27 September 2021

Five key insights into how foundations are regulated in Europe: Sneak peek into the new “Comparative Highlights of Foundation Law” publication

The 2021 comparative study sheds new light on the philanthropic foundation sector in Europe, allowing us both to better understand the landscape of foundation law in Europe, and to identify trends and developments. The publication is the most comprehensive data gathering to date providing insights into the legal and fiscal regulation of foundations and philanthropy in Europe. Here are five key takeaways to get us started.



1. Laws slow in keeping up with foundations’ more diverse toolboxes and increasingly (social) business approaches

Foundations are constantly expanding their toolboxes seeking to increase their impact and embrace new forms of doing social good, especially accelerated by the digital  transformation. We also see that (social) business behaviour is increasingly impacting the way foundations and philanthropy operate. Public-benefit foundations that engage in economic activities, do impact investing and support social economy actors as well as start-ups are becoming a reality in parts of Europe but not all laws are picking this up. We see that non-business and business behaviour has increasingly become mixed, with new forms emerging on the horizon in some of the countries surveyed. Founders with business mindsets are taking new approaches to philanthropy and the sector is seeking to create more impact by using new as well as mixed tools.


2. More flexibility around foundations’ capital

The role and use of a foundation’s capital seems to be changing in some countries. New forms of foundations and new forms of generating income are becoming common. It seems increasingly more important that organisations have a reliable source of income to pursue a specific public-benefit purpose than to have a fixed amount of starting capital. More and more foundations also want to use their capital differently – they want to link not only programmes but also asset allocation of the capital to their mission and some laws encourage that while others still allow only very secure asset allocation of the endowment. We also see more regulations for collaborating and co-funding with other actors including public authorities through public-private partnerships or businesses. More regulation on new operational tools around the capital such as crowdfunding platforms is in the pipeline at national and EU levels.



3. The changing role of supervisory authorities

Most laws put foundations under state supervision, but discussions are ongoing in some countries as to whether new internal governance elements or tools such as self-regulation, codes of conduct or labels could to some extent replace or loosen external state supervision. While in a significant number of countries state recognition is needed for setting up of a foundation, authorities generally have to approve the foundation as soon as all the legal requirements are met and there is no room for discretional decisions. However, questions of interpretation of certain legal requirements, for example around purposes that foundations can pursue, may still lead to some discretionary elements. In countries where foundations can be deployed for public-benefit purposes only, supervisory authority decisions may on occasion have discretion around decisions of defining the public-benefit concept or certain purposes/activities such as “political” activities. Adherence to the rule of law and fundamental rights is essential in these contexts.


4. Increased due diligence and reporting requirements

We see that more reporting requirements and stronger due diligence policies for foundations and philanthropy have been introduced over the past 20 years. Public-benefit foundations are bound to use their assets to pursue public-benefit purposes. There are clear control mechanisms in place to ensure a “safety valve” against abuse including reporting and auditing requirements, governance requirements and state and financial supervision. Foundations are subject to new international and EU and national policies developed to fight money laundering and terrorism financing, as well as tax evasion. In some cases we see overregulation happening in the name of the security agenda. This is illustrated by a recent study by the European Union Fundamental Rights Agency (FRA), which collected evidence that the application of rules on combating money laundering and terrorist financing reportedly continues to disproportionately affect the civil society sector.


5. Significant barriers remain for cross-border philanthropy

Governments generally want to encourage philanthropy. They grant tax concessions for philanthropic foundations and provide tax incentives for individual and corporate donors.  We have seen a number of governments introducing new incentives to stimulate more philanthropic action in the context of the Covid-19 pandemic. But in the context of operating internationally, laws are still not yet up to speed when it comes to cross-border philanthropy and public-benefit foundations. Within the Single Market, companies may move a seat across borders or engage in cross-border mergers, but this is not yet a reality for European philanthropy. Within certain frameworks, for a public-benefit foundation to operate legally in another country requires setting up a branch or registration in that country. Foreign funding restrictions are discussed in Europe, despite being in conflict with EU law.

Tax-effective cross-border philanthropy does not yet work. Despite ground-breaking decisions of the European Court of Justice, which have introduced the non-discrimination principle, laws remain complex, and, in some cases, even discriminatory. Perhaps it is time for a common approach for Member States assessing when foreign-based public-benefit organisations are comparable to local ones.

by Hanna Surmatz and Nikoleta Bitterová, Philanthropy Advocacy