A foundation is a set-up intended to pursue objectives benefiting the public at large, a set-up which is largely recognised in the domestic laws of the EU member states. Indeed, according to the European Commission, the flourishing foundation sector in Europe counts for more than 100,000 foundations with €350 billion worth of assets and annual expenditure of €83 billion.
The European Commission has now taken its first formal steps in creating a single European legal form for foundations- Josette Grech
The European Commission has now taken its first formal steps in creating a single European legal form for foundations to conduct public benefit activities across the EU.
This initiative came around after several years of campaigning by associations of foundations in the EU. The European Foundation will be fundamentally the same in all member states, thereby making it easier and less costly for entities promoting public benefit purposes to be set up and operate across borders.
The move towards harmonisation has as its primary aim a cutback on the legal and tax barriers that weigh down on cross-border activities of voluntary organisations. Currently, in operating across borders, foundations have to bear costs to meet member states’ different legal and administrative requirements and have to complete costly procedures to prove they are entitled to be recognised, which costs can be put to the more worthy philantropic purpose that foundations pursue.
If the Commission’s proposal goes through, an entity having a public benefit purpose – be it the arts, education, research, historical preservation, environmental protection and civil and human rights – will be able to be registered as a European Foundation and be given a European label and image.
It will have a legal personality and legal capacity in all member states, and be able to perform activities within and outside the EU, provided that generated profits are used exclusively to pursue its public benefit purpose.
The proposal envisages the possibility of a foundation, under certain conditions, to carry out some economic activities unrelated to its purpose, if they are an important source of funds to be used for public benefit purposes.
The European Foundation can be set up by one or more persons, whether by will or by means of a public deed. However, there will be no need to create a European Foundation from scratch as a national foundation can also be converted into a European Foundation. Entitities from one or more member states can also merge to create a European Foundation.
Besides the public benefit purpose to be chosen from an exhaustive list laid down in the proposal, a European Foundation must operate or intend to operate in at least two member states and possess founding assets of at least €25,000.
Foundations will benefit from more uniform conditions across the EU, with greater legal certainty and less costs.
The uniform rules and European label will make European Foundations more trustworthy and recognisable for donors. The European Foundation will be able to benefit from the same tax treatment applicable to domestic foundations.
Donors and beneficiaries of European Foundations will be subject to the same tax treatment as if they were donating to, or receiving benefits from an entity in their member state.
Notwithstanding this new structure, European Foundations will still exist in parallel with domestic foundations. Member states will retain the choice to uphold and develop their own national legal forms in parallel. Besides this concurrent existence of European and national foundations, the Commission proposal envisages that certain matters governing European Foundations will still be regulated by national law – this will be the case where the deed setting up the foundation makes reference to existing national law or where issues remain unregulated at EU level.
The European Foundation will be overseen by the supervisory authority of the member state where it is established.
The supervisory authority will have strong powers including the right to inquire into the affairs of the foundation, appoint an independent expert to inquire into its affairs where there is evidence of abuse, issue warnings to the governing board, dismiss a member of the governing board, and decide to wind up the foundation.
The Commission’s proposal will now be passed to the Council of Ministers and the European Parliament for their consideration. The adoption of the regulation requires unanimous agreement of the member states and the backing of the European Parliament.
This initiative could be of particular interest for foundations that need to expand cross-border or wish to set up collaborative ventures with entities in other member states having similar public benefit purposes.
jgrech@demarcoassociates.com
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.