Public Benefit Organizations in Hungary Nilda Bullain European Center for Not-for-Profit Law (ECNL)

Overview PBO Law – when, why? PBO criteria PBO benefits Decision-making Impact?

PBO Law Adopted in 1997 Governmental initiative – liberal coalition party Experts involved, NGOs consulted Aim: to provide for greater accountability in the sector and to create the opportunity for private support of NGOs Taxation status harmonization also important

PBO criteria PBOs can be all nonprofit organizational forms existing in Hungary Associations (not parties, trade unions and employers’ associations) Foundations Public foundations Public benefit companies Public associations (e.g. chambers) if the establishing law allows National sports federations

PBO criteria Should conduct public benefit activities (PBA). Should provide services beyond membership. If it engages in economic activities, those should be related to PBA and should not jeopardize PBA. Its profits should support the PBA and should not be distributed. Does not conduct direct political activities, is independent from political parties and does not support such. All of this should be included in the founding statutes.

PBO criteria Outstanding PBOs should in addition include that: It conducts a public task, the provision of which is according to law or regulation the duty of the central or local government. It publishes the most important data of its operations and finances in the local or national media.

PBO obligations Openness in decision-making (board meetings, registry of decisions etc.) Conflict of interest rules in governance and management Supervisory board above a certain budget (5 million HUF) Publication of any governmental support through media Should prepare investment policy and other financial control provisions

PBO obligations Needs to prepare annual public benefit report Including activity and financial report; Report on any budgetary support; Report on any grants given; Value or amount of compensation provided to leading officials (privacy issues!); Report on assets management.

PBO benefits Most significant benefit: ability to receive tax deductible donations Additional benefits for long-term donations Ability to provide income-tax free support to individuals Increased benefits for economic activities compared to non-PBO NGOs Outstanding category of PBOs even higher benefits Profit tax, customs and charges exemptions are available for all NGOs

Decision-making Application to the courts at the time of registration or any time later. Court has to check whether statutes contain required provisions. In case of outstanding PBOs it usually asks for an actual contract to provide the public task. There is no monitoring of fulfillment of the requirements other than the “usual” check- up of the public prosecutor.

Decision-making Practical experience shows that PBO registration is cumbersome Courts require copy-pasting of legal provisions in the statutes Courts often require contracts or other supporting documents not stipulated in any law Court practice differs widely in the country

Impact and learning points About 45% of NGOs are now registered PBOs (36% by 2000) Private and corporate donations have not increased significantly On the other hand, state funding became increasingly directed towards PBOs only NGOs regard PBO status good for two reasons: Gives a certain prestige in the eyes of the public if they read “public benefit” in the name of the NGO. Provides them with increased opportunities to apply for government funding.

Impact and learning points Key factors in deciding PBO regulatory approach: How much it will be tax oriented or include other goals? How low or high the treshold will be? (I.e. how easy or difficult it will be to become a PBO?) – “Elite” or “minimum standard” approach? How formal or substantial it will be? (I.e. check papers only or look at what you do?)