International Associations Statutes Series

Report on Non-Profit Making Associations in the European Community

N Fontaine

Nicole Fontaine
Appendix 3.7 of the International Associations Statutes Series vol 1, UIA eds (1988)

Explanatory statement

I. Definition of the associations forming the subject-matter of this report

1. The concept of association needs to be clarified in order to avoid ambiguities caused by the closeness of the etymology of this word and the French word "société" (company or firm) and the fact that these two terms are used closely in most Community languages although the situations which they cover and the legislation applying to them are often different.

2. The Committee on Legal Affairs and Citizens' Rights proposed that the European Parliament should take the view that, for the purposes of the resolution submitted to it, the term "association" applies restrictively to groups of persons (legal or natural) who, within the framework of a permanent structure which is legally permitted, coordinate their efforts with a view to pursuing a common aim without any profit-making intention on the part of the members forming the association.

3. This criterion is essential and distinguishes the associations referred to in particular from commercial companies. It does not prevent persons employed by an undertaking from helping the latter to function, or the association from performing services for valuable consideration and thereby obtaining additional sources of income, or prevent its activities from not being exclusively altruistic but also aiming to defend the interests of its members. It implies essentially, on the one hand, that the association's officers should perform their tasks impartially and, on the other, that there is absolutely no sharing of any profits between the members of the association.

4. For these reasons, the following should be considered as not referred to by this resolution:

  • companies or firms and similar groupings which, although notexpressly commercial, are typified by the pursuit of a profit-making objective and the sharing of profits between their members;
  • groupings for the exchange of services and cooperation between commercial companies or firms such as the "economic interest groupings" where, however, although they are not, as such, profit-making bodies their objective is to promote the economic and financial achievements of their members and therefore indirectly to help the pursuit of the profit-making objective of the latter; (see Appendix 5.6)
  • friendly societies, loan societies, cooperatives and, generally, all bodies where although, where appropriate, their functioning is closely related to that of associations, their objective is essentially economic. In addition, they are very frequently covered by specific legislation (particularly a large proportion of friendly societies);
  • so-called de facto associations, at any rate where their existence is not legally permitted, which therefore generally have no legal capacity of their own.

5. For other reasons, it also seemed desirable not to include in this resolution the situation relating to trade unions. In fact, despite the fact that they and non-profit making associations have many identical features, their objective, their modus operandi and the legislation on which they are based make it preferable to deal with them specifically and separately.

6. The same applies to political parties or similar groupings which operate in accordance with the general legislation applicable to associations in many States because there is no specific legislation. Certain measures which are proposed in favour of those associations in this resolution might be capable of distorting the normal action of democracy by over-privileging parties in a dominant position.

7. However, this question is delicate and complex as the boundary between an objective or political activity is often subjective, uncertain and widely disputed. It would therefore be difficult in law and in fact deliberately to exclude from this resolution groupings which take part closely or at a distance in political activity under the general legislation applicable to associations. Specific restrictions can and will be appropriately laid down at the level of the various measures proposed.

8. This issue led to a division of opinion when it was discussed in the Committee on Legal Affairs and Citizens' Rights. As a result, some Members finally decided to vote against the report submitted to them. In order to take into account the misgivings upon which this attitude may have been based and to remove any misunderstandings to which the initial drafting of the explanatory statement may have given rise, the attention of the House is drawn to the following points which are included in accordance with the spirit of the discussion in committee:

  • it should be understood that the measures to encourage support for associations by private individuals refer to those associations whose objective is in the common interest (for example a philanthropic, social, educational, cultural, scientific, family, sporting or leisure objective) to the exclusion of those whose objective is, directly or indirectly, political;
  • it will be for the Member States to ensure, through proper supervision, that the associations which claim to have such objectives of common interest are not concealing the pursuit of a political or profit-making objectives.

9. Finally, the Committee on Legal Affairs and Citizens' Rights takes the view that it was justified to include in its approach certain types of associations whose status does not strictly comply with the above-mentioned criteria but whose objectives and activities are closely related to those of associations. These are in particular foundations which are not groupings of persons but groups of assets which are financially viable and which may be granted legal personality by recognizing them as public utilities.

On the other hand, this report does not cover companies or firms constituted under civil or commercial law (partnerships and companies with share capital which are recognized as public utilities under national rules or orders and thus benefit from tax deductions or other advantages).

Nor are associations or bodies governed by public law covered by this report.

10. Even thus restrictively defined, the types of association covered by this resolution are extremely varied, in particular:

  • associations with a charitable aim or one of social solidarity;
  • educational, scientific, cultural, sporting or recreational associations;
  • civil, political, philosophical or religious associations;
  • associations for the protection of the national heritage and the environment and consumers' associations;
  • associations in defence of common interests and similar associations.

II. Comparative situation of the association movement and the legislation governing associations within the community

11. Although the association movement in all Member States has an important and welcome role to play because of its activities and its social function, and although its development is constant and often extremely rapid, its overall circumstances are still relatively little known and Community comparisons are tricky.

12. The right to associate freely is the expression of an essential democratic public freedom very often covered by only a minimum of legislation, and for this reason statistics aresparse and unreliable. Although the formation of associations which apply for the grant of legal personality is generally dependent on notifying the administrative authorities, they are not under a similar duty if they become inactive or cease to exist. The administrative registers in which the notifications of the existence of associations are collected year after year therefore reflect only incompletely the actual facts about active associations.

13. In addition, although the concept of non-profit making association or foundation is fairly common in the majority of Member States and is the subject-matter of specific-matter of specific general legislation, certain States have a different concept of it:

  • this is the case in the United Kingdom which applies separate legislation to members' clubs, friendly societies and charities which, though forms of association, are not strictly the same as that expression is understood in Belgium or Spain for example;
  • similarly, in the Federal Republic of Germany there is no general law on association: those which do not engage in any economic activities come within the legislation on commercial law partnerships and more favourable tax provisions can be laid down in either of these contexts, particularly where their objective is acknowledged to be of common interest.

14. In view of this it is preferable to illustrate the vitality of associations within the Community by means of some national examples.

15. Thus in France it is estimated that there are at least 500,000 associations, that almost 50,000 are created each year, with an annual increase of 20% between 1977 and 1983, and that on average one Frenchman in two is a member of an association whereas one Frenchman in three was a member of an association less than ten years ago. Ninety-five per cent of associations have the simplest status, that of "registered" associations; five per cent have the status of associations recognized as being of public utility and, overall, one per cent were covered by special legislation on foreign associations until this restrictive status was abolished by the law of 9 October 1981. The number of associations coming within the law of another Member State and pursuing activities in France is unknown.

16. In all, it is estimated that associations in France have more than 700,000 paid employees. According to moderate estimates, they have between 2 and 3 million voluntary workers, representing the equivalent of between 100 and 150,000 full-time jobs. Their annual budget is assessed at approximately 50,000 million francs.

17. In the United Kingdom the friendly societies (which may engage in profit-making activities provided that those are merely incidental to their aim) have a total of more than 4 million members (in particular insurance). There were 154,135 charities at 31 December 1985, 3,873 having been registered for that year alone. During the course of the same year 196 had become defunct.The funds collected annually by those charities are assessed at more than £2,000 million.

18. In Spain, the number of associations is said to be 70,000, and the figure for Luxembourg alone is approximately 1,650.

19. In the absence of an exhaustive description, these few examples show that the dynamism of the association movement is comparable in the various Member States, which helps to explain the significance of the measures proposed in this resolution.

20. Are these similarities to be found in the national legislation on non-profit making associations?

There are numerous points in common, essentially the following:

  • freedom of association is guaranteed by all constitutions;
  • grounds for any ban or annulment are strictly limited to opposition to the constitutional order, with some added details in the case of certain States (violence in Denmark, secret or military associations in Italy, aim contrary to understanding between nations in the Federal Republic of Germany, etc.);
  • where the notification of the existence of an association is subject to a registration procedure with an administrative authority or court (Greece, Federal Republic of Germany and Italy) that procedure is in fact no more than a check that the association complies with the law and never means prior authorization;
  • in general, it is the judicial authorities and not the executive which have the right to dissolve associations other than under their rules and regulations (except in Spain, where the executive may dissolve an association for a period of not longer than three months) and that right is strictly controlled;
  • in general, the legal personality of an association is separate from that of its members and the association has no claim on their assets;
  • associations pursuing an aim of general interest (philanthropic, cultural, social, educational, sporting or religious) are entitled to certain tax exemptions. Although this principle is generally accepted, it is applied very differently according to the type of association and from one Member State to another.

21. The Legislative differences (which should be recalled in order to assess the opportunities for and consequences of Community action) are, nevertheless, greater. The chief differences are as follows:

  • although for example all persons resident in Denmark, France, Ireland, the Netherlands and the United Kingdom (except for enemy aliens) have the right to form an association, in the otherStates only nationals have that right. In the Federal Republic of Germany, there is a special law governing foreign associations;
  • as stated above, not all States have specific general legislation on associations (Denmark and the Federal Republic of Germany in particular). On the other hand, in the Federal Republic of Germany and in the United Kingdom, there is a special law on foundations, which is not the case in France for example;
  • the differences are considerable as regards the duty to make and the content of the notification of the existence of an association, the duty to publish and the place in which that notice is published, the link between the notification of the existence of an association and the grant of legal personality and the degree of recognition of legal capacity;
  • the most liberal system is that in Denmark which has no specific legislation on associations and does not impose on them a duty of notification or registration;
  • in the Federal Republic of Germany, the registration of an "eingetragener Verein" is merely optional; in the United Kingdom it is compulsory in the case of friendly societies but optional for members' clubs and virtually compulsory for charities;
  • in the other States, notification is compulsory for the grant of legal personality and the notice is published officially (or in the press in Greece). The information to be supplied is the same or similar;
  • it should be pointed out that in Spain the notification procedures includes a right for the administration to take the initiative which is closely related to a system of prior authorization;
  • the minimum number of founder members is not stated except in Greece (20), the Federal Republic of Germany (7), Luxembourg (3) and Belgium (3);
  • the right to bring legal proceedings varies from one Member State to another and is not in all cases linked to whether an association has been officially declared or registered. This is especially so in Italy and in the other States where notification is not compulsory (Federal Republic of Germany, the United Kingdom and Denmark). In France, where the 1901 law makes the acts of associations which have not been officially declared null and void and thus of no legal effect, the Conseil d'Etat has held in a line of decisions that an application lodged by a de facto association was admissible on the ground that it had "an interest in bringing proceedings" (the Fauriston Case);
  • it should be pointed out that in Belgium an old law of 25 October 1919 which is almost unique in the Community enables international aim to be granted legal personality. Approximately 350 associations have benefited therefrom;
  • the other aspects of legal capacity are generally granted restrictively and treated very differently:
  • in Belgium, Luxembourg and in France an association may only acquire the real property "strictly necessary" for its objectives or else it is annulled. In Italy, a government authorization is required;
  • in Belgium Luxembourg, Spain and France especially more favourable status may be granted to "associations recognized as being of public utility" or to "public utility establishments" (closely related to foundations) but these associations require prior authorization and are subject to stricter supervision by the administrative authorities;
  • the power for associations to provide services for a consideration or even to engage in commercial activities is granted according to different provisions. The common minimum rule is that those profit-making activities are only authorized in so far as they contribute to the aim of the association, without any division of profits between the members (except in the United Kingdom in the case of friendly societies and, in certain cases, members' clubs).

22. As a whole, it has been held in decided cases that these profit-making activities must be ancillary to the association's other activities. However, in the Federal Republic of Germany the direct participation of an association in economic activities is enough to call in question its non-profit making nature. In the Netherlands, an association is regarded as an "undertaking" when it competes with other economic sectors in its profit-making activities.

23. The tax arrangements applying to services provided for valuable consideration varies according to whether they are provided for members or for non-members, in particular.

24. The Legislation is particularly divergent in the field of taxation. There are a very large number of specific measures which are completely different. Without any intention of being exhaustive, the following are a few examples:

(a) VAT

25. In France any liability to tax is based on the profit-making activities and not as a whole on all the association's activities: non-profit making associations are exempt with regard to services of a cultural and social nature performed for their members. The same applies to associations pursuing an objective of common interest, particularly a philantropic one; services for a consideration for third parties who are not members and only the latter are liable to VAT. However, sales to the public organized at fairs, lotteries and charitable events are exempt up to a maximum of 6 each year.

26. In the United Kingdom activities are generally liable to VAT where they exceed a certain threshold (£10,000 turnover), butcharities are exempt as regards services for the handicapped.

27. In the Netherlands, where an association engages in economic activities in excess of 15,000 florins turnover all its activities are liable to VAT. The same principle applies in the Federal Republic of Germany.

28. In Luxembourg exemption is limited to services performed for members who pay a membership fee to the association.

29. In Belgium associations are exempt as regards services performed for their members.

30. In Italy they are offerd the opportunity of a flat-rate settlement.

31. It should be noted that in France, the exemption from VAT to which associations may be entitled is offset by a "payroll tax" of between 4.25% and 13.6% on the basis of thresholds fixed in 1968 which have only been slightly updated, the effect having been to place a large number of associations in higher tax brackets although their funds have not necessarily grown correspondingly in real terms.

(b) Betterment tax, wealth tax, corporation tax, local taxes and other taxes

32. In the United Kingdom tax exemption on profits extends to friendly societies and local authorities have discretion to exempt them from local taxes, charities being exempt to a minimum of 50%

33. In the Federal Republic of Germany, declared associations which are defined as pursuing an aim of common interest to the exclusion of any economic activity are to a large extent exempt.

34. In Luxembourg, the wealth tax applies to all associations, including "public utility establishments", where the assets exceed 1 million francs (12 centimes per 100 francs). The same applies in the Federal Republic of Germany above a threshold of 10,000 DM but with the possibility of exemption. In France, associations are liable to corporation tax on the same basis as that used for the purposes of VAT. They are not liable to betterment tax, business tax, tax on furnished accomodation or wealth tax.

35. In view of the very great diversity of other taxes it is not possible to compare them here. It is sufficient to stress that they cover an extremely great variety of situations.

(c) Gifts, endowments, bequests and grants

36. These are prohibited in France for associations which are merely declared (95%) or this will lead to their annulment, the administrative authorities permitting solely gifts which are physically transmitted.

37. In the Netherlands, associations pursuing a public utility aim are exempt below a threshold of 5,000 florins (inter vivos) or 10,000 florins (by will) and only 10% of the tax is levied above those thresholds. Other associations are taxed at the rate of 36%.

38. In Belgium the accounts must have been deposited for 10 years at the registry of the civil court having jurisdiction in order for an association to be entitled to a basic preferential duty of 8.8%, coupled with a 0.17% countervailing charge on all the association's assets. In Luxembourg, a ministerial authorization is required below a threshold of 10,000 francs and a Grand-Ducal decree above that threshold.

39. In the Federal Republic of Germany 20% succession duties and gift taxes are levied above a threshold of 3,000 DM up to 50,000 DM with the exception of associations pursuing a religious, charitable or public utility aim.

40. In Italy prior government agreement is required for the acceptance of any bequests and involves possible exemption from duty.

III. Advisability and legal basis of community action in respect of non-profit making associations

41. As European exchanges develop in all fields and the Community is moving towards the completion of the internal market, three essential difficulties justify the European Parliament taking into consideration the advisability of Community measures with regard to associations:

  • all associations of national origin expanding their activities to other Member States come up against numerous practical difficulties resulting from the above-mentioned differences in the national legislation:
  • either their legal capacity is not recognized or else it is subject to the restricted status of "foreign association";
  • if they set up establishments in various States, the legislation differs very considerably from that of the country in which they have their head office; their capacity to acquire assets, to seek bank assistance, to open accounts and to transfer capital (particularly where there is exchange control in a Member State) is constantly restricted or handicapped;
  • their capacity to bring proceedings is not always recognized. In Belgium and in the Federal Republic of Germany an association set up in another Member State does not have the power to dissolve a national association where a dispute arises, because of its "foreign" status;
  • in almost half the Member States, citizens of other States are not authorized to form associations or even to sit on their administrative board;
  • there is no proper legal framework enabling national associations wishing to form a federation at Community level to do so, nor, a fortiori, for the creation of associations rising above national differences and defining themselves as genuinely Community; they are then regarded as "foreign associations" attached to the country in which they have their head office. An initiative on the part of the European Parliament and the Commission is very much due in this respect.

42. However, before defining appropriate proposals, it is essential to raise the preliminary question whether this field comes within the powers of the Community institutions under the EEC Treaty.

43. It could be argued that since the EEC Treaty is of an economic nature, non-profit making associations come solely within national law on rights in the public domain. In addition, they are expressly excluded by Article 58 of the Treaty.

44. This objection is unfounded. The scope of Article 58 must be appraised in terms of the chapter concerned, which deals with the right of establishment of commercial companies and aims to abolish restrictions on free competition. It was natural in that context for the Treaty to specify that the rules laid down did not apply to non-profit making "companies or firms", in other words associations. It cannot be deduced from this that the provision is general in scope and aims to exclude non-profit making associations from any Community powers.

45. The Treaty has other reference bases which may be briefly recalled:

46. Although it seems slightly paradoxical to put forward straight away an economic argument with regard to bodies which specifically deny any profit-making aim, there is no reason not to apply to associations the main principles of the Treaty because they take an active, though specific, part in the economic life of the community.

47. It has been said above that in a country such as France, the association sector employs more than 700,000 persons, that this figure is on the increase despite the general employment recession and that in the United Kingdom charities collect funds of £2,000 million each year. Associations thus participate directly in the tertiary sector of the economy and, in addition, promote economic activity as regards the services which they need and those which they provide through their employees and their voluntary workers (of whom there are an even larger number).

48. The association sector directly and indirectly generates employment; because it is a product consumer, it is an important factor in the development of economic activity and its contribution in this field may well be under-estimated because it is extremely low-gear and based on a high degree of motivation. The association sector, a consumer and participant in economic life, is clearly affected by much of the EEC Treaty.

49. First of all, Article 7, which prohibits "any discrimination on grounds of nationality" is applicable to the States whose legislation reserves to its citizens alone the right to form or administer associations. The same applies to the articles which lay down the principal of freedom of movement of persons, services and capital, where legal capacity is refused to so-called "foreign associations" which cannot therefore defend themselves against any damage or, as such, perform the acts under civil law required for their activities.

50. However, abolishing those obstacles would not be sufficient to solve all the problems encountered by associations wishing to take part in the development of European trade; the approach must be more positive.

51. For this purpose, the European Parliament may legitimately rely on Article 100 and Article 235 of the Treaty and above all on Articles 100 A, 8 A, 130 F and 130 O of the Single Act which are particularly explicit.

52. The harmonization of the respective legislation on the grant of legal capacity to non-profit making associations and the definition of such capacity comes in fact within the objectives laid down in Article 8 A of the Single Act concerning the attainment of the internal market.

53. It should be recalled, moreover, that the Council of Europe has made progress in this direction with the adoption of the European Convention on recognition of the legal personality of non-governmental international organizations, it being specified however that that convention is still of limited application because those to whom it applies still come within the legislation of the country in which they have their head office, there having been no prior harmonization of legislation between the Member States (see Appendix 4.11).

54. As long ago as 1972 the Council of Europe adopted a recommendation (656) on tax treatment of non-profit organizations, emphasizing the differences between tax treatment applicable and inviting "the member governments to study the possibility of removing the judicial and fiscal obstacles to an increase in international activities by non-profit organizations, with a view to promoting European solidarity". The preamble to that resolution might to a large extent be repeated today because the situation has developed very little.

55. As for the European Parliament, however, the report on the cooperative movement in the European Community on which it took the initiative and which it adopted on 13 April 1983 shows its interest in bodies which, having no profit-making aim per se play an effective part in the attainment of a genuine citizens' Europe with no internal frontiers.

56. As regards the desired establishment of special rules for associations which are properly speaking of a Community nature, it should be pointed out that the formation of such associationsmust not be confused with the federation at Community level of national associations. They are a reality, and still desirable, and require specific attention from the European Parliament so as in particular to resolve the problems relating to the recognition of their legal capacity throughout the Member States.

57. However, in certain cases, the grouping of national associations in fact strengthens at national level the most influential members by giving them the means of taking more effective action at the European level instead of encouraging Community feeling and genuine joint activities. The European level of associations, properly so-called, on the contrary helps to eradicate national corporatism and facilitates dialogue and direct exchanges between towns or regions which have affinities.

58. The establishment of such Community rules would in particular facilitate the contribution of associations to the exchange programmes which are at present being implemented such as COMETT, ERASMUS, and YES for Europe.

59. Does the Community have jurisdiction to take such action? It may be maintained that it does, on the basis of Article 235 of the EEC Treaty, judging by other initiatives already taken, especially the amendment to the regulation establishing the European Economic Interest Grouping (Regulation no. 2137/85 of 25 July 1985) (see Appendix 5.6).

60. For all these reasons, it would be incomprehensible for the association sector properly so-called to be left on the sidelines on the basis of an incorrect and restrictive interpretation of the Treaty.

61. The Community assists many associations by means of subsidies. It therefore recognizes their role in European integration. It should now give them the appropriate means to play that role.

62. If it were necessary to add a more general consideration to the de jure and de facto economic arguments on which this motion for a resolution is based, it would be appropriate to stress the essential social function performed by associations on behalf of democratic equilibrium and the progress of Europe towards union. The latter will not be achieved solely by a technical approach, measures relating to products and production, distribution and consumer networks. It will principally be the result of the will of the many individuals who are receptive to the European ideal over and above the interests of their particular category. This is why it is in the higher interests of the Community to give them effective help.

63. A recent report on associations by the French Economic and Social Council gave an excellent definition of their basic originality and value in the following words:

"The role of associations is to make the community aware of the social needs hitherto ignored or unrecognized, either throughconcrete initiatives or claims and appeals. By turns or at the same time putting forward ideas and requests, promoting innovations, breaking new ground, accomplishing field work, or operating community services, the association sector performs tasks upstream and at the heart of the development of policies, educational, health and social measures. Closely linked to these tasks is the role of associations in the development of a certain quality of social life and solidarity in which the autonomy and identity of each individual can be affirmed within units on a human scale based on contractual relationships".

    Associations "fulfil an intermediate - or more precisely mediating - role not only between individuals, and between individuals and the public authorities, but also between worlds which is an increasingly complex and heterogeneous society, too often tend to rub shoulders without genuinely communicating: worlds of production on the one hand, education and training on the other, economic and social, social and medical worlds, those of employees and voluntary workers, the private and the pubhlic sector, etc" (Official Journal of the French Republic of 29 July 1986).

    IV. Proposed provisions

    64. The more justified the Community's right to take action with regard to the associations sector seems to be, the more essential for that action to keep within the limits laid down by the Treaty's objectives and the objective of the development of European Union.

    65. This requirement is all the more necessary since associations are the expression of a right in the public domain, and this is an area in which it is particularly necessary to avoid excessive rules and regulations.

    66. Any action aiming, through the Community, to give associations too uniform and specific a status would be contrary not only to the powers of the States but also to the spirit of freedom and independence required by the association movement in order to express itself fully and develop its potential. We must harmonize only what needs to be harmonized.

    67. Thus matters relating to the functioning of associations, the promotion of their truly democratic nature, relations between employees and voluntary workers, the prevention of the risks of departing from their aims, though important, have not been taken into account for the purposes of this motion for a resolution.

    68. The Committee on Legal Affairs and Citizens' Rights took the view that it was preferable to adhere to the proposals which seemed to it to be likely to abolish the obstacles holding back associations from contributing to the development of a united Europe with no frontiers as well as the proposals aiming to give the association movement the means of increased action on behalf of the common interest of the Community, with greater equality of conditions between the Member States. It directed its choiceto measures already in force in certain States which would be likely to receive widespread approval.

    1. Abolition of discrimination based on nationality

    69. The first rule which should be established, or more precisely clarified, because it follows directly from Articles 2 and 7 of the EEC Treaty, is that of the prohibition on the restrictive, and therefore discriminatory, measures which continue to exist in several Member States where they are applied to citizens of other Member States in the matter of freedom of association.

    70. Certain Member States have gone further than this by granting all residents, whether or not citizens of a Community Member State, the right to form and run an association. That provision is not affected by this resolution because it falls outside the framework of the Treaty and comes within the direct jurisdiction of the Member States.

    2. Harmonization within the Community of the rules on the recognition of non-profit making associations

    71. This provision is not only justified by the concern to facilitate the activities of associations by reducing the differences between the legislation of each Member State. It is necessary so as to enable associations based in one country and covered by the legislation of that country to extend their activities to other States when they so wish, particularly with a view to developing European exchanges, whilst retaining their national personality.

    72. It might be appropriate in this respect to take as the basis the Council of Europe's European Convention on the recognition of the legal personality of international non-governmental organizations (see Appendix 4.11). That convention, however, although important, does not completely resolve the problem raised here:

    - it relates to organizations whose international character is already established in at least two States whereas in this instance it is a matter of facilitating the activities of a national association, wishing to keep its identity, in the direction of States other than that in which it has its head office;

    - although it is normal for an association to be subject to a specific legal system of its choice (that of the country in which it has decided to establish its head office) the difficulties surrounding its international activities arising from the differences in the legislation of the various Member States are still intact.

      73. The Committee on Legal Affairs and Citizens' Rights proposes that the provisions to be taken should form the subject-matter of a Community measure including in particular the following points:

      - the definition of non-profit making associations. The most delicate matter to be settled in this respect relates to the services for a consideration which an association is authorized to develop without calling in question its status as a non-profit making association.

        It has been seen that certain States are tolerant in this respect whilst others are more restrictive whilst, moreover, permitting quite wide exemptions where the association pursues an aim recognized to be of general interest or by fixing thresholds only beyond which the non-profit making nature may be called in question.

        A Community provision should be simple and prevent problems arising in its implementation. In addition, it would be difficult to imagine such a provision imposing a restriction in States in which the legislative tradition has long been liberal.

        On the basis of these considerations, the Committee on Legal Affairs and Citizens' Rights suggests that legislation such as the French Law of 1 July 1901 should be taken as the basis, legislation which does not prohibit non-profit making associations from engaging in economic or even commercial activities on the express condition that the income should be used to pursue the aims of the association, excluding any sharing of profits amongst its members.

        From the tax point of view, those activities are therefore treated separately without bringing into question the non-profit making nature of the association itself.

        - the duty to notify the existence of an association and to publish that notification officially (in the country in which the association chooses to have its head office and by whose main legislation it is covered), that notification and its publication leading to the grant to the association of legal capacity;

          The certificate issued by the State which received the notification would be valid in other States for the purpose of the grant of legal capacity. The association could alter its original decision as to the State in which it has its head office;

          • determination of the information to be supplied to the administrative authorities for the purpose of the notification of the existence of an association: identity and functions of administrators, rules and regulations cumpulsorily stating the aims of the association, its modus operandi and the activities and income planned;
          • the association's own liability with regard to undertakings entered into in its name, separate from that of its administrators;
          • common definition of the legal capacity granted to non-profit making associations, particularly the following:
            • right to bring legal proceedings;
            • right to acquire real and personal property without authorization on the express condition that such property is "necessary" to the aims of the association, or else the association is annulled;
            • right to take out loans;
            • right to call on savings and, within certain limits (see French Law of 11 July 1985) the right to issue association securities;
            • the right to receive gifts, bequests and grants (without prejudging here their taxation or exemption from tax).

          3. Offering associations which so desire the specific status of Community association

          74. The reasons in favour of the definition of such status have already been set out and are additional to those which led to the adoption of Regulation No. 2137/85 of 25 July 1985 on the European Economic Interst Grouping (see Appendix 5.6).

          75. The Committee on Legal Affairs and Citizens' Rights proposed to take action by the same procedure on the basis of the arrangements adopted after adapting them to the specific nature of non-profit making associations.

          76. Over and above the administrative ease which would result from this for the associations concerned, that status would have, first and foremost, a meaning, that of a Europe progressing towards unity and a Europe that is greater than the sum of the national, albeit legitimate, interests involved.

          77. The notification procedure could be identical to that proposed for national associations, but it would be carried out at the Commission and the notification would be published in the Community's Official Journal. Associations would have to show their multi-national character (without it being necessary for the 12 Member States to be included from its formation onwards) as regards both their composition and their field of activities. The association would choose the country in which it would set up its head office and would then come under the legislation in force in that State.

          4. The question of harmonization of the tax provisions relating to non-profit making associations

          78. Although the differences in national legislation are clear in this respect, they only rarely represent fundamental conflicts and are, rather, the result of the separate historical progress of the Member States.

          79. Without bringing into question the Member States jurisdiction as regards taxation, it would be very advantageous to promote, as, moreover, does the Treaty, the harmonization of tax provisions. The concept of a people's Europe would thereby gain credibility and the development of European exchanges is an additional reason to take such action.

          80. Without having recourse to the concept of competition, which is not appropriate in the case of associations, there is no doubt that intra-Community cooperation is distorted where one of the partners is entitled in its country to tax relief which increases its funds and thus its influence over the others. The more exchanges develop the more the Community institutions will have to ensure the equilibrium required for fairness.

          81. It should, finally, be added that as regards the recognition of associations at Community level, too great a disequilibrium in tax provisions might lead to a concentration of associations in the more liberal States to the detriment of the others and give rise to abuse.

          (a) VAT

          82. The Commission has already adopted a reserved viewpoint on this matter on several occasions in the context of replies aiming at preserving the Member States powers in this field without taking into account the new problem which has arisen through the development of intra-Community exchanges and the resulting need for Community harmonization.

          83. Referring to the provisions already in force in many States, the main points are as follows:

          - exemption for social, cultural, educational or sporting services provided between members of the same association, that power being extended to the members of members where there are federations of national or multinational associations;

          - exemption for services provided for third parties who are not members by associations recognized by the State in which they have their head office as having an aim of general interest of a social or philanthropic nature where its administration has no interest at stake;

          - liability to tax for other economic activities carried out for third parties who are not members on the basis of a tax relief threshold to be laid down, with the exception of sales within the context of charity events or benefits up to for example a maximum of 6 each year per association.

            84. The question of the payroll tax which was introduced to offset the VAT exemption in France for example and which hits some associations quite heavily should be reconsidered within this overall context.

            (b) Corporation tax, local tax, wealth tax and betterment tax

            85. We have seen above that the legislation was considerably different from one State to another. When applied, the similarities are more numerous than it appears at first sight as a result of the large number of derogations from the basic rules.

            86. Most States have been aware of the fact that non-profitmaking associations, particularly those working for aims of general interest, do not collect profits in order to share them amongst their members, that they put any surpluses from one year towards the subsequent development of their altruistic services and that they possess only the assets necessary to the aims laid down in their rules and regulations. In practice, either the tax legislation provides for a straightforward exemption or else it includes quite wide powers to grant exemption after the administrative authorities have checked that such exemption is well-founded.

            87. Would it not be possible to harmonize and simplify those provisions by allowing the basis of the various taxes to be that adopted in the case of VAT, in other words that of activities which, although lawful, put the association in a situation similar to those of commercial companies?

            88. To establish this principle is not to ignore the technical complexity of the questions to be resolved or the fact that the limits of this explanatory statement make it impossible to explain this in detail.

            (c) Donations, gifts, endowments and bequests

            89. It would be advisable for the conditions under which non-profit making associations can receive donations, gifts and bequests at present to be extended, these conditions being very often restricted solely to associations which have the special status of "public utility".

            90. However, the general law applicable to these gifts generally provides for high rates of taxation (up to 60%) which, in the case of bequests and donations in particular, makes it almost impossible for small associations to accept them because they do not have the financial means to deal with them.

            91. The Member States have been aware of this and have generally provided for preferential rates of tax and tax exemptions for gifts which are physically transmitted or endowments and bequests of small sums of money. This important question of harmonization of the tax legislation applicable to associations raises the general problem of their means of functioning. It is worth study and attention.

            5. The question of encouragement of or direct assistance to associations by citizens and promotion of public sponsorship of associations

            93. A look at the rapidly expanding world of non-profit making associations is enough to see the contrast between the human resources of dynamism, enthusiasm for innovation in the service of the general interest, voluntary work and altruism, on the one hand, and their small, sometimes laughably small, means, on the other. Neither membership fees (and increasing them would keep out underprivileged citizens) or tax exemptions are enough.

            94. The temptation is then to seek local or State subsidies or to canvas for donations from the public. Very often this benefits only the best-established associations or those with access to the media.

            95. There is a way of getting out of this impasse without placing a great burden on public expenditure. It is based on the fact that associations are deeply entrenched in the life of the population and consists in encouraging, by means of tax incentives, citizens themselves to contribute to associations which find favour with them because they touch a chord and mirror their beliefs. This is a way of developing a high degree of solidarity within the Community.

            96. In several States companies and individuals have the option of deducting from their profit or taxable income gifts made to associations of general interest. However, the limits are generally quite strict, both as to the nature of the beneficiary association (foundation, association recognized as being a public utility or specially approved, charities) and as to the authorized rate.

            97. It has been observed, however, correctly, that the formula of deducting gifts from taxable income alone was not necessarily the most effective or fairest solution since it is more favourable to taxpayers with a high income and is no incentive to the majority, those who pay little tax.

            98. In order to remedy this, a mixed formula has been put forward in certain countries:

            - a deduction of up to 5% from taxable income (without endangering any more favourable rates in force) for foundations and public utility associations or charities;

            - a tax reduction calculated on a proportion of the gift, with a ceiling in absolute terms of in percentage of taxable income, for associations with an aim of general interest (even if their activities are of a local nature), to the exclusion of political associations for the reasons mentioned above.

              99. In order to avoid tax evasion, the beneficiary association is obliged to supply a receipt corresponding to the gift.

              100. The Committee on Legal Affairs and Citizens' Rights believes that it is necessary for non-profit making associations which perform a service in the common interest to benefit to a greater extent from the opportunity of receiving gifts from private individuals.

              6. Setting-up of a European fund for the development of associations

              101. It has often been hoped that the Community would equip itself with a European fund for the development of associations along the lines of the EAGGF, which has made a strongcontribution to Community assistance to agriculture.

              102. The Committee on Legal Affairs and Citizens' Rights takes the view that this proposal is expedient. It has adopted it and submits it to the European Parliament.

              103. The tasks of that fund should be defined as follows:

              • coordination of Community aid to associations and promotion of a coherent policy in that field;
              • encouragement of and support for the creation of associations of a truly Community nature whose aim would be to promote the European ideal and those associations which take part in Community programmes;
              • action, jointly with the governments concerned, as regards measures supported by Member States or regions in which associations have particular difficulties in developing;
              • encouragement of innovation and research on associations and their effect on the Community's progress.

              104. The Committee on Legal Affairs and Citizens' Rights proposes that this project should be included in the preparation of the 1988 budget.

              7. Strengthening of the representation of associations in the Community institutions

              105. This request has often been made. It should be taken into consideration and might appropriately be considered within the context of the Economic and Social Council for example.

              106. It should however be pointed out that because the association movement is very widely dispersed genuine representation is difficult and the risk of encouraging over-representation of associations which are already in a dominant position must be avoided.


              107. This explanatory statement shows how opportune and timely the two motions for resolutions tabled by several Members of the European Parliament were. It also shows that although the political difficulties facing harmonization and the promotion of associations seem to be limited, the technical complexity of the harmonization measures must not be concealed.

              108. However, the time has come to do for European citizens and this essential vehicle of the Community ideal, associations, what has been done for profit-making undertakings. Europe needs inspiration to take a further step towards its destiny as a Community.

              109. Non-profit making associations are an opportunity to betaken in this respect. Inertia must be overcome and this opportunity must be boldly seized.


              1. European Communities, European Parliament. Report drawn up on behalf of the Committee on Legal Affairs and Citizens' Rights on non-profit making associations in the European Community (Rapporteur: Mrs N Fontaine). Working Documents, Series A, 8 January 1987, (Document A 2-196/86).