The International Journal
of Not-for-Profit Law

Volume 2, Issue 2, December 1999

Australia

In a bid to encourage corporate and personal philanthropy, the Prime Minister, Treasurer and Minister for Family and Community Services announced a package of tax measures. The measures:

grant tax deductions for non-testamentary donations of property worth more than AUD 5,000, regardless of when the property was acquired. This measure does not affect the existing threshold for deduction of property donations under the Cultural Bequest programme, which may be less than AUD 5,000;

exempt outright testamentary gifts of property to certain eligible organizations from capital gains taxation;

create a new category of “private funds” to be included in the list of organizations to whom gifts are tax-deductible; and

provide greater incentive for donations of property made under the Cultural Bequest programme by spreading income tax relief, at the taxpayer’s option, over a period of up to 5 years.

To be eligible for approval, private charitable funds will have to meet all the criteria required to qualify as a public fund, but will not need to raise funds from the public.

It is anticipated that this tax package will specifically encourage donations of valuable works of art to the national and state galleries. These measures were introduced into Parliament on 30 June 1999; if the bill is passed it will have effect for gifts on or after 1 July 1999.

(Joint press release dated 26 March 1999; Taxation Laws Amendment Bill (No. 8) 1999 )

On 8 July 1999 a series of government bills were enacted to introduce a Goods and Services Tax (GST), a form of value added tax, with effect from 1 July 2000. Subject to any amendments arising in the course of the passage of the bills through parliament, the GST implications for non-profit organizations are broadly as follows:

supplies of education, medical and health services, child care, and religious services will be GST-free (zero-rated);

non-commercial activities of charitable organizations will be GST-free if the consideration for the supply is less than 50% of the GST-inclusive market value of the supply;

the commercial activities of charities, including membership fees but excluding donations, will be liable to GST at the standard rate (currently 10%);

sales by a charity of donated second-hand goods will be GST-free;

GST paid by charities on their purchases will be recoverable.

Non-profit organizations, whether or not charitable, will not be required to register for GST until their sales, including membership fees but excluding donations, exceed AUD 100,000 a year. Voluntary registration by organizations with annual sales below the limit is allowed.

(A new tax system (Goods and Services) Act 1999)

China

A. Legal Framework

On 22 July 1999 the Ministry of Civil Affairs issued a decision to the effect that the Research Society of Falun Dafa and the Falun Gong organisations under its control had not been registered as required by the “Regulations on the registration and management of mass organisations” and were therefore banned as illegal organisations with immediate effect. On the same day the Ministry of Public Security issued a notice prohibiting all activities publicising or in support of Falun Gong.

B. Taxation

The Ministry of Finance is in the course of drafting a new law on inheritance tax. It is expected to impose tax at progressive rates on estates exceeding RMB 100,000 (about USD 12,000), and to include an exemption for gifts to science, educational, and other social programs.

(Asia Pulse, 20 October 1999)

Japan

Legal Framework

The Japanese Ministry of Foreign Affairs has launched a study by the International Development Center of Japan, which is entitled: “Comparative studies of NGO support systems in Western countries and Japan.” The aim of the study is to assist the Ministry in determining the appropriate roles and functions of NGOs in providing overseas development assistance (ODA). One crucial aspect of the study will be to look at the enabling legislation for NGOs in the various countries, including the general legal framework, the existence of mechanisms for support of NGOs, such as fiscal incentives, and the legislative environment for NGO-government cooperation with respect to ODA (grant, contract, and other procurement mechanisms). ICNL has been invited to assist with this project and will provide information as needed. For further information about the project, please contact Naoko Horii, Social Development Specialist (hori02@giganet.net) or Kimiko Abe, ODA Policy, Political Scientist (abe01@giganet.net).

Korea

The Corporation Tax Law, which was extensively amended effective 1 January 1999, includes the following change effective for fiscal years beginning on or after 1 January 1999. Donations to certain institutions (such as social welfare, cultural, educational, religious and charitable institutions) are limited to 5% of income for the fiscal year after deducting fully deductible donations and loss carry-forwards.

(Asia-Pacific Tax Bulletin, Vol. 5, No.4 1999)

New Zealand

The Community Trusts Act 1999, which came into force on 21 May 1999, provides for the continued operation of community rusts established under the Trustee Banks Restructuring Act 1988 to acquire the shares in the capital of the successor companies to the former trustee banks. The assets vested in a community trust must be applied for charitable, cultural, philanthropic, recreational and other purposes that are beneficial to the community principally in the area or region of the trust. The purposes of the trusts are deemed to be charitable for all purposes other than tax purposes.

The Incorporated Societies Act 1908 provides that charitable societies must prepare accounts but does not impose any audit requirement. In January 1999 the Institute of Chartered Accountants in New Zealand published guidance on best practice in financial reporting by voluntary organisations.

(Financial reporting by voluntary sector entities, Research Bulletin R-120, reported in Chartered Accountants Journal September 1999)

the Philippines

A bill introduced in the Senate proposes to amend the tax code to reverse the Supreme Court decision in the YMCA case (see Case Notes, in this issue of IJNL) that rental income from real properties owned by nonprofit organisations is not exempt from income tax.

The bill also proposes to exempt donations to NPOs from donor’s tax with the prior approval of the Department of Finance and to exempt imported capital equipment and supplies donated to NPOs from import duties when authorised by the Finance Secretary and the Customs Commissioner.

(Senate Bill 1563 reported in Businessworld (Philippines) 10 May 1999)

Taiwan

A. Legal Framework

On Thursday January 6, 2000, the Himalaya Foundation held a seminar in Taipei to launch its translation in to Chinese of the 1997 Discussion Draft of the World Bank Handbook on Good Practices for Laws Relating to Nongovernmental Organizations. The seminar was intended to be the kick-off of a process that will lead to a study of the current legislation affecting NGOs in Taiwan. It was attended by representatives of NGOs and the government, as well as members of the Legislative Yuan. The Handbook was well-received and will provide an excellent stimulus for an online discussion of the principles underlying a good enabling environment in which NGOs can grow and thrive.

The seminar was chaired by Mr. S. Gong, the Executive Director of the Foundation, and Prof. Hsin-Huang Michael Hsiao, Professor of Sociology at National Taiwan University. Prof. Hsaio and Prof. Joyce Yen Feng, Professor of Sociology at National Taiwan University, shared the podium with Dr. Leon Irish and Professor Karla Simon of the International Center for Not-for-Profit Law, which had developed the Handbook under the direction of the World Bank. A lively discussion was held, including statements from many of the participants, as well as questions from the floor. The discussion pointed to the many deficiencies in the current legal framework for NGOs in Taiwan.

The Himalaya Foundation intends to launch an online discussion of the Handbook on its web site, which will occur over the course of the next 6 to 8 months. A further face-to-face discussion will be scheduled at some future time. Input into the discussion is being invited by all who are interested. It is expected that the series will conclude with concrete recommendations for legislative reforms.

The Handbook was translated by Randy G. C. Tsai, an associate in the Taipei law firm of Tsar and Tsai. It was edited by Profs. Feng and Hsaio. The World Bank and ICNL are extremely grateful to the Himalaya Foundation for funding and overseeing the translation of the Handbook.

For further information about the seminar and the ongoing discussion, please contact Andy Kao, Assistant Executive Director of the Foundation at hmfdtion@ms24.hinet.net. The Handbook is available on the Himalya Foundation web site at www.tpic.org.tw and will shortly be available on the ICNL site as well.

The Himalaya Foundation also intends to publish a Chinese language glossary of frequently used terminology affecting NGOs and civil society. Please contact Andy Kao for further information about the publication date.

Vietnam

In October 1999 the Ministry of Finance decided to impose VAT on goods used for ODA-funded projects in order to provide a level playing field between domestically funded and ODA-funded projects. Japan has claimed that this decision is in breach of an exemption provided in an agreement between the two countries, and has delayed the planned signature of new aid initiatives in protest. The Ministry of Finance has indicated that ODA-funded projects and those financed by non-refundable aid will be compensated from the state budget, i.e. VAT will be charged but a corresponding rebate can be claimed from the government.

(Vietnam Investment Review, 18 & 25 October and 1 November 1999)