MED Bill on special purpose capital for NGOs
The Ministry of Economic Development has submitted a Bill to the Russian Government that seeks to improve the legal basis for the creation and use of special purpose capital by charitable organisations. The Bill proposes amending federal laws on “Charitable activities and charities” and on “Procedures for the creation and use of special purpose capital by NGOs”.
In particular, the Bill proposes to give charities the opportunity of working with other entities in business companies when receiving donations or inheriting shares to replenish special purpose capital, or when a trust company which undertakes the fiduciary management of assets that make up special purpose capital invests such capital in public company shares.
According to the Bill’s Explanatory Note “The existing ban introduced in 1995 on the joint participation of charities with other entities in business companies does not take account of the specifics involved in the creation, replenishment and use of special purpose capital and discriminates against charities in comparison with other organisations such as organisational and legal structures that don’t have charitable status, which therefore limits the amount of assets that can be received to replenish special purpose capital, as well as restricting investment of special purpose capital funds in securities. (Currently, if a charity receives shares as, for example, a bequest, it is forced to dispose of them immediately)”.
The drafters of the Bill also propose that assets transferred to a charitable organisation as a bequest and money received by them as the holder of special purpose capital from trust companies that undertake the fiduciary management of special purpose capital be added to the sources of funds with which charitable organisations may acquire assets.
The Bill does not run extra risks of abuse of rights by targeting charitable activities, in particular the purpose and procedure for the use of donations determined by the donors (including how those who receive support are specifically chosen). The donors themselves decide what form their act of charity will take by providing a contribution to meet an organisation or individual’s immediate needs, or reinvesting income to help resolve social issues. Neither are there any tax risks involved as legislation offers similar benefits in relation to special purpose income received by charities and special purpose capital received by NGOs, according to the Bill’s Explanatory Note.
“Following lengthy discussions, we agreed our position with colleagues in federal Ministries, the Presidential office and Finance Ministry. The Bill is now with Government. We’re hopeful that the text will be approved, if not this autumn then at next spring’s Duma session”, says Artem Shadrin, Director of the Department for Social Development and Innovation at the Ministry of Economic Development.
According to the Ministry of Economic Development, the Bill has been put together as part of a package of measures aimed at increasing support for socially orientated NGOs (SONGOs) for the period up to 2018 as agreed by the Russian Government. It also includes implementation of a sub-programme on “Improving the effectiveness of State support to SONGOs” and a Government project on “Social support for Russian citizens”. The Bill is also in line with the principles of the Eurasian Economic Union agreement, as well as complying with the provisions of other international protocols signed by Russia.
Author: Yulia Vyatkina