New report on European cross-border associations and non-profit organisations published

‘A statute for European cross-border associations and non-profit organisations’

The EPRS (European Parliamentary Research Service), a think tank and advisory body for the European Parliament, has published ‘A statute for European cross-border associations and non-profit organisations’. The report was written by Klaus Müller with the collaboration of Meenakshi Fernandes and the annexed study has been written by Helmut K. Anheier. So far, non-profit organisations (NPOs) have been developing in the context of the EU Member States’ or other countries’ national regulatory frameworks, yet with the completion of the European single market, they too should be able to take full advantage of the opportunity to engage in cross-border activities. The report focuses on the current inability of pubic benefit organisations such as charities, community associations and not-for-profit organisations including foundations to work freely in any EU Member State and calls for more support for EU civil society groups. It provides recommendations to overcome barriers that still exist for the non-profit sector, suggesting better implementation of the ECJ non-discrimination principle, specific EU policy options including the creation of a legal form for public benefit organisations and lastly non-legislative measures that could promote specific NPO functions in the EU. Helmut Anheier has presented the report during a committee meeting on 11 May 2021, where German Greens MEP Sergey Lagodisnky and MEP Nacho Sanchez Amor have supported the call for systematic action.

Significant potential for enhanced cross-border activities

NPOs make up a complex network linking EU citizens through different legal forms. Empirical findings in the report point out that there exists significant potential for enhanced cross-border activities. At the moment, the great majority of NPO activities are domestic; however, a growing number of NPOs start to operate cross-borders. Simultaneously, cross-border regional activities are growing in importance. The growing number has also led to a substantial increase of the amount of cross-border financial flows. Policy makers have started to gain awareness on the potential of NPOs in terms of civic participation and social innovation and on the value of cross-border activity and advancing the public good in Europe in different ways.

Barriers to NPO cross-border activities

NPOs contribution to society is currently not at its full potential in a number of fields such as culture, education, social services, research, development aid, humanitarian assistance and contribution to social cohesion. The efforts of NPO cross-border activities are hindered by a number of factors. First of all NPOs activities are hampered by structural legal and administrative barriers. MEP Nacho Sanchez Amor pointed out that there exist considerably different regulations at Member State level. The current administrative and tax treatment of cross-border NPO activities, including the practice of comparability for the purpose of establishing equivalence, results in high transaction costs and delays in processes that act as a disincentive for international NPO activities and hinders the financial flow of cross-border activity. For smaller size NPOs the additional costs for cross-border activity can be prohibitive. Various comparability tests are still complex and applicable in a case-by-case modus. In general, NPOs are having trouble overcoming these barriers due to limits placed on NPOs organisational capacity. There is an urgent need for a systematic approach in order to overcome these barriers.

Overcoming these legal and administrative barriers poses considerable challenges due to existing cultural, political and economic differences among the Member States. There exist a couple of EU Member States which are politically hostile vis-a-vis society and will expose resistance towards the improvement of cross-border activity and the creation of European legal forms in particular, according to MEP Sergey Lagodisnky. Previous proposals such as the European Association and Foundation Statutes suffered from the lack of a broad understanding of what entities are and for what purposes they operate. The lack of data has resulted in the fact that only a small number of Member States had access to comprehensive information on the revenues and expenditure of the entities.

Key Recommendations presented by the Report

Avenues for EU action, specific policy options and potential EU added value and its drawbacks (Page 19 Report)

Based on qualitative and quantitative information, the report suggests encouraging cross-border transactions, enhancing social outcomes and increasing economic contributions. EU action could serve to promote NPOs by addressing the inconsistent treatment of cross-border transactions and the significant administrative costs and barriers faced by NPOs. Three landmark decisions by the European Court of Justice (ECJ Cases C-386/04; C-318/07; and C-25/10) have presented additional considerations for EU action and served as the basis for putting together three policy options.

Policy option 1 involves monitoring developments of cross-border NPO activities in the hope that the various comparability tests will become more similar and the administrative practices less costly and cumbersome over time. While this approach has the advantage of making it possible to build a better evidence base and thereby to help prepare the ground for the second and third options below, it risks that NPOs would continue to contribute below their potential, that administrative barriers would remain in place, and that both the complexity and the fragmentation of comparability procedures could actually increase rather than decrease.
Policy option 2 involves the creation of a European Statute for NPOs by using the regulatory route via Article 352 of the Treaty on the Functioning of the European Union (TFEU) and the European Commission initiating the relevant legislative processes. While this option would create the level playing field required under the single market, it is worth mentioning that it requires unanimity in the Council of the EU (and the European Parliament’s consent).
Policy option 3 includes introducing harmonisation measures as envisaged under Article 114 TFEU, to advance the objectives set out in Article 26 TFEU. The Parliament and the Council can, acting in accordance with the ordinary legislative procedure and after consulting the European Economic and Social Committee, adopt the measures needed for improving the functioning of the internal market. However, since the tax treatment of NPOs would be a central aspect of the legislative action, using Article 114 TFEU might be limiting, as according to clause 2of Article 114, it does not apply to fiscal provisions.

Supporting non-legislative measures that could promote specific NPO functions in the EU (Page 17 Report)

A variant of any policy option is to add further supporting measures that target specific NPO functions (i.e., service provision, civic engagement and advocacy, financial intermediaries, social innovation) and address emerging policy issues proactively.

Lastly, Lagodinsky argued during the recent committee meeting, that in order for these measures to be adopted, a common definition/ for the public benefit concept should be established encompassing foundations, associations and NPOs in general.

Conclusion

MEP Sergey Lagodinsky stressed during the committee meeting on 11 May 2021, that shaping and implementing regulatory tools and a common approach for a public benefit concept will not be an easy process. With regards to both legislative measures, some EU MS are reluctant to make the necessary legal changes to accommodate cross-border activities. A systematic stakeholders analysis is therefore key in enabling systematic change. Additionally, Helmut Anheier points out that the report has a narrow political focus on EP action only. Lagodinsky is optimistic however about the current existing momentum and describes the report as “a new milestone on our way to the new ERA (European Right to Associate) legislation in the EU.” It serves as a building block for reinforcing democracy for Europe and creating a pan-European civil society.