Public Benefit Status of NGOs:
A comparative perspective
Nilda Bullain
European Center for Not-for-Profit Law
(ECNL)
Goals of PBO legislation
• Original rationale:
– Prevent abuse of public funding (Charities Act, UK)
– Ensure protection of private funds dedicated to the
public (concept from German foundation law)
• Modern day rationale:
– Provide tax benefits to public benefit purposes as part
of the welfare economics – social policy goals with
economic incentives
• Basic goal: ensure consistency of tax benefits
and accountability - PBO is an issue of fiscal
regulation.
Goals of PBO legislation
Further possible goals:
• Increase transparency and accountability in
the sector (Netherlands + everywhere)
• Encourage flow of resources to NGOs – e.g.
private giving (Hungary)
• Facilitate state-NGO relationship – e.g.
contracting (Hungary, Poland, Italy)
• Facilitate relationship between NGOs and public
– image building for sector (Poland)
• Prestige (Phillipines, Turkey)
Regulatory context
• Tax legislation (e.g. Germany,
Netherlands, Estonia, Slovakia)
• Law/s on foundations & associations (e.g.
Bulgaria, Bosnia, Romania, Kosovo)
• Specific laws (e.g. UK, Italy, Hungary,
Poland, Latvia)
Definition of “Public Benefit”
• Usually no single succinct definition
– The concept itself consists of several
interrelated elements: activity types,
beneficiaries, financial conditions etc.
– Political concept - would leave too much
discretionary room for implementers.
– Social-cultural concept – evolves over
time, public sentiments and expectations
change.
Definition of “Public Benefit”
• Enumeration of types of activities that benefit
the public
– A “catch-all” category (open ended list)
– “Principal” or exclusive engagement in PB activities
• Criteria related to beneficiaries
– Public at large
– The needy
– Non-exclusive services (e.g. in case of associations)
• Non-profit distribution constraint and possibly
further financial restrictions (e.g. all income
used for PBO purposes, unrelated economic
activities not allowed)
Two approaches
• Common Law: “charity concept”
– Charitable organizations = “sector”
– Legal form doesn’t matter
– Unified treatment of exemptions
• Continental Law: “public benefit status”
– PBOs = “elite” of the sector
– Applicable (usually) to nonprofit legal forms
– Builds on other exemptions
What is Public Benefit?
Charities Act 2006 (England)
•
•
•
•
•
the prevention or relief of poverty;
the advancement of education;
the advancement of religion;
the advancement of health or the saving of lives;
the advancement of citizenship or community
development;
• the advancement of the arts, culture, heritage or
science;
• the advancement of amateur sport;
• the advancement of human rights, conflict resolution
or reconciliation, or the promotion of religious or
racial harmony or equality and diversity;
What is Public Benefit?
Charities Act 2006 (England)
• the advancement of environmental protection or
improvement;
• the relief of those in need by reason of youth, age, illhealth, disability, financial hardship or other
disadvantage;
• the advancement of animal welfare;
• the promotion of the efficiency of the armed forces of
the Crown, or of the efficiency of the police, fire and
rescue services or ambulance services; and
• other purposes that are currently recognised as
charitable or are in the spirit of any purposes currently
recognised as charitable.
Public Benefit Tests
Fixed or
Religious
flexible definitions
Arts
Exclusive
Activities
Public
Benefit
Organisations
Profit
Making
Who applies the
test?
(not always government)
Political
Government
Sports
When does an organisation merit PBO
status?
Legally
Incorporated
Written
Constitution
Starts Public
Fund-raising
Opens Bank
Account
Income
exceeds
US$10,000
Informal
Gets
Overseas
funding
Achieves
Best
Practice
Standards
Formal
 PBO Life Cycle 
When does an organisation merit PBO
status?
Legally
Incorporated
Written
Constitution
Starts Public
Fund-raising
Opens Bank
Account
Income
exceeds
US$10,000
Informal
Gets
Overseas
funding
Achieves
Best
Practice
Standards
Formal
 PBO Life Cycle 
PBOs in Hungary
• PBOs can be all nonprofit organizational forms
existing in Hungary
– Associations (not parties, trade unions and
employers’ associations)
– Foundations
– Public benefit companies
– Public associations (e.g. chambers) if the establishing
law allows
– National sports federations
PBO criteria (Hungary)
• Should conduct public benefit activities (PBA).
• Should provide services beyond membership.
• If it engages in economic activities, those should
be related to PBA and should not jeopardize PBA.
• Its profits should support the PBA and should not
be distributed.
• Does not conduct direct political activities, is
independent from political parties and does not
support such.
All of this should be included in the founding
statutes.
PBO criteria (Hungary)
• Outstanding PBOs should in addition
include that:
– It conducts a public task, the provision of
which is according to law or regulation the
duty of the central or local government.
– It publishes the most important data of its
operations and finances in the local or
national media.
PBO obligations (Hungary)
• Openness in decision-making (board meetings,
registry of decisions etc.)
• Conflict of interest rules in governance and
management
• Supervisory board above a certain budget (5
million HUF)
• Publication of any governmental support through
media
• Should prepare investment policy and other
financial control provisions
PBO obligations (Hungary)
• Needs to prepare annual public benefit
report
– Including activity and financial report;
– Report on any budgetary support;
– Report on any grants given;
– Value or amount of compensation provided to
leading officials (privacy issues!);
– Report on assets management.
PBO benefits (Hungary)
• Most significant benefit: ability to receive
tax deductible donations
• Additional benefits for long-term
donations
• Ability to provide income-tax free support
to individuals
• Increased benefits for economic
activities compared to non-PBO NGOs
• Outstanding category of PBOs even
higher benefits
• Profit tax, customs and charges
exemptions are available for all NGOs
Decision-making (Hungary)
• Application to the courts at the time of
registration or any time later.
• Court has to check whether statutes contain
required provisions.
• In case of outstanding PBOs it usually asks for
an actual contract to provide the public task.
• There is no monitoring of fulfillment of the
requirements other than the “usual” check-up of
the public prosecutor.
Decision-making (Hungary)
• Practical experience shows that PBO
registration is cumbersome
• Courts require copy-pasting of legal
provisions in the statutes
• Courts often require contracts or other
supporting documents not stipulated in
any law
• Court practice differs widely in the country
Impact and learning points
(Hungary)
• About 52% of NGOs are now registered PBOs
(36% by 2000)
• Private and corporate donations have not
increased significantly
• On the other hand, state funding became
increasingly directed towards PBOs only
• NGOs regard PBO status good for two reasons:
– Gives a certain prestige in the eyes of the public if
they read “public benefit” in the name of the NGO.
– Provides them with increased opportunities to apply
for government funding.
ANBI Status (Netherlands)
ANBI status criteria include:
• (1) the NPO should not have any intention to make a
profit;
• (2) the NPO has to demonstrate its charitable character;
• (3) it should be clear that a natural person/legal entity
cannot have control over the assets of the institution as if
it were his/its own capital;
• (4) the institution is not allowed to have more assets than
reasonably necessary for the continuity of the institution;
• 5) the members of the ultimate policymaking body are
only entitled to receive an allowance for expenses and a
reasonable fee for attendance. However a reasonable
compensation paid to such a member who carries out
daily activities, is allowed;
ANBI Status (Netherlands)
• (6) NPO has to give an insight into the foundation’s
activities, fundraising, and administration of funds and
expenditures, it is necessary to have a current policy
plan.
• (7) costs of fundraising and administration should be in
reasonable proportion to the charitable expenditures;
• (8) all proceeds from liquidation of the charitable
institution should accrue to a similar institution;
• (9) the books and records of the charitable institution
must be transparent with regard to the points mentioned
above.
PBO obligations (Netherlands)
• NPOs with ANBI status must submit a financial
statement to the tax authorities each year.
• Larger associations and foundations with an enterprise
have to publish their financial statements at the
Commercial Register if they have obtained ANBI status.
• For other associations and foundations there are no
obligations to publish their financial statements
externally.
• The Netherlands Tax Service conducts individual
inspections of organisations with ANBI status, as
well as inspection campaigns on a national scale.
• The Names of qualifying organisations are available on
the Ministry of Finance website.
Dilemmas, options
• How much it will be tax oriented or include
other goals?
• How low or high the threshold will be? (I.e. how
easy or difficult it will be to become a PBO?) –
“Elite” or “minimum standard” approach?
• How formal or substantial it will be? (I.e. check
papers only or look at what you do?)
Dilemmas, options
• “Easy access” or “club of excellence”?
– Conditions for PBO status is easier or more
difficult to achieve?
– Granting and maintaining of PBO status is
more formal or more substantial?
– Tax benefits (actual benefits) are serious or
less significant?
Dilemmas, options
• Principles in answering dilemmas:
– Keep the main goals in mind
– Keep proportionality (balance) between
benefits and criteria + obligations
– Keep existing entitlements unless
contradicts the goal
– Keep balance of public vs. private interests
– May introduce levels of public benefit
(Hungary) as long as proportionality is kept