Philea calls for carve out of philanthropy sector from OECD Common Reporting Standard

The OECD’s Common Reporting Standard (CRS), mainly aimed at banks and other financial institutions, has as a primary purpose to enable tax authorities to automatically exchange certain types of information on an annual basis to better detect tax evasion and crimes/offences.

However, under its current wording, public-benefit foundations and non-profit organisations (NPOs) can fall under the label of “Financial Institutions”. This puts additional reporting requirements – and their significant burdens – on organisations that are controlled and monitored against misuse also in the context of tax evasion by existing registration and transparency requirements and are subject to public supervision.

Philea’s Legal Affairs Committee, in collaboration with other experts, is leveraging the OECD’s current consultation on the topic to make the case for carving our sector out of this standard. Applying these reporting duties to the philanthropy and public benefit sector is neither risk-based nor proportionate and would put significant additional administrative and cost burdens on a sector that needs to prioritise its public-benefit work on important societal issues.

The application of the CRS to the public-benefit sector could lead to highly undesirable outcomes because public benefit foundations would have to gather information on reportable account holders, which would include detailed reporting on donor(s) and members of the board as well as grant recipients.

Such reporting could lead to very heavy administrative and costly efforts, since foundations that benefit the general public sometimes have thousands of grant recipients. The assets spent on additional compliance costs could thus not be used for the public benefit.
Philea also also argues that the potential risk of investment entities claiming to be NPOs is overstated, and no clear supporting evidence has been provided. In fact, national philanthropy regulation and supervision, including registration and reporting duties under national laws, reduce the risk of abuse of public benefit organisations, as shown by national and regional risk assessments. Public benefit foundations are also monitored by public supervisory bodies and/or fiscal authorities, which can be seen in Philea’s country reports of the legal environment for public-benefit organisations across Europe.

The US reporting standard FATCA, which heavily inspired the CRS, contains an exemption for charities. It is therefore impossible to understand why the OECD’s standard would not do the same for NPOs/public-benefit organisations/philanthropic organisations.
Under FATCA, non-profit entities are deemed compliant financial institutions and therefore not subject to reporting obligations. There have not, as far as we are aware, been any indications that this has been misused for the purpose of circumventing FATCA reporting obligations.

Philea’s contribution to the consultation and call for the exemption of our sector from the Common Reporting Standard can be found here.

For more information, please contact Hanna Surmatz.