have the necessary powers to ensure this, including the power to inquire into the affairs of the FE, appoint an independent expert to do so, and if evidence of misconduct was found – to issue warnings. In the case of continued violation of the FE's statutes, the Regulation on the Statute or the applicable national laws, the supervisory authority could dismiss governing board members or decide to wind up the FE. The Statute would also include an obligation for supervisory authorities to cooperate and exchange information with one another.

An important choice to be made is whether or not to include tax elements in the Statute for a European Foundation. If left out, the Statute would only focus on civil law issues (such as recognition, registration, disclosure and internal organisation), with the main characteristics and legal capacity described above.

B. Statute with tax elements

If tax elements were included, this could be done in the following ways:

1) a separate tax regime for the European Foundations provided in the Statute itself. According to this option, the European Foundation would be subject to the same tax treatment in all 27 Member States. Its impact would, of course, depend on how the regime was designed in terms of conferring tax benefits as compared to the existing tax regimes;

2) a non-discriminatory treatment granted automatically to European Foundations. According to this option, European Foundations would be automatically granted the same tax benefits and to the same extent as those provided for domestic foundations, without any need to check whether they can be regarded as "comparable" to domestic foundations. The justification would be that the European Foundation can be assumed to carry out activities of public benefit purpose and respect certain requirements that have been agreed upon by all Member States and should therefore automatically qualify for tax relief in all Member States (provided that they grant tax benefits to domestic foundations and their donors). All the above-mentioned solutions would also apply with respect to beneficiaries of and donors to European Foundations.

Assessment

A. Statute without tax elements

The Statute for a European Foundation would allow individual foundations to establish and to perform activities in the EU Member States by using a single legal form, substantially similar in all Member States. It would remove the obstacles and administrative burden experienced today with regard to recognition of foreign foundations and different civil registration requirements. It would unify the concept of "public benefit purpose".

The uniformity of this legal form would translate into cost savings on legal advice currently needed when a foundation wants to operate abroad (e.g including setting up new entities or secondary establishments in other Member States than the country of registration, and monitoring changes in national legislation of the host countries when it already runs operations abroad). The costs for legal counselling on both civil and tax law issues for setting up a new entity abroad and for its ongoing operations can currently be assumed to amount overall to at least €90 - €102 million a year for EU foundations, according to the feasibility study. The Statute without tax elements could be expected to result in a significant reduction of part of those costs – i.e. costs spent on civil law advice. It could also help foundations to save on some other administrative costs of being active cross-border as mentioned in section 2.4 and as illustrated in the specific example of the Carpathian Foundation below:

Example: the Carpathian Foundation[83]

The Carpathian Foundation focuses primarily on inter-regional and cross-border activities, and economic and community development in the bordering regions of Hungary, Poland, Romania, Slovakia and Ukraine. It was set up in 1995 as a network of national entities established in the above-mentioned countries.

Establishing separate offices in different countries involved considerable costs, due among others to the need to find out about the legal environment of foundations in each country, and the fact that it was not possible to set up identical entities in each country, as national requirements differed (regarding, for example,governance or supervisory arrangements). A lot of time was also reportedly spent on keeping up-to-date with the relevant changes for foundations in national laws, which made operations more costly. Examples of the costs involved were as follows:

- set-up costs for the five affiliate entities between 1995 and 1999 amounted to approximately $500,000 ($100,000 annually with on average one affiliate entity established each year);

- operational maintenance costs for the cross-border activities of the five affiliate entities between 2000 and 2010 amounted to approximately $1,375,000 (an average of around $25,000 per entity per year);

both adding up to $1,875,000 between 1995 and 2010.

However, as pointed out in the 2009 public consultation, the Statute would not address all issues, which may pose problems to foundations in their cross-border activities, and FEs would need to adjust to different national laws in some areas. For instance, legal advice with regard to social, administrative and labour matters in the host country, which fall outside the scope of the Statute, would still be required when the European Foundation is active in a foreign legal environment. Since European Foundations would have to be registered in the Member State in which they will have their registered office, the Statute would not result in the removal of all registration and publication fees.

A uniform Statute, setting out the same requirements throughout the EU, would render cross-border operations for foundations easier, and would make them more trustworthy for both the public authorities and the potential donors. In particular, a reliable and recognised label – and a European image - offered by the Statute would have an important impact on the knowledge and trust of donors and could lead to an increased amount of cross-border donations (see below for the expected impact of the Statute on the number of FEs and donations). The Statute would also help foundations to develop more efficiently their European-wide activities on cross-cutting issues such as the environment or research. The expected impact of the Statute on those issues was also underlined by some respondents to the consultation on the Single Market Act Communication; in their view the Statute would offer an innovative tool for new European initiatives, a new means for citizens’ action and participation in various fields of interest, and would serve as a benchmark for political recognition of the sector[84].

As regards tax aspects, Member States should grant the European Foundation (and its donors) the same tax benefits that are provided under its tax law for domestic foundations (and their donors), to the extent that the European Foundation can be considered as "comparable" to domestic foundations. This obligation for Member States comes directly from the TFEU as interpreted by the Court in the above-mentioned case-law. However, the burden created by the procedures for checking whether the "comparability test" is satisfied would not be removed. On the other hand, it can be assumed that the existence of a uniform legal form recognised in all 27 Member States, which would make the European Foundation a trustworthy entity for public authorities, could result in a situation where tax administrations might become more used to dealing with FEs and therefore less strict in performing the "comparability test". The Statute without tax elements could, therefore, still provide an indirect tax benefit for foundations and their donors.

B. Statute with tax elements

A Statute with tax elements would have the same impacts on the civil treatment of FEs as described above. In addition, following the comparison of the sub-options presented in detail in Annex 3, the automatic application of a non-discriminatory treatment to European Foundations (2nd option in the description of the Statute with tax elements above) would bring most added-value to foundations and their donors and would meet the objectives set in an optimal way. As Member States would need to grant European Foundations and their donors the same tax benefits as provided for domestic foundations and their donors, this solution would ensure equal treatment of European Foundations and domestic ones. Moreover, it would apply automatically i.e. without any need for the European Foundation and its donors to go through the procedures aimed at assessing whether the European Foundation can be considered as "comparable" to domestic foundations, removing the related administrative burdens and costs as described in section 2.4.1. Moreover, the solution would remove uncertainty as to whether FEs would be recognised as public benefit purpose foundations for tax purposes.

The above would lead to a significant decrease in costs for tax legal advice, even if some legal advice might still be necessary. The costs for EU foundations could be expected to decrease by overall between €90 and €102 million a year (as estimated in the feasibility study). This is an indicative estimate and is based on an assumption of costs of ongoing legal advice of €3,000 a year per foundation. The reductions in individual costs per foundation could vary on a case-by-case basis and bigger reductions could potentially be expected where costs of ongoing legal advice were higher than €3,000 (e.g. €10,000 – 15,000 for advice on tax treatment of donations from foreign donors in the case of INSEAD, or €3000-4000 for the costs of going through a "comparability test" in the case of the King Baudouin Foundation; both described in section 2.4.1). With the above-mentioned cost reductions, the Statute with tax elements would be likely to encourage foundations to operate across borders to a greater degree than the Statute without tax elements. Foundations' fewer needs for legal advice could translate into some reduced revenues for other actors such as legal firms, although the latter should see increased demand for their services from entities looking to create or convert into FEs.

The Statute with tax elements could also lead to a greater increase in the amount of cross-border donations (as compared to the Statute without tax elements). The exact impact is difficult to ascertain. However, figures for gifts recently channelled through the "Transnational Giving Europe" (TGE) mechanism[85] seem to show that when easier means of making donations are available, donations increase in number. There is not enough evidence to predict whether the overall amount of donations would increase or remain the same. There could, for example, be some cases – thanks to the Statute - of donors being able to give money to a specific purpose abroad to which they could not previously donate due to existing barriers. This might result in additional donations. The likelihood of overall donations remaining the same is, however, more realistic. An increase in cross-border donations could have an impact on amounts being available for donations domestically in that, should overall donations remain the same, more money spent abroad would result in a reduction in donations to national foundations. This could be avoided if overall donations increase but cannot be excluded.

The impact of this policy option will, however, depend on a number of issues. One of those would be the tax treatment available to foundations at national level. As there have been some cases where a Member State, following the Court of Justice ruling on the non-discriminatory treatment of foreign foundations and their donors, restricted its domestic rules (e.g. regarding conditions according to which a foundation is recognised as having a public benefit purpose), the risk that some Member States might make their tax rules less beneficial for both domestic and foreign foundations cannot be excluded.

The Statute's impact would also depend on the number of foundations that decided to use it, with interest expected to be higher for the Statute including tax elements. Although the exact number is difficult to estimate, one could assume that - provided that the rules governing the FE are precise and uniform and the FE is easy to set up - many of those foundations which are keen to expand their existing EU-wide activities could be interested in the FE. As an example, according to the feasibility study, between 25,000 and 30,000 foundations already carrying out international acitivites plan to expand them further[86] - and a number of those foundations could choose to do so via the Statute. Those not planning to expand further might still benefit from the Statute in terms of their cross-border donations. In addition, given the recent positive growth trends in the foundation sector and their increasing interest in cross-border work[87], both new foundations and those only active at national level but interested in activities abroad, might be interested in the Statute. In the 2009 public consultation, most foundations were positive about converting into the European Foundation provided that the new legal form would bring them added value.

Another important issue in relation to the take-up – as pointed out during the public consultation - is also whether and to what extent national legislations could make it more difficult to convert into or create the FE. Some respondents to the 2009 public consultation also questioned to what extent the Statute would be used by foundations, quoting a relatively low take-up of previous European legal forms. In this context, in order to ensure its optimal use, efforts would be needed by the European institutions, national authorities and the foundation sector to make this new legal form and its benefits known to foundations.

Although the Statute would make cross-border operations easier, it would also impose some costs on the European Foundations, which - depending on the Member State - might be higher or lower compared to the current costs of operating under a national foundation legal form. For instance, under the Statute all FEs would need to draw up an annual statement of accounts and an annual activity report and send them to the competent national registry and supervisory aurthority; both the accounts and the report would need to be disclosed and the accounts would also need to be audited regardless the size of the FE concerned. Providing accounts and reports to the authorities should not lead to additional costs for most FEs as this is already a domestic requirement in almost all Member States; in addition, 18 Member States already require some disclosure of documents to the public[88].

However, the requirement to have the accounts audited would results in higher costs for FEs in those Member States in which only larger foundations need to be audited and in particular in 8 Member States where no auditing requirements are in place[89]. The information regarding the cost of an external audit below illustrates the type of costs which could be involved. It is based on the experiences of a limited number of foundations or accounting companies in some Member States which have been contacted on this issue[90]. The costs vary from €500 to over €53,000 depending on the Member State (with, in general, lower costs in the EU-12 countries) and increase with size of the foundation. The costs focus on audit costs for foundations with national activities only, and costs for those with activities in other Member States would usually be higher[91].

Costs of external audit for public benefit purpose foundations in the EU

- Czech Republic - €1,000 - €4,000

- Hungary - €2,500 - €6,500

- The Netherlands - € 14.800 (cost for a medium-size foundation with expenses of €2,450,000; this amount consists of basic fixed costs of €5,000 for a medium-sized foundation and a multiplier related to the amount of expenses, and excludes VAT)

- Poland - €1,700 - €14,000

- Slovakia - €500 - €1,000

- Sweden - €53,417 (2010 audit costs of an EFC Swedish member, which amounted to 487,000 Swedish krone)

- United Kingdom - €10,300 (the average audit fee for a medium-sized foundation with income audited between £1 – 3 million, which amounted to £9,000 according to the League table of top charity auditors 2009/10 from Caritasdata[92]).

At the same time, the Statute could lead to savings for those foundations which are currently required to submit separate audit reports for the accounts of their offices abroad to authorities in those Member States – as they would be only obliged to file one set of audited accounts under the Statute.

C. Administrative impacts of the Statute on national authorities

The relevant national (registration, supervisory, tax) authorities would need to adapt their systems to be able to deal with the new legal form of FE at national level. For instance, as European Foundations would have to be registered in a national registry, this would require adjustments (including in IT systems) in the relevant registries in order to include the European Foundation as a category of foundation and training of staff regarding the registration requirements related to the FEs. The example of cost estimates below for one national registration authority related to the implementation of the European Company (SE) Statute illustrates the type of registration costs which could be involved.

Example: Estimated costs of implementing the SE Statute in Denmark[93]

The adaptations and related costs were estimated as follows:

- changing the IT system in the Danish registration authority with one-off costs of 3.7 million Danish krone (2003 value; amounting to about €500,000);

- recurrent annual costs as a registration authority of approx. 0.4 million DKK (2003 value; amounting to about €53,500).

Other costs involved costs of training of staff and of preparation of guidance documents for companies (including an additional guidance on the employee involvement regime in SEs).

In addition, in Member States which currently do not have a registry for foundations[94], a system of registration would need to be created or the existing system updated, and this may entail further costs. However, existing registries could most likely be adapted and used instead of creating new ones, thus limiting the costs involved. The Statute would not lay down rules on the registration fees. The Statute would also require Member States to notify the Commission about newly registered FEs; this requirement should not, however, add much additional burden on national authorities as this information is also required for internal purposes.

European Foundations would also need to be supervised by a State supervisory authority. According to the feasibility study, there is already a State supervisory authority for foundations in all Member States. Consequently, there would be a need to adjust these systems to cater for European Foundations and to train the responsible officials but there would be no costs associated with the creation of new authorities.

In the case of the Statute with tax elements, training and adaptation of the current procedures would be also required within the national taxation authorities, and cooperation would be needed between registries, supervisory and tax authorities, leading to some additional costs as compared to the Statute without tax elements.

The extent of costs for retraining and carrying out additional duties (and therefore, employing extra staff) in all authorities concerned would depend on how many foundations took on the FE status, and how quickly, and on the registration and supervisory duties introduced by the Statute as compared to the national rules in place. The exact number of FEs is difficult to determine (see above) and would be likely to vary per country, depending on the role played by foundations, their current number in that country and the national requirements in place. The Statute's take-up would likely be gradual, with some time needed for the foundation sector to become familiar with the new rules (as was, for instance, the case with the European Company (SE) Statute). As regards new registration and supervisory duties, costs would be likely to vary across Member States, e.g. with changes being smaller for countries with authorities which already have extensive supervisory powers (e.g. Austria or France) and bigger for those where there are currently fewer supervisory requirements (e.g. Cyprus)[95].

Finally, it should be noted that the option of the Statute with or without tax elements would not go beyond that which is necessary to satisfactorily achieve the objectives that have been set, therefore respecting the principle of proportionality. As an optional tool, it would not replace national legislation and would leave Member States the choice and possibility to uphold and develop their national legal forms.

4.4. Harmonisation of Member States' laws on foundations and the tax treatment of foundations and donors 4.4.1. Harmonisation of laws on foundations through a Directive

Description

This option would seek to align national laws on foundations either in respect of all issues relating to the establishment and operation of a public benefit purpose foundation or only in respect of those aspects which are most relevant and problematic for the cross-border establishment and operation of foundations. The latter would mean covering in particular those requirements that foreign foundations need to meet in line with the host national law to be able to register and operate in that country, i.e. the acceptable purposes of public benefit purpose foundation, minimum assets, registration requirements and some aspects of internal governance. Member States would have to allow foundations fulfilling harmonised criteria to operate in their country without imposing additional requirements for their entry.

Assessment

An extensive harmonisation would effectively remove all the relevant differences between national laws on foundations and ensure a high level of uniformity, thus increasing the trust in foreign foundations and reducing the costs of cross-border activities. New short- and medium-term administrative costs might arise that are associated with legal changes and with compliance to what could be new bodies of laws. Such costs can be assumed to be transitory and, in the long run, significant cost reductions could be expected. With harmonised rules, uncertainty as to whether a foreign foundation is recognised as a public benefit purpose entity in other Member States would be removed.

However, given that so far there has not been any harmonisation of laws on foundations and the fact that there are important differences between different legal systems, extensive harmonisation would be technically challenging. As extensive harmonisation would also require significant changes to national legislation, reaching an agreement would also be politically very difficult. One specific question that would need to be taken into account is how the harmonisation would apply to the common law systems: e.g. the UK distinguishes between charitable trusts, charitable companies and charitable incorporated organisations all with some similarities and some differences from a public benefit purpose foundation, but does not have a special legal form for a “foundation” as such. As the purpose of any EU action in this field is to tackle cross-border barriers of foundations, extensive harmonisation of laws on foundations would not meet the proportionality requirements. Extensive harmonisation could lead to an impoverishing of foundation traditions in Member States and possibly even to the relinquishing some of the currently accepted ways in which foundations operate. This is not a desired outcome of the EU action. For these reasons extensive harmonisation should be discarded.

Harmonisation of limited aspects of Member States' laws on foundations would offer a higher degree of uniformity among national legislations as compared to the baseline scenario. As the key element of what constitutes a public benefit purpose foundation would be harmonised, along with some other more problematic aspects, this approach could facilitate cross-border establishment and operations of foundations in all their areas of activities and reduce costs thereof, although to a more limited extent than extensive harmonisation. For the same reason, it could also provide foundations with more legal certainty that they will be recognised in other countries as public benefit purpose entities.

However, even a limited harmonisation approach would be likely to run into technical and political difficulties. Firstly, the law on foundations has developed differently across Member States, for different reasons and with different outcomes. As explained above no aspects of the laws on foundations are harmonised in the EU and even partial harmonisation could face resistance and be difficult to agree upon. Secondly, existing rules on foundations can be seen as a consistent set of rules. Harmonising only certain parts of the rules could be seen as changing the overall balance for foundations and donors, necessitating more legal advice and therefore, higher costs. Also, altering only some parts of the national laws on foundations and leaving some untouched could create legal uncertainty. The more diverse and complex the rules, the less likely they would be to increase donors’ trust and their donations.

4.4.2. Harmonisation of tax treatment of foundations and donors through a Directive

Description

This option would seek to harmonise the tax treatment – and in particular the tax benefits - of public benefit purpose foundations and their donors across the EU by replacing the existing Member States' tax laws in this area with a uniform set of tax laws for foundations and their donors.

Assessment

Granting the same tax treatment to public benefit purpose foundations in all Member States would obviously reduce the costs of legal advice and increase legal certainty, as the rules would be the same everywhere. This would encourage cross-border activity for foundations and donations. However, this solution seems to be difficult to achieve. In fact, as already explained, Member States are free to determine which general interests they wish to promote and to design, to that end, tax advantages for foundations (and their donors) that pursue objectives linked to such interests. Moreover, national tax rules on foundations reflect the history and traditions of each of the Member States and can therefore still be very diverse. Trying to harmonise the tax treatment of foundations would go beyond what is necessary to attain the objective pursued. It could in addition be perceived by Member States as an unacceptable attempt to limit their tax sovereignty in an area which is particularly sensitive to them. As this option does not seem to be proportionate, it should be discarded.

Following the above analysis, the remaining solution under the overall harmonisation policy option would be a limited harmonisation of national laws on foundations.

5. Comparing the options and summary of the impacts

5.1. Comparing the policy options on the basis of objectives (taking into account the political acceptability of each option)

Following a preliminary assessment, two policy options have so far been ruled out as not feasible: extensive harmonisation of laws on foundations and harmonisation of tax treatment of foundations and donors. Further policy options are compared below on the basis of their fulfilment of the chosen policy objectives. These options are: baseline scenario, an information campaign and a quality charter, the Statute for a European Foundation with or without tax elements (i.e. non-discriminatory tax treatment applied automatically), as well as the limited harmonisation of national laws on foundations.

· No policy change/baseline scenario

In general, this option would not achieve all the chosen policy objectives. It would have a positive, but limited impact on foundations and cross-border donations. On the one hand the current infringement proceedings against some Member States would remove the discrimination against foreign public benefit purpose foundations and their donors in the field of tax. On the other, the outcome may take some time and may not affect all Member States, therefore not sufficiently facilitating foundations' activities or encouraging donors to donate. This would have a limited impact on the funds foundations can allocate to public benefit activities.

Moreover, implementation of the Services Directive is having a positive impact on reducing obstacles and costs for the establishment of, and the cross-border provision of, services by foundations engaging in economic activities, but would not bring changes for those foundations carrying out non-economic activities (e.g. grant-making foundations). Therefore, the objective of reducing uncertainty concerning the public benefit status of a foreign foundation would hardly be achieved.

Given that this policy option does not bring any fundamental legal or administrative changes, its political acceptability appears to be high.

· Launching an information campaign and a quality charter

The effectiveness of this option would be marginal. It would facilitate cross- border donations to some extent by providing more information on the requirements that need to be fulfilled. In addition, drawing up common rules for foundations across the EU in the charter and granting a European label could also enhance the public authorities' and donors' trust in foundations' operations (to a limited extent as these are voluntary). It would nonetheless have a limited impact on national laws as it would not address the civil and tax barriers currently in place. Therefore, the barriers and costs encou