UPDATE 13/03/2019: The coalition “Rechtssicherheit für politische Willensbildung” (Translated: Legal certainty for political advocacy), bringing together over 80 CSOs to advocate for a change of the charity legislation, comments on the ruling:
“The Supreme Federal Tax Court’s judgement in the Attac case will affect thousands of associations and foundations throughout Germany, and likewise influence the involvement of the many thousands of people who belong to them. Accordingly many organizations are in great turmoil. The judgement restricts civil society’s room for manoeuvre. Many association boards are now discussing whether they should discontinue some of their efforts.”
“The judgement poses little immediate danger to other associations: no denial of charitable status is expected for recognized associations devoted to education, research or promotion of democracy, until the Treasury issues new regulations based on the judgement. Such regulations will constitute instructions for revenue offices across the country . Such administrative changes take weeks, if not months. And unfortunately the ministry often applies only those portions of Supreme Tax Court judgements that have restrictive effects.”
Read the full statement here (in German)
UPDATE 27/2/2019 from Attac Germany: PUBLIC WELFARE IS POLITICAL – FEDERAL FISCAL COURT REFERS ATTAC DECISION BACK TO KASSEL
The Federal Fiscal Court (BFH) interprets opportunities for political involvement for non-profit organisations more narrowly than the first authority – A devastating signal for civil society organisations
The Federal Fiscal Court today decided to overturn the preliminary ruling on the non-profit status of Attac and refer it back to the Hessian Fiscal Court. In his explanatory statement, it states that
“influencing political decision-making and shaping public opinion […] does not fulfil a charitable purpose”.
The BFH recognizably sets the framework for the political action of non-profit organizations much narrower than the fiscal court in Kassel. In particular, the two purposes promotion of the education and the democratic state are clearly restricted by the judgement.
“This is a devastating signal for the entire critical civil society in Germany. We look with great concern at countries such as Hungary or Brazil, where the work of independent NGOs is increasingly being suppressed, and we now see in Germany, too, how government and political parties are increasingly trying to silence politically unpopular organisations by means of the non-profit law,”
says Dirk Friedrichs of the board of Attac’s supporting association.
According to Attac, the restrictive interpretation of the BFH makes it urgently necessary to adapt the legal basis – the tax code – to the requirements of modern democracy: A resilient democracy needs a critical citizenry and strong organizations that actively monitor and participate in political decision-making processes. Non-profit status should not be limited to apolitical charity.
“The law on the non-profit sector must not degenerate into an instrument with which civil society organisations that selflessly work for a just society and the common good can be restricted,” says Attac Managing Director Stephanie Handtmann.
We stand in solidarity with #ATTAC and condemn the ruling that potentially affects many actors in Germany doing political campaigning for the common good. For years ATTAC campaigned for a fair tax on financial transactions becoming an example of transnational mobilisation. pic.twitter.com/FrA5LSjfLd
— European Alternatives (@EuroAlter) February 27, 2019
No dedicated NGO law
Germany’s civil society is large and vibrant, including many “development CSOs” that have an external focus. Historically, scholars point out that Germany has had a “strong state and strong civil society” in which associations played the role of promoting specific interests. Close government-civil society cooperation in both local and national-level governance has also been a prominent feature in Germany since the 19th century. This includes cooperation on policy-making and policy implementation. Today, civil society is heavily involved in the provision of social services and, consequently, is highly dependent on the state for funding. However, non-professional CSOs staffed exclusively by volunteers are less reliant on the state and depend more on the public for their funding.
In Germany, the term “charity” (Gemeinnützigkeit) is only legally defined in terms of tax law. There is no civil society law in Germany and no separate body of law for charities. Instead, the German civil code provides for the establishment of non-profit organisations (NPOs) as associations, foundations and corporate enterprises. All forms of NPO are allowed to pursue any lawful interest, including political ones. Restrictions related to political activity however “apply predominantly to tax-exempted NPOs”. There are no provisions related to the activities of CSOs in Germany’s electoral law.
Regulation of political purposes through tax laws
Associations, foundations and corporate NPOs are all entitled to apply for tax exemptions in Germany, if they “pursue public benefit, charitable, and church-related purposes.” Through this system donations to exempted organisations are tax-deductible, providing an important stream of revenue from individual, public and private foundation sources for civil society in Germany. Section 52 of Germany’s tax code provides for the granting o a designation of “charitable purposes” if the organisation is “aimed at unselfishly promoting the general public in the material, spiritual or moral
domain.” The code lists 25 specific domains of activity under which an organisation can be involved in order to benefit from being considered to have charitable purposes. These include “the general promotion of the democratic state” and “the promotion of civic engagement in favour of charitable, benevolent and ecclesial purposes.” Neither the promotion of human rights nor engagement in political advocacy are specifically listed in the tax code. The code also does not specify anything related to the means (for instance lobbying, advocacy, public campaigning and awareness raising) which
may be used to achieve any of the listed purposes.
The tax code imposes some limitations on the political activities of CSOs which benefit from a tax exemption on charitable purposes grounds. First, organisations pursuing tax-privileged purposes must not spend any of their assets for the “direct or indirect benefit of political parties,” for instance through campaigning in support of a party or candidate. Further guidance on the “general promotion of the democratic state” purpose is
provided in the implementing rules (Anwendungserlass) of the tax code. Section 43.8 of the implementing rules states that this purpose includes an engagement with “basic democratic principles” which are “objectively and neutrally” appreciated. This charitable purpose also encompasses popular political education, which can include “promoting political perceptiveness and political responsibility” and both theoretical instruction and calls to action. However, the implementing rules make clear that the charitable purpose does not extend to “one-sided agitation,” “uncritical indoctrination” or “party-politically motivated influence.” In other words, the implementing rules of the tax code make it clear that activities which fall under the “promotion of the democratic state” purpose may have a political nature but are not automatically considered to be activities for the direct or indirect benefit of political parties. Hence such CSO activities should not be subject to restrictions on tax benefits.
Interpretation of the tax code is also contained in section 43.15 of the guidance on the application of the tax code, which is provided by the finance ministry, updated as of 26 February 2018. This guidance makes it explicit that “political purposes (influencing the formation of political opinion, promotion of political parties and the like) do not count as charitable purposes.” The interpretation continues by saying that “a certain influence on the formation of political opinion does not preclude charitable status,” a position supported with reference to a German Federal Finance Court Decision which found that it was not reasonable to classify a citizens’ initiative for the protection of the environment as a political association just because of “the possible political effects of its activities.” The tax code interpretation clarifies that it is acceptable for an organisation benefiting from a charitable purposes exemption to “occasionally” take “a position on political topics within the framework of its statutes” but that such activities should not become the “sole overriding purpose” of the organisation’s statutes. A decision of the Federal Fiscal Court in March 2017 further clarified that “political influence must not ‘far outweigh’ the other activities developed by the body.”
Should an organisation be deemed to have deviated from the acceptable limits of the regulations governing charitable purposes, they lose the designation of having a charitable purpose and therefore their tax-exempt status. Given the significant amount of funding that many German CSOs receive through public donations, such a loss can have significant implications for their survival, including the loss of their property or the payment of 30 per cent taxes on the sum of donations over the past 10 years. The determination of whether a CSO is entitled or not to the exemption based on charitable purposes is left up to officials working for Germany’s approximately 400 local tax authorities. A study published in 2018 by a coalition of CSOs in Germany revealed that out there are dramatic inconsistencies in the way these rules are applied by local tax offices, with some giving broader interpretation to “political purposes” than others.
There is growing consensus within German civil society that, while civil society remains relatively free to set its own agendas and engage in a variety of activities, including those that could be deemed “political,” a legal “grey area” exists which can become problematic for organisations heavily engaged in advocacy. The case of Atac Germany is illustrative of the problem.
Attac is an international network of activists and public education movement which campaigns on a range of problems it has identified as associated with “neoliberal globalisation.” In 2014, a local tax authority told Atac Germany that its public benefit status had been revoked due to the fact that it “pursues activities of political nature beyond its prescribed public-benefit purposes that, in line with Germany’s Fiscal Code, qualify it for the tax privileges.” A court later overturned the decision, stating that Attac’s political activities were a legitimate means to reach its official objectives. The Federal Ministry of Finance refused to accept this decision and an appeal is currently underway. At the time of writing, Attac’s charitable purpose status remains suspended pending the outcome of the appeal. According to the “Legal certainty for political decision-making” coalition, a group of 80 CSOs that have joined together to ensure that CSOs involved in influencing political decision making can receive charitable status, the Attac Germany case is not an isolated incident and there are several other cases of CSOs that have been negatively affected by the lack of clarity on this issue.
Featured image: Hannibal Hanschke/Reuters