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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de International Charity Law: Comparative Seminar
Beijing, China, October 12-14, 2004

Third Sector Organizations in Germany: Legal Forms and Taxation
Michael Ernst-Pörksen, Til Pörksen

I. INTRODUCTION
Historically, legislation concerning associations and foundations in Germany has been part of the
Civil Code (Buergerliches Gesetzbuch) since the end of the 19th century. Legislation on Third
Sector Organisations (TSOs) is found in different laws; for example, the Constitution, the
Commerce Law, the Civil Code, and so forth. Contrary to other European systems, the German
system views the legal existence of TSOs in two separate spheres: civil law and tax law. The legal
form of existence for TSOs under civil law is generally not related to tax issues found under tax
law. For this reason, the universal expression “NGO” cannot be applied to German law without
losing its meaning. For purposes of this paper, however, the term “NGO” will be replaced by the
term “TSO” to indicate legal persons with tax advantages.
In 1995 an estimated 1.4 million full-time jobs existed in the German TSO sector, which accounted
for 5% of all employment in Germany. The Third Sector was dominated by health and social
services, each of which covers one-third of the entire sector. During the years 1990 to 1995,
employment in the third sector increased by an additional 14%.

II. PROVISIONS OF THE GENERAL LAWS

A. Consistency and Clarity of the Laws
Germany is a federal state with the national Bund and 16 federal Laender. Consequently, there is
no single overall regulation for TSOs. For example, the law for foundations is governed by the
legislative powers of the 16 Laender. The Laender also regulate other juridical persons.

International Charity Law: Comparative Seminar Germany Country Report – page 2
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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de The basics of the federal system are that the national (Bund) law overrules state (Laender) law. If
there is a contradiction between the national provisions on TSOs and those in Laender law, the
national law will be binding (except in case of foundations).
The fact that TSOs have to comply with laws and regulations concerning the different types of
organisation forms on the one hand as well as with the different tax laws ruling all types of
organisations on the other hand, makes the management of TSOs a difficult task, especially when
TSOs offer services in different fields at the same time. Difficulties, however, also arise with the
public administration (registration courts, revenue services). As a result TSO related issues form a
growing part of litigation in all instances of Germany’s jurisdiction. Another result, of course, is a
growing number of private counselling services, accompanying and qualifying TSO leaders.

B. Constitution
According to the German Constitution, TSOs are generally guaranteed the same basic rights as
natural persons, if the basic rights are applicable to juridical persons according to their nature. For
example, provisions concerning the protection of family cannot be applied to TSOs. But TSOs may
rely on the freedom of speech, the right of assembly, and so forth. In general these rights are
accorded to domestic juridical persons only. These provisions are applicable to foreign
organizations, if their action field is inside the German territory and if they maintain administrative
links to Germany.
The freedom to establish associations and societies is stated explicitly in the Constitution whereas
the right to establish a foundation is not. However, despite no explicit statement of this right,
foundations are guaranteed the same basic rights as other legal persons.
Any restriction on TSO rights is generally permissible for reasons of national security and public
safety.

C. Types of Organizations
According to German law, the notion of public benefit relates to tax law and not to civil law. So the
tax law defines, which organizations are de jure corporations. Only these entities can be tax

International Charity Law: Comparative Seminar Germany Country Report – page 3
Beijing, China, October 12-14, 2004
_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de benefited TSOs. As a consequence all types of juridical persons such as associations, foundations,
limited liability companies, and stock companies can be used to create a TSO. The legal forms
that are used the most in the sector of TSOs are associations and foundations. The upcoming legal
form is the limited liability company – GmbH. In contrast to the tax law, the civil law does not
differentiate between legal persons that pursue public benefit purposes and those who pursue
private or mutual interests.

1. Associations
An association is an organization founded by at least two (for non-registered) or seven (for
registered) members who voluntarily assemble in order to pursue a common purpose. An
association may not be established for short periods only. According to German law, there are two
types of associations; registered and non-registered. The registered associations are legal persons
with full legal ability. In addition, registered associations have the characteristics of limited liability
companies with regards to their executive organs. Non-registered associations, on the other hand,
are corporations with possible tax concessions under German tax law but without full legal
personality. It is for this reason that most associations choose to register even though registration
is not mandatory. A registered association is identified by an “e.V.” (eingetragener Verein) at the
end of its name. Associations are primarily regulated by sections 21 to 80 of the German Civil
Code.

2. Foundations
Foundations in the sense of the German law are entities with legal personality, whose assets are
used to pursue a specific purpose laid down by the founder. Foundations are regulated by sections
81 to 88 of the Civil Code and within the laws of the Laender.
From growing importance are foundations set up by a fiduciary contract only, which states purpose
and decision making processes. These foundations are lacking full legal personality, are not
registered and are not under official control but may enjoy the same tax privileges like registered
foundations.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 3. Limited Liability Companies (GmbH)
These are entities that are founded by one or more persons wishing to pursue a common legal
purpose. The shareholders insert the initial stock and are generally not liable beyond their share.
Thus, the liability is restraint to the company’s assets. GmbHs are regulated by the law on limited
liability companies (GmbH) and more generally, by the commercial code (HGB).

4. Stock Companies (AG)
Founders of a stock company provide the initial capital. In exchange, they get a corresponding
number of stocks, entitling them to a certain portion of the company. The founders usually hold
51% of the stocks to guarantee decision-making power for themselves. AGs are regulated by the
stock companies law (AktG) and more generally, by the Commercial Code.

5. Other Types of Organizations
Political Parties are regulated separately from other associations in section 21 of the German
Constitution. Their legal status is controversial. Some say that they are not associations at all. The
prevailing opinion considers political parties to be unregistered associations, such as trade unions,
so that they don’t have legal status as juridical persons. However, political parties are not
considered part of the TSO sector.
Germany has a huge number of umbrella organizations that follow TSO issues. The most
important are the “Big Five” so called “Wohlfahrtsverbaende” – Welfare Associations (Caritas,
Diakonie, Rotes Kreuz, Arbeiterwohlfahrt, Deutscher Paritaetischer Wohlfahrtsverband). They
negotiate with state officials in order to write contracts that are binding for the state as well as for
the associations and umbrella organizations. Further, these umbrella organizations receive
financial contributions of which they distribute to their members.

D. Purposes of TSOs
German law provides a wide range of freedom for TSO activities. In order to receive tax
concessions TSOs have to pursue charitable purposes, purposes of public benefit, or aim for the

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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de promotion of religious entities considered to be legal entities under public law.
Charitable purposes are those that support people who are:
· due to their psychological or psychical condition, dependent on the help of
others; or
· economically needy.
Economically needy people are those whose income is not higher than four times the amount of
public relief. This principle cannot be applied to people with assets that could be used to amend
their subsistence. They are not considered economically needy as long as their fortunes have not
been compensated.
Activities that are considered charitable are for example :
· charitable homes;
· telephone care of souls;
· care for handicapped;
· care for people with cancer, mental diseases or HIV;
· women’s refuges;
· homeless shelters; and
· public nutrition centers.

Public benefit purposes are those that support:
· science and research;
· education and formation;
· art and culture;
· religion;
· international understanding;
· (economic) aid to developing countries;
· the protection of the environment, landscape and monuments;
· German “Heimatgedanke” (a specific form of patriotism);
· youth;

International Charity Law: Comparative Seminar Germany Country Report – page 6
Beijing, China, October 12-14, 2004
_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de · elderly people;
· the public health system;
· the welfare-system;
· sports;
· the general support of democracy;
· cultivation of plants and breeding animals;
· allotment gardener;
· traditional customs including, Carnival, Shrove Thursday and Shrove-tide;
· care for soldiers and reserves;
· radio amateurs;
· activities with model airplanes; and
· dog sports.
In some cases, charitable and public benefit purposes appear to be identical, but the distinction is
that persons who donate money to organizations with charitable purposes, can deduct 5 to 10% of
their contributions, which form the bulk of the revenues. In addition, members of charitable
organizations can deduct their membership fees.
Purposes that promote the religious entities are:
· the building, decoration and maintenance of churches and parish houses;
· the execution of divine services;
· the training of clergymen;
· the execution of religious instruction;
· funerals and the care of cemeteries;
· the management of the church’s assets;
· the payment of clergymen and employees;
· the provision for their old-age and handicap pension; and
· the provision for their widows and orphans.
In order to receive tax concessions, registered associations, foundations, AGs and GmbHs must
exclusively establish for purposes like those mentioned above.

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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de E. Registration or Incorporation Requirements
The registration requirements differ according to the type of legal entity used for the creation of the
TSO.

1. Associations
In order to get registered, associations must not have the purpose to pursue business operations
and must have at least seven members, natural or non natural, domestic or foreign. These
members will elect a board that may contain several members, but according to the law, only one
person is required.
A statute must be written, stating the mission, name, location where the association will be
headquartered, and an acknowledgement that the association will apply for registration. In addition,
the statute may contain provisions regarding membership, membership fees, formation of the
board, procedures for convening the general assembly, and the required majorities for the
assembly and the board in their decision-making processes. The statute must be signed by at least
seven members.
The board applies for registration in court by presenting the original statute, a copy of the statute,
and a copy verifying the minutes of the founders’ first meeting. The registration application should
also contain information on the association’s name, place of residence, the day of the statute’s
formation, and the names of the board members. In addition, the application should state how each
board member might represent the association in outside relations.
Once the court accepts the registration application, the letters “e.V.”, which stands for registered
association, are added to the association’s name. The association will then be added to the
register of associations by the court.
Registration may be rejected if the registering court holds that the papers presented are not
sufficient according to the law. The court must provide a substantive reason for rejection, which
can only be based on formality questions, for reasons of illegal purpose or public safety or if the
association’s purposes are considered as economic. The association has the right to appeal
against the rejection.

International Charity Law: Comparative Seminar Germany Country Report – page 8
Beijing, China, October 12-14, 2004
_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de When a board changes, registration of the new board is required. In addition, foreign and non-
natural persons can be founders and members, and are equal to natural German members
regarding their institutional rights.

There is no capital required for associations, even though it may be recommended. Registration
fees depend on the actual value of the association. At a value of € 3000 i.e. , the registration fee
will be € 52.

For unregistered associations, there is no control by the state during the establishment process. It
is sufficient to follow normal procedures (i.e. creating a board, writing a statute, etc.) in order to
become an unregistered association. Consequently, however, unregistered associations don’t
obtain legal entity status. For that reason, most TSOs organize themselves as registered
associations. Registration, however, is not required.
Associations that are composed by only or mainly foreign members can be established, but are
under specific regulation that provides easier methods for interdiction.

2. Foundations
Foundation are formed by the endowment and the official admission by the competent state
authority in the state where the foundation wants to have its seat.
The endowment has to include the binding declaration by the founder that he devotes a certain
asset to the completion of a specific purpose.
The founder has to draw up the foundation’s statutes that have to include provisions on the name
of the foundation, its seat, its purpose, its asset and the formation of the board.
The competent state authority has to recognize the foundation as a legal person, if the legal
requirements are met, the purpose can be pursued permanently and the purpose does not
endanger the common welfare.
Even though the law states no minimum capital the asset have to be adequate in order to pursue
the objectives determined by the founder. In practice the authorities require an asset value of at

International Charity Law: Comparative Seminar Germany Country Report – page 9
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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de least € 50.000. The assets can consist of any item of value yields profits and need not necessarily
consist of money.
State officials’ rejection of admission must be given for substantial reasons. Once a rejection has
been issued, the foundation is given time to amend the papers that were considered insufficient.
The foundation may also appeal against the decision.
Registration fees depend on the foundations’ assets.
For non-registered foundations, see below.

3. Limited Liability Companies (GmbH)
To establish a GmbH only one founder is required. The founder may also be a foreigner or a non-
natural person. A founding document must be written by the founder(s). If there are several
founders, they all have to agree and sign the founding document before a notary public in order to
establish the company. The document must include the name, location, purpose, amount of initial
capital, and the amount each partner contributed.
The liability capital must be at least € 25,000. If there are several founders, each one has to give at
least one-quarter of his investment to get the company registered. The smallest amount that is
required by each founder is € 100. If the company should be limited in time or if the partners should
have other duties apart of their investments, it must be stated in the statutes as well. The capital
may also be composed of items of value.
The company’s governing instrument must be certified by a notary public and filed with the
Commerce Register after handing it to the district court located in the district where the company is
seated.
The fees needed for the creation of a GmbH are calculated according to the cost regulation
(KostO). They vary depending on the value of the GmbH, the number of purposes etc. However,
the statutes may foresee, that all creation costs will be taken over by the company itself once
established. In order to do so, the contract must provide the maximum amount that will be
overtaken. Usually, for companies with an initial capital of € 25.000 creation costs will be about €
1.500.

International Charity Law: Comparative Seminar Germany Country Report – page 10
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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 4. Stock Companies (AG)
AGs share similar requirements as GmbHs for establishment procedures. At least one founder,
natural or non-natural, foreign or domestic, shall create a founding document and sign it before a
notary public. The statute must state the name, location, purpose, amount of base capital, the type
of stock that is distributed, whether the stocks are to be issued to the owner or to a name, the
requisite number of board members, and the rules as to how that number is determined. Another
document must be signed by the notary public which includes the founders’ names, the type of
distributed stocks, and the amount of base capital.
The base capital must be at least € 50,000. The registering procedure is the same as for GmbHs.
The court reviews the application for conformity to procedures. If the information given by the
companies is incorrect or insufficient, the court may reject the registration. An appeal is permitted.
The registration application consists of the name, location, purpose, amount of initial capital, the
day of the statute’s establishment, and the board members’ names. If there are special provisions
regarding the period of existence or capital, they must be stated in the application as well.
The remarks made concerning the creation costs of a GmbH are in general also true for the
creation of an AG.

F. Charitable Organization Register
Currently, there is not a register that contains information on all the TSOs operating in Germany.
Registered associations are entered into the association’s register, commercial entities into the
Commerce Register. The registers are maintained by the district courts. There is no national
association’s register or Commerce Register serving the entire Republic.
Foundations are registered by the Ministries of Justice. There is no central register for foundations.
Regulations concerning the register are within the competence of the Laender.
The registers consist of applications and documents submitted during the registration procedures.
They are open to public.

International Charity Law: Comparative Seminar Germany Country Report – page 11
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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de Republic wide registers exist only in hands of private organizations. For example the German
Association of Foundations disposes of an index of foundations in Germany,

G. General Powers
TSOs that have legal entity status may exercise all general rights and powers of juridical persons
such as ownership of real property or entering into contracts. In addition, they can sue or can be
sued.
Any prohibition of TSOs is regulated in the Constitution and in a separate law that is extended to
the other juridical persons. A TSO may not pursue purposes or exercise activities that are in
contradiction with the criminal law, that are directed against the constitutional order or that are
against the idea of international understanding. In such instances, the state has the duty to
dissolve the TSO.
In addition, TSOs that consist mainly or exclusively of foreign members or exercise political
activities may be prohibited if the interior or exterior state security or the public order or other
important issues of the German nation or one of its Laender are threatened or violated.
In order to avoid prohibition of the TSO itself, officials in charge may reduce the prohibition to the
execution of certain activities or to certain persons working for the TSO.

H. Membership Organizations
According to German law, only registered associations are considered legal persons among
membership organizations. Civil law societies and unregistered associations may exist, but they
are not legal entities and thus have limited legal capacity.
Usually membership within associations starts with the entry and is terminated upon death,
exclusion or resignation of the member. There is no right to become a member of an association,

International Charity Law: Comparative Seminar Germany Country Report – page 12
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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de whereas the law provides every member with the right to leave the association. All procedures
have to be in accordance with the association’s statutes.

III. GOVERNANCE
Associations must have a general assembly and a board of directors elected by the assembly.
Provisions affecting these two organs must be included in the statute. Internally, these provisions
have the quality of binding rules.
The assembly should meet at least once a year. Democratic principles must be applied in its
decision-making process. Additional provisions must be stated in the statute.
The board is the legal agent of the association. It represents the association in and out of court.

For a foundation, a board of directors is required. It has the same function as the board of an
association.

The share-holders that establish a GmbH must elect a managing director to lead the GmbH and
represent it in external relations determined by the share-holders. The assembly supervises the
activities of the managing director and is empowered to dismiss him or her. The assembly’s rights
and duties and those of the managing director may be specified within the statute if it is not
considered an imperative provision.

The general assembly of the AG, where all stockholders gather, elects a supervisory board. The
election power is related to the number of stocks that is held by the voting person. This supervisory
board appoints the members of the executive board. The supervising board has the task to control
the executive board. The general assembly must meet at least once a year.

IV. DISSOLUTION, WINDING UP, AND LIQUIDATION OF ASSETS
The dissolution of an association may be decided by the general assembly or may occur at the end
of the period for which the association was established. Dissolution may also be initiated by the

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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de state if less than three members are left. If the association is dissolved, the legal agent(s) must
inform state officials of the event. If it is dissolved by the state, it can no longer continue with its
activities. When an association is dissolved because of illegal activity prohibited under law, the
highest Laender office or the Ministry of Interior of the Bund exercises full authority. In such
instance, the Laender or the Ministry of Interior of the Bund will confiscate the association’s assets.
If an association declares bankruptcy, the organization will be removed from the register.
A GmbH and an AG can be dissolved by the decision of the shareholders or in case of insolvency.

Regardless of the reasons for dissolution of tax exempted organizations, their assets must be
distributed to other not-for-profit organizations. Distribution may also be made in favour of public
legal persons. The recipient must use the assets for public benefit purposes. If not, state officials
will recall the organization’s tax exemption retroactively for ten years. In this light, when an
association seeks tax exemption, the statute must contain provisions on how the assets should be
distributed in cases of dissolution.
If a GmbH or an AG is dissolved, only the assets that were contributed from each share-holder
shall be redistributed. A founder of a foundation cannot receive back the endowment he
contributed.

V. REGULATION
Generally, tax authorities supervise the expenses made by the TSOs with regard to conformity to
their purposes when annual tax reports are handed in. If TSOs fail to hand in their reports, they risk
losing their tax benefits. If non-fiscal infringement is detected, the report is handed to the Ministry
of Internal Affairs of the Land or the Bund. The Ministry is empowered to restrict or even dissolve
the association if necessary.
In addition to tax control for foundations, there is a supervisory body in each Land that is supposed
to guarantee the execution of the founder’s will. The provisions concerning this regulation are laid
down in Laender law, so they may differ from Land to Land. The regulation is primarily directed to
the registration procedures and to the further supervision of activities executed by the foundation in

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_____________________________________________________________________________________________________
C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de conformity with the founder’s will and with the law in general. Foundations are often under less
significant control if the state officials consider the internal supervision to be effective and sufficient.
Tax reports are generally considered to be private, protected by the Constitution, thus the public is
not authorized to access these reports.

VI. FOREIGN ORGANIZATIONS
A. Registration
In order to register, foreign organizations must fulfil the same requirements as domestic German
organizations. Foreign associations or associations that consist mainly or exclusively of foreign
members, are prohibited from engaging in political activities whereas domestic organizations are
simply restricted from such activities. The dissolution of these associations is made easier in
sense that the law foresees additional circumstances in which the dissolution may be enforced.
The provisions are not applicable to associations that have their seat in the EU or that consist
mainly or exclusively of EU-citizens. These associations have to be treated equally to German
associations.

B. Foreign Grants
There are no special provisions concerning foreign grants. They are treated like those from
domestic donors.

VII. MISCELLANEOUS
Mergers of TSOs are generally permitted. In a merger, an TSO dissolves and its assets as well as
their members, if there are, merge with those of another TSO to form a new TSO.
In membership organizations, the members must agree to the merger. Members of the transferring
organization are guaranteed the same rights as the members of the receiving one. If the statute
already provides rules on merger, the rules should be applied. Under the law, the decision to
merge must be supported by at least three-quarters of the members. If, due to the merger, the

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de purpose changes, all the members have to agree to the changes. The merger must by verified by a
notary public and the board of the receiving TSO applies for registration.

Restrictions for the investment of TSOs abroad do not exist. TSOs may invest if it is considered
necessary to fulfil statutory purposes. In addition, TSOs will not lose their tax exemptions if they
invest parts of their property for asset management.
Besides lobbying, campaigning, and political education, TSOs may neither engage in direct
political activities nor raise money or divert money for political parties. However, TSOs may
assume a position on a political issue or be close to political parties.

VIII. TAX LAWS
As stated before, all the different types of TSOs are ruled by the same regulations for tax
exemptions.

A. Tax Concessions
Tax concessions for TSOs are granted if they pursue the purposes mentioned above, regardless of
the type of organization, provided the organisation falls under the Corporation Tax Act.

1. Forms of tax
German tax legislation comprises a wide range of different tax forms. In the present context,
however, only corporation income tax, commercial earnings tax and turnover tax (VAT) are of
interest.

1.1 Corporation income tax
Corporation income tax is one of the forms of tax on gains, and is levied on the profits of a
corporation. The rate of tax comes to 26.5%. Associations benefit from a tax-free amount of €
3835. Profits in one business year may be set off against losses in the previous year or
subsequent years.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 1.2 Commercial earnings tax
Commercial earnings tax is likewise levied on profits. It is a municipal tax. Consequently the rate of
tax varies between the various municipalities of the federal state. The rate of tax ranges between
0% and 20%. In respect of commercial earnings tax as well, associations benefit from a tax-free
amount of € 3835. Losses may only be set off against profits from subsequent years. Commercial
earnings tax is accounted a business expense, and reduces the net profit assessed by corporation
tax and commercial earnings tax itself.

1.3 Turnover tax / VAT
The regular rate of turnover tax / VAT comes to 16%. For some specific products (foodstuffs,
books etc.) and services (local transport services, theatre and concert functions etc.) a tax rate of
7% applies. A whole range of services is exempt from turnover tax / VAT. This applies above all to
services in the fields where organisations of the Third Sector are active (education, health, culture).

2. Tax privileges
Alongside the laws governing the various individual forms of tax – the Income Tax Act
[Einkommensteuergesetz], Corporation Tax Act [Koerperschaftsteuergesetz], Turnover Tax / VAT
Act [Umsatzsteuergesetz] etc.) and the code of proceedings for fiscal courts, German law includes
a special tax statute of general application, the Fiscal Code [Abgabenordnung]. In the Fiscal Code
the basic concepts for tax purposes are defined (tax, assessment, residence, business premises
etc.), the responsibility of the tax authorities and the obligations of persons liable for tax and their
representatives are laid down, the procedures for the levying of tax and for compulsory
enforcement are described and the prescriptions for tax penalties and fines are set forth. A
separate section of the Fiscal Code is dedicated to “tax-privileged objectives”. This section
contains 19 paragraphs (§§ 51 to 68), and describes the fundamental rules governing tax privilege.
The specific effects of tax privilege, on the other hand, are described in the individual tax laws. In
the following account, the fundamental principles of tax privilege and their specific effects in tax
terms will be dealt with in an integrated manner.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 2.1 Tax-privileged objectives
In accordance with German tax legislation, only corporations that come under the Corporation Tax
Law and are based within Germany may claim tax privileges (there is an upcoming discussion,
whether this conflicts with EU regulations to secure competition among EU based enterprises).
This has two important consequences: first of all, unincorporated firms do not qualify for tax
privileges, and secondly, all of those corporations that come under the Corporation Tax Law – the
association (registered or not), the company with limited liability, the public limited company, the
foundation (registered or not) and the cooperative society – do so qualify. The crucial factor in the
first instance is that these corporations should pursue objectives that are of benefit to the
community, or charitable or church-related objectives as defined by the Fiscal Code.

2.1.1 Objectives of benefit to the community
A corporation is regarded as pursuing objectives of benefit to the community if in the material,
intellectual or moral sphere it acts disinterestedly to promote the good of the general public. As
special examples of objectives of benefit to the community, the Fiscal Code mentions
– the promotion of science and research, education and training, art and culture, religion, good
understanding between nations, development aid, environmental conservation and the
preservation of the national heritage.
– the promotion of juvenile welfare, help for the aged, public health, social welfare and sport
– the general promotion of democratic political institutions in the Federal Republic of Germany
– the promotion of animal and plant breeding, of the Carnival, of amateur radio and model
aeroplanes.

2.1.2 Charitable objectives
A corporation is considered to pursue charitable objectives, if its activity is directed to the
disinterested support of persons
– who in view of their physical, mental or emotional state are dependent on the help of others, or

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de – whose earnings do not come to more than four times the regular rate of social security benefit
and who own no assets that may be used to support them.

2.1.3 Church-related objectives
A corporation is considered to pursue church-related objectives if its activity is directed to the
disinterested support of a religious community provided that this community is a corporation under
public law. To church-related objectives belong, for example, the building and maintenance of
churches, the giving of religious instruction, the management of church assets, funeral services
and the care of funerary monuments.

2.2 Disinterestedness
Corporations that qualify for tax privileges are subject to the requirement of disinterestedness.
They
– may not pursue, as a prime aim, objectives tending to their own profit
– may use their resources only for objectives in keeping with their articles of association
– may not pay out any profits
– may not pay disproportionally high salaries
– must make use of their resources early, e.g. within a limited period of time (within the year
following on the inflow of the resources).

Shareholders of joint-stock companies that enjoy tax privilege, and members of other tax-
privileged corporations, may not, when they leave or when the corporation is dissolved, receive
more than the capital share that they have paid into it.
On the dissolution of the corporation, or if the objectives on which its tax privileges are based
cease to exist, its assets, in so far as they exceed the sum of the capital shares paid into it, may
only be used for tax-privileged objectives. The assets may, to this end, be bestowed on another
tax-privileged corporation, which in turn must make use of it for tax-privileged objectives.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de If the restrictions on the assets of the tax-privileged corporation that have just been
described are not plainly established in its articles of association, no tax privileges will be granted.
If the relevant stipulations in the articles of association are revoked or modified in such a way that
the required restrictions on corporate assets are no longer found, then they are regarded as having
been absent from the beginning, with the consequence that tax privileges for ten years will be
revoked, with retrospective effect. The consequence is the same if the corporation fails, in the
course of its practical business activities, to adhere to the restriction on corporate assets that has
been established in its articles of association.

2.3 Exclusivity and immediacy
The tax-privileged corporation must, in keeping with its articles of association, pursue tax-privileged
objectives exclusively, and must fulfil these objectives in an immediate way. This means that the
corporation’s articles of association may not include any other non-tax-privileged objectives
alongside the objectives that qualify for tax privilege, and the corporation may not promote its
objectives merely in an indirect manner, but must do this directly and in an immediate way. An
exception to the requirement of immediacy is found in the “promotion societies”, the objective of
which may consist in supporting another tax-privileged corporation in a material or non-material
sense. Foundations are likewise allowed to carry out their activities as a promotional foundation
without themselves being active.

2.4 Formation of reserves
Tax-privileged corporations may form reserves if these reserves are needed in order to put the
corporation in a future position where it will be able to pursue its objectives in keeping with the
terms of its articles of association. The reserves must be tied to a specific objective (purchase of a
building for purposes to do with the corporation’s objectives, financing of investments and projects
etc.).

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de Tax-privileged corporations may also form “free reserves”. These reserves are free in that sense,
that they are not necessarily to bee spent within a certain time period, but can be kept until the
dissolution of the corporation. Whenever they are spent, however, they have to spent in
accordance with the statutes of the corporation. Free reserves may only be used for the
strengthening of the assets of the corporation, and are not subject to the requirement of short-term
application of resources. The formation of free reserves is limited, however. In a single year
– a third of the surplus derived from the management of assets
– and 10% of the other resources that are to be used in the short term
may be put into a free reserve fund.

C. Donations and Sponsoring
At the present time, when financial resources from governmental sources are being cut back, tax-
privileged organisations are increasingly coming to depend on private resources for the financing
of their activities. Fiscal encouragement of private donations is therefore of great significance for
the development capacity of the entire sector of tax-privileged corporations. In the German system
of income tax, corporation tax and commercial earnings tax, donations reduce the taxable income
only to a limited extent.
At present the following regulations apply:
– in the case of donations for church-related, religious, scientific and charitable objectives and
objectives especially deserving of support that benefit the community, a proportion of up to 5%
of the total amount of taxable income, or 2% of the sum deriving from turnover and personnel
costs, may be claimed as tax-exempt
– in the case of donations for charitable and scientific objectives and cultural objectives that are
especially deserving of support, this amount is increased by another 5% of the total amount of
taxable income
– individual donations of € 25,565 and over may be spread out for tax purposes over a period of
seven years

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de – in the case of donations to tax-privileged foundations, up to € 20,450 may be deducted from
tax
– in addition to the possibilities of tax reduction just mentioned, in the case of donations that are
paid into the assets of a foundation on the occasion of its being set up, up to
– € 307,000 may be claimed as tax-exempt income; the amount may be spread out over a
period of ten years.

By contrast with donations, where it is a condition that the recipient of the donation should not
supply any service to the donor in exchange, in the case of sponsoring we always find an
exchange of services: the sponsor pays for a service that he receives. For the sponsor it is a case
of business expenses. This is in the interest of the sponsor, seeing that the business expense is
not taken into account, for taxation purposes, only to a limited extent – as is the case with the
donation – but to the full amount.
For a tax-privileged corporation, in connection with a sponsoring relationship, various different
forms of income may be found:
– If the tax-privileged corporation supplies the sponsor with a service in the form of promotion,
then we have a taxable profit-making business operation. In this case a profit totalling an
overall of 15% of the sponsoring sum will be assessed. This is liable for both corporation and
commercial earnings tax. In addition, VAT at the regular rate (currently 16%) will be payable.
If the sponsor pays the tax-privileged corporation in recognition of his being entitled to use its name
and/or logo, then the relevant income of the tax-privileged corporation is allocated to assets
management. There is no liability for corporation tax or commercial earnings tax, and with VAT the
reduced rate will be applied. With the objective of transforming taxable income from promotion into
tax-privileged income from asset management, the tax-privileged corporation may, for a fee,
transfer the tax-privileged promotional rights to an advertising agency as an intermediary. The
agency will then, in its own name and at its own risk, conclude contracts with the individual
companies involved. They tax-privileged corporation will charge the company for the transfer of

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de rights and receive tax-privileged royalties, while the same royalties will reduce the taxable income
of the company as expenses.

D. Commercial Activities
Tax-privileged corporations finance their activities from a range of different sources. Depending on
the legal form, they may have recourse to members’ contributions, donations, subsidies or yields
on assets. With the development of Third Sector organisations into service suppliers in the social
and cultural spheres, remuneration for services rendered has also become an important source of
income for tax-privileged corporations. The following diagram shows the distinctions between the
various forms of income of tax-privileged corporations, in accordance with tax categories:

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de

Association / foundation / cooperative society
Private limited company (GmbH)
Public limited company (AG)

(being engaged in commercial operations, the private
company with limited liability and the public limited company
do not have any non-material areas of activity)

non-entrepreneurial entrepreneurial area
area

Non-material Management of Profit-making
area assets business
operations

– Contribution – Interest Proceeds
– Donations – Income from on turnover
– Subsidies rented property
– Income from
leased property
– royalties

Objective-
related Tax-liable profit-
operations making business
operations

tax-privileged area non-tax-privileged
area

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 1. Areas of activity of tax-privileged corporations
1.1 The non-material area (ideeller Bereich):
Here the tax-privileged corporation is active in keeping with the objectives set down in its articles of
association, and does not supply any services against payment. It receives members’
contributions, donations and subsidies, which it spends in the fulfilment of its constitutional
objectives. For associations this is the area which may be represented through a simple
accounting of income against expenditure.

1.2 Asset management (Vermoegensverwaltung)
n the context of asset management, the tax-privileged corporation receives interest which is
exempt from income tax, as well as profits on rented and leased property (immovable assets). In
so far as in the context of sponsoring it exploits rights in the use of its own name, it receives
income from licences (royalties), which is likewise exempt from income tax. Seen from the point of
view of turnover tax / VAT, the corporation is active in an entrepreneurial way in the context of its
asset management. In so far as its performances here are not exempt from turnover tax / VAT, the
reduced turnover tax rate falls due which at present comes to 7%. This applies, for example, to
profits from licences.

2. Profit-making business operations (wirtschaftlicher Geschaeftsbetrieb)
In the context of their profit-making business operations, tax-privileged corporations obtain
payment (turnover) for the services they supply. Through their profit-making business operations
they participate in the events of the market, and stand in a competitive relation to non-tax-
privileged market principals. The tax treatment of the profit-making business operations of tax-
privileged corporations depends on the question whether the given profit-making business
operation can be seen as an “objective-related operation” or not. Objective-related operations are
privileged, both for income tax and for VAT purposes. Profit-making business operations that are
not objective-related operations will be subject to tax as non-tax-privileged enterprises.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de 3. Objective-related operations (Zweckbetrieb)
In § 65 of the Fiscal Code there is a formulation of the requirements that must be found if an
activity is to be seen as an objective-related operation. The profit-making activity must in its every
aspect support the corporation’s objective as expressed in its articles of association, its profit-
making business operations must be necessary for the fulfilment of its constitutional objectives and
may stand in a competitive relation to non-tax-privileged companies only to the extent that this is
unavoidable for the fulfilment of its constitutional objectives. On account of the difficulty of
discriminating between objective-related operations and profit-making business operations, there
are frequent confrontations on this head between the corporations established for purposes of
benefiting the community and the tax authorities.

Objective-related operations are, for example:
a) the cultural function of an arts society for which an entrance fee is charged
b) the workshop of a society for the promotion of professional training for which attendance fees
are charged
c) the help and counselling given to young people for which the Jugendhilfe GmbH [Juvenile
Welfare Co. Ltd.] of the municipal juvenile welfare authority makes charges (cost unit rates):
such operations may not be financed through subsidies, as the individual young person has a
statutory or legal claim on assistance, and the municipal juvenile welfare authority has
commissioned the Jugendhilfe GmbH of our example to give counselling)
d) the restaurant of a society that looks after the interests of people suffering from mental illness,
if the restaurant is only operated for the purpose of giving the society’s clients an opportunity of
work for therapeutic ends.

In its objective-related operations, the tax-privileged corporation is not subject to corporation tax or
commercial earnings tax. For profits achieved in the context of objective-related operations,
therefore, no tax is payable. With VAT the reduced rate applies. Some objective-related operations
are completely exempt from VAT (educational functions, objective-related operations of welfare

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fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de syndicates and their member organisations, if their services are supplied at a lower charge, than
those supplied by non-tax-privileged providers).

4. Taxable profit-making business operations
With its profit-making business operations that are non-objective-related, tax-privileged
corporations as well are subject to corporation and commercial earnings tax. With VAT the current
regular rate of tax applies. Examples here are too numerous to be classified: the bar of a sports
club, the provision of rental cars, the drawing up of expert reports, the holding of bazaars and
lotteries. The following points, however, should be noted:
a) if the income from taxable profit-making business operations does not exceed € 30,678, no
corporation or commercial earnings tax will be levied.
b) for associations, cooperative societies and foundations, independently of their tax privileges
and only on the basis of their legal form (in that they are not joint-stock companies), an exempt
amount of € 3835 deductible from profits earned is allowed for corporation and commercial
earnings tax.

5. Subsidiary companies of corporations that benefit the community
Tax-privileged corporations may also have a participating interest in joint-stock companies. This
also applies in cases where these joint-stock companies are not tax-privileged. The participating
share in the company is allocated to asset management, provided that the tax-privileged parent
company doesn’t exert a determining influence on its concrete business decisions. The foundation
of subsidiary companies is always a sensible move for an association if in the context of objective-
related operations its constitutional activities have attained a bulk that is too large for the structure
of the association to handle (the subsidiary company will then likewise be founded as a tax-
privileged company), or if taxable activities, in view of their extent, threaten its tax privileges. In this
case the bar of a sports company, for example, may be managed by the subsidiary company.

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de In the foundation of subsidiary companies it is a question of the greatest importance where the tax-
privileged parent company has obtained the resources for the formation of the capital of the
subsidiary company. The tax-privileged corporation may only use its own resources for the
formation of capital if these have already been put into a free reserve fund. This point is not all
cases viewed too strictly by the tax authorities, but always would be in a case where the company
being founded was not tax-privileged.

E. Reporting
Tax exempted TSOs have to periodically report their activities to the tax authorities. Every three
years, the tax authorities reviews the tax exemption. Narrative and written financial reports are
required. Rules for reporting contributions to TSOs do not exist.
In Germany the responsible tax authority is solely responsible for the concession and control of tax
privileges. There is no separate procedure in German tax legislation for the establishment of a right
to tax privileges. The right to privileged treatment will be established in the context of regular tax
assessment: in place of a tax assessment for corporation and commercial earnings tax, the tax-
privileged corporation will receive a “notification of exemption”. This notification exempts the
corporation from the taxes which would fall due. If the corporation is also liable for corporation and
commercial earnings tax in view of its taxable business operations, it will receive the usual tax
assessment along with an annex stating that in other respects it is exempt from these taxes.
As tax demands can only be remitted for trading years that have expired, the tax privilege in
consequence will in all cases only be granted with retrospective application. For the first, and
generally also for the second trading year, the corporation will receive a “provisional certificate”.
This establishes only the fact that the corporation is pursuing tax-privileged objectives in
accordance with its articles of association, and that it is entitled to make out donation certificates
with effect on its tax liability.

Tax-privileged corporations are obliged to draw up statements of their end-of-year accounts. The
form of these accounts is based on the legal form of the corporation. In addition to these accounts,

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de tax-privileged corporations are obliged to submit reports on their activities for each trading year,
from which it may be seen in what ways the corporation has attained its constitutional objectives.
To make matters easier for tax-privileged corporations, an assessment of tax liability (or possible
exemption) is made for such corporations as a rule only at intervals of three years. In view of the
risks to which commercially active tax-privileged corporations are exposed, however, they will
certainly endeavour to submit annual tax statements and thus receive annual notifications of
exemption as well.
In the context of the tax assessment period (four years), fiscal auditing may be carried out by the
tax authority, in the course of which the conditions for the concession of tax privilege will again be
checked. It may be a result of such audits that the tax assessment will be changed to the
disadvantage of the tax-privileged corporation, and even that the tax privileges for the auditing
period will be revoked with retrospective effect.

Foundations are subject to separate rules because of their endowments, which are under control
by both tax authorities and their supervisors. In addition, foundations must present an annual
financial work plan detailing their future activities.

F. Miscellaneous
According to German regulations law, it is not allowed, that the expenses of the TSOs
administration including the fundraising activities exceed a reasonable level. The evaluation will be
made by comparison of the expenses and the income and depends on the individual case.
But, however, according to the relevant application decree the level is exceeded when the a TSO,
widely financed by donations, uses its assets predominantly for administrative costs and not for the
realization of the tax benefited statutory purposes.
Exceptions are made if the TSO is still in the building phase.

Special accounting rules exist only for associations. If an association’s income does not exceed a
certain limit and if it does not engage in commercial activities, the association need only account

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de for their receipts and expenditures. All other forms of TSOs have to present their reports in the
form of a balance sheet.

IX. COMPLIANCE
TSOs that violate the law may be punished by the competent authorities. A violations of the
criminal law provisions or the Constitutional order may lead to the confiscation of the TSO’s assets.

X. GOVERNMENT FUNDING
TSOs are permitted to compete for government funds in free and open competitions for which
there are bidding rules. They can also seek access to government funds through unsolicited
proposals for grants and contracts. In addition, the government permits TSOs to bid to become
recipients of certain assets the organization seeks in order to privatize, recognizing that support
can be given to private organizations. Government assets and funding do not wind up
disproportionately among TSOs formed or controlled by the government or particular officials, e.g.,
QUATSOs–quasi-TSOs, or GOTSOs–government organized TSOs.

XI. PRIVATIZATION
Labour market policies have lead to a privatization by outsourcing governmental institutions into
private membership organizations.

XII. CONCLUSIONS
The majority of Third Sector organisations in Germany are tax-privileged and endeavour to
continue to conform to the criteria that will enable them to retain their privileges. With the shift in
the basis for financing, especially for organisations of the cultural and social sector, the position of
these Third Sector organisations in relation to tax privileges is likewise changing. The withdrawal of
the government from the financing of cultural projects and the diminishing governmental subsidies
for social work projects has forced many organisations into a cooperative partnership with
commercial companies that see the sponsoring of culture and social causes as a new opportunity

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C.O.X. Steuerberatungsgesellschaft und Treuhandgesellschaft mbH l Brachvogelstraße 1 l 10961 Berlin-Kreuzberg
fon: 030 690 385 0 l fax: 030 690 385 11 l mail: cox@cox-steuerberatung.de l web: www.cox-steuerberatung.de for communicating with and acquiring customers. A partnership with commercial companies,
however, is only possible for tax-privileged corporations to a limited extent, if their tax privilege
itself is not to be endangered. In particular, organisations in the cultural sphere are consequently
more and more inclined either to work in twin structures of tax-privileged and non-tax-privileged
corporations, or else to decide from the very beginning against applying for privileged status. In the
social sector similar tendencies are to be observed at the present time. The future of tax privilege
in Germany will therefore depend on the way in which the conditions for the financing of projects
change in the fields of activity that are relevant for Third Sector organisations. Here the question
occupying the foreground will be whether the extension of the fiscal recognition of donations can
more effectively compensate for the reduction in governmental spending than an increased
cooperation between the organisations of the Third Sector and the commercial sector would be
able to do. It will also be a matter of significance whether cultural and social services especially will
remain on the whole a specific field of activity for tax-privileged organisations, or whether these
fields of activity, in the course of further economies and deregulation measures, will be developed
as regular fields of activity for the private commercial sector.

Berlin, September 2004