Foundations play an important role in the European Union (hereinafter – EU), because they carry out activities in most areas which are important for European citizens and the economy of the EU. Indeed, the number of foundations in the EU ranges between 90,000 and 110,000 with up 1 million full time employed staff. Foundations carry out activities in the areas of education and research, social and health services, arts and culture.

Foundations’ well-being requires an environment that enables and encourages them to work in ways that are effective, efficient, accountable and sustainable. Legislation governing foundations naturally varies from country to country. It reflects the culture, traditions and context in which the legal system and the foundation sector have developed in a given Member State of the EU. That is why considerable regulatory differences were found, which reduce the ability of foundations to ensure cross-border activities.

The “Single Market Act” called for action to remove obstacles that foundations face in operating on a cross-border basis. There are three important obstacles that should be mentioned. First, there are legal barriers to cross-border activities of foundations of the EU Member States both in civil law and in tax law. The highest barriers exist when a foundation considers to transfer its seat to another Member State of the EU. In accordance to barriers in tax law the vast majority of the Member States of the EU only grant tax benefits to a resident foundation. Second, the cost level to ensure different legal requirements laid down by the different national laws is relatively high. Third, there is uncertainty about recognition as a public benefit purpose foundation in other Member States of the EU, the costs of pooling and distributing funds on a cross-border basis as well as limited cross-border donations.

The Proposal for a Council Regulation on the Statute for a European Foundation aims to facilitate foundations’ establishment and operation in the Single Market. It will allow foundations to more efficiently channel private funds to public benefit purposes on a cross-border basis in the EU. The creation of a new European legal form targeting public benefit purpose entities best solves the problems by offering a legal form featuring uniform rules on formation and operation throughout the EU, thus, saving costs. It would also offer foundations a European label and, therefore, make cross-border activities easier.

The creation of the Proposal for a Council Regulation on the Statute for a European Foundation has contributed to the problem of the mobility of public benefit foundations across the EU. At the same time, the problem of European Foundation conformity with the status of supranational legal entity was formed.

At the moment supranational legal entities, including the European Economic Interest Grouping, the European Company and the European Cooperative Society, rather have a “supranational” character. Notwithstanding the Proposal aims to reduce the lack of unified rules for governing all aspects of the activities of foundations, the European Foundation has also a “supranational” character. At the same time, it is essential to solve the controversies on key matters related to this legal entity under EU legislation.

Taking into account that the idea of creating a legal form of the legal entity under EU legislation was first introduced and further developed in Europe, the most of research and publications on the subject are the works of European authors. In recent decades European scientists, legal experts and the responsible institutions of the EU have been actively working on modernization of EU law. One of the results was the establishment of the organizational-legal forms of supranational legal entities. The creation of the Proposal for a Council Regulation on the Statute for a European Foundation has predetermined further interest and appearance of studies and publications on this subject. Study of the problems of regulation of the European Foundation was conducted by the following authors: Then V. (Then V., 2006, 2009), Walkenhorst P. (Walkenhorst P., 2001), Hopt Klaus J. (Hopt Klaus J., 2006, 2009), Reimer E. (Reimer E., 2009), Anheier H. (Anheier H., 2009). An important role in study of foundations belongs to different researches made by European Foundation Centre.

As known, the idea of the creation of supranational legal entities was based on the need to achieve main objectives of regulation of legal entities in the EU law, in particular, the freedom of establishment of legal entities on the territory of any Member State of the EU, the establishment of common minimum requirements for legal entities, providing the same protection for shareholders and creditors of the legal entities throughout the EU, as well as facilitating the activities of companies by eliminating differences between national legal systems. As the result three supranational legal entities are created – the European Economic Interest Grouping, the European company and the European Cooperative Society.

These legal entities have the following general features. First of all, the Regulations relating to the status of supranational legal entities are directly applicable legal acts and vest the supranational legal entities with legal capacity, which, therefore, has a European, rather than national origin. Second, the transnational structure of the founders means that founders should fully or partly belong to the law order of at least two different EU Member States. Third, the ability to change the location of the company within the EU Member States without the need for passing the liquidation procedure of the company in the Member State of the original location.

The idea of the creation of European Foundation was developed in different ways. The first steps on creation of the idea of European Foundation were two publications on foundation law and empirical information about foundations [1]. Later these publications led to the project on drafting a Statute for the European Foundation publication [2, 7]. In parallel, the European Foundation Centre also published its own recommendation for the European Foundation statute [3, 25].

On the other side, taking into account successful experience of the creation of above mentioned supranational legal entities, as well as because of foundations’ important role in a number of areas (education, research, social and health services, culture or the protection of the environment) and in the economy of the EU, the Commission intended to begin the assessment of the need for the creation of a statute for the European Foundation in its Action Plan of 21 May 2003 on Modernising Company Law and Enhancing Corporate Governance in the EU [4]. It should be noted, that the basis of this assessment was set by some recommendations in Final Report of the High Level Group of Company Law Experts on a Modern Regulatory Framework for Company Law in Europe [5].

A public consultation and hearing on future priorities for the Action Plan was carried out in 2006 demonstrating a need for further work in this area [6]. The Commission defined the importance of developing European legal forms for entities in the social economy sector and undertook launching a study aimed at assessing the feasibility of the Statute for a European Foundation. The feasibility study was commissioned by the Commission in 2007 and was carried out jointly by the Max Planck Institute for Comparative and International Private Law in Hamburg and the University of Heidelberg.

The feasibility study was published in 2008. It covers seven main objectives and therefore:

1) offers an overview of the main types of foundations in EU Member States;

2) presents estimates of the economic scale of the European foundation sector, also in comparison with the United States;

3) examines the main regulatory differences in the legal treatment of foundations across the EU;

4) estimates cross-border activities as well as barriers and their economic relevance;

5) analyses the importance and cost implications of these barriers;

6) explores possible modalities of eliminating existing barriers;

7) assesses further possible effects of a European Foundation Statute [2, 2-6].

For each objective this study brings into focus several key findings. In particular, the European foundation sector is important for the economy of the EU and makes significant contributions to the public good of Europe.

One of the most important findings of the feasibility study is the statement that the European Foundation would be an additional and optional instrument like other existing supranational legal entities. The European Foundation Statute will entitle existing national foundations to transform into a European Foundation and lead to cost reduction.

Additionally to the cost effects, the European Foundation may have some other effects. For example, it may encourage foundations to become internationally active and attract more international giving to foundations in the EU as well as it could encourage a larger amount of private giving in Europe trough much improved visibility of the legal form.

In 2009 the Commission held a public consultation on the recommendations of the feasibility study. On the one hand, foundations expressed strong support for the European Foundation Statute, on the other hand, national authorities and partly business organisations were more sceptical. Consultations were extended on the Communication “Towards the Single Market Act” in 2010-2011.

At the same time, the Commission collected information on the relevant national legislation from national authorities and gathered additional information about concrete problems related to foundations. The Commission took these comments and concerns into account when drafting the Proposal.

Finally, the Commission brought into focus the importance of developing European legal forms for entities in the social economy sector, including foundations, in its “Social Business Initiative” Communication of 25 October 2011 [7].

The Proposal for a Council Regulation on the Statute for a European Foundation was presented on 8 February 2012 [8]. Regulation as a legal act was chosen in order to ensure the uniformity of the Statute in all Member States of the EU and direct application of its rules across the EU. The Proposal was created in order to solve some key problems. The overall problem identified was the fact that the variety of national civil and tax rules made foundations’ cross-border operations costly. It should be noted, that foundations in each Member State of the EU carry out its activities based on national laws, without harmonization at EU level. There were also some specific problems, for example, uncertainty about recognition as a public benefit purpose foundation in other Member States of the EU, the costs of pooling and distributing funds on a cross-border basis as well as limited cross-border donations.

The Proposal for a Council Regulation on the Statute for a European Foundation requires the establishment of an alternative legal form for foundations. This legal form would exist in parallel with domestic foundations and its use would be voluntary [9, 261].

The European Foundation should be governed by the rules of Regulation and by the statutes of the European Foundation. The Proposal uses the practice of existing supranational legal entities to apply the appropriate provisions of national law on matters that are not regulated by the Regulation or the statutes or are only partly regulated by them. National law governs, for example, such important matters as the liability of directors, formation methods, requirements of minimum content of the statute or auditing of the European Foundation. It means that the Proposal for a Council Regulation on the Statute for a European Foundation offers a possibility of the foundation of legal entity, which rather has a “supranational” character. As it is known, at the moment the existing organizational-legal forms of supranational companies also have a “supranational” character, mostly, because of the significant influence of the applicable national law of the EU Member States in the management of their activities and because of the lack of unified rules for governing all aspects of the activities of these legal entities.

In accordance with the Proposal the European Foundation is a separately constituted entity for a public benefit purpose with legal personality and full legal capacity in all Member States of the EU. In contrast to the provisions of the Proposal for a Statute for the European Private Company, the Proposal for a Council Regulation on the Statute for a European Foundation has a cross-border dimension in terms of activities or a statutory objective of carrying out activities in at least two Member States of the EU.

In order to become a European Foundation the Proposal lays down certain requirements to minimum founding assets. The European Foundation shall have assets equivalent to at least 25,000 euro. On the one hand, such requirement makes the European Foundation trustworthy for donors and public authorities and prove the seriousness of its purpose. On the other hand, the requirement of a minimum value of assets should not make the European Foundation too costly to establish. It should be noted, that the detection of the minimum level of assets required for registration of the European Foundation will face controversies between different approaches later, for example, some researchers support the early idea presented by European Foundation Centre to set up the requirement for foundation’s assets of at least 50,000 euro [3, 26].

Despite the requirement of the provision that the European Foundation may be created only for the closed list of purposes, foundation is allowed to engage in economic activities as long as the profit is used in pursuance of its public benefit purposes, unless restricted by its statutes. The Proposal also prescribes the rule that economic activities unrelated to the public benefit purpose of the foundation are allowed up to 10% of the annual net turnover of the European Foundation.

European Foundation may be created by one or more natural or legal persons or public bodies. Therefore, the Proposal does not have any restriction on the manner of creation of the European Foundation comparing to the creation of the European Company. Indeed, the European Company may be formed only by at least two legal entities from different Member States of the EU. In turn the European Foundation may be formed by one of four different methods:

1) a testamentary disposition of any natural person;

2) notarial deed or written declaration of any natural and/or legal person(s) or public body(ies) in accordance with the applicable national law;

3) the merger of public benefit purpose entities legally established in one or more Member States of the EU;

4) the conversion of a national public benefit purpose entity legally established in a Member State of the EU into the European Foundation [8].

The Proposal prescribes that the European Foundation shall be set up for an indefinite period of time or for a specified period of time of not less than two years, where expressly laid down in its statute.

The minimum content of the statutes and name of the European Foundation, as well as the registration requirements are laid down in the Proposal. These provisions are created in order to correspond to the provisions of the First Company law Directive [10, 41-45] amended later by Directive 2009/101/EC of the European Parliament and of the Council of 16 September 2009 [11, 11-17]. Therefore, first, the statutes of the European Foundation shall be in writing and subject to the formal requirements of the applicable national law, second, the name of the European Foundation shall include the abbreviation “FE”, third, for the registration of a European Foundation the register of every Member State of the EU may require only a closed list of documents. Moreover, in order to facilitate the process of registration, the registries from different Member States of the EU are required to cooperate with each other with regard to the documents and particulars of the European Foundations.

The internal organization of the European Foundation is subject to the Proposal of the Regulation. The European Foundation is governed by a governing board composed of an uneven number of at least three members with one vote each. The governing board is responsible for the proper administration, management and conduct of the foundation activities and it ensures compliance with the statutes of the foundation, the provisions of the Regulation and the applicable national law. Members of the governing board act in the best interest of the foundation and its public benefit purpose.

One more important requirement is connected with the obligation of the European Foundation to ensure its credibility and trustworthiness. It means that the European Foundation has to apply high standards of transparency and accountability. That is why the European Foundation has to not only keep full and accurate records of all financial transactions, but also has to ensure auditing of the annual accounts of the foundation in accordance with the national rules adopted pursuant to Directive 2006/43/EC [12, 87-107].

The European Foundation shall have its registered office and its central administration or principal place of activities in the EU. As well as other supranational legal entities the European Foundation can transfer its registered office to another Member State of the EU. In accordance to the Proposal such transfer shall not result in the winding up of the European Foundation or the creation of a new legal entity or affect any right or obligation existing before the transfer.

Since Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for the European company entered into force on 8 October 2004, creation of new proposals is inseparably linked with the question of employee participation. The Proposal does not contain rules on employee participation in the board, mainly because board-level participation in public benefit purpose entities exists in very few Member States of the EU. At the same time, the Proposal contains rules concerning the information and consultation of employees and volunteers, in accordance with the relevant EU law.

In order to underline voluntary use of this legal form the Proposal contains two methods of dissolution of the European Foundation. First, the Proposal allows the conversion of the European Foundation back into a public benefit purpose entity governed by the law of the Member State of the EU in which it has its registered office upon the condition that the conversion is permissible under the statutes of the European Foundation. Taking into account that the European Foundation shall be set up for an indefinite period of time or for a specified period of time of not less than two years, the conversion may only take place after two years from the registration of the European Foundation. The Proposal also contains rules on winding up in cases where the purpose of the European Foundation has been achieved or cannot be achieved, the time for which it was set up has expired or it has lost all its assets.

One of the key objectives is connected with the responsibility of a supervisory authority of each Member State of the EU to oversee the activities of the foundations registered in that Member State. That is why the competent national authorities are vested with a wide range of rights. They have, for example, the power to approve a change to the purpose of the European Foundation, the power to inquire into the affairs of the European Foundation (in case when the supervisory authority has reasonable grounds to believe that the governing board of the foundation is not acting in accordance with the statutes of the foundation, provisions of this Proposal or the applicable national law) or the power to decide to wind up the European Foundation or to propose the winding up of the foundation to a competent court. Supervisory authorities from different Member States of the EU have to cooperate and exchange information with each other, as well as have to ensure cooperation with registries and tax authorities.

Tax treatment was among the most important problems which hinder cross-border activities of public benefit purpose entities. The Proposal provides for the automatic application to the European Foundation and its donors of the same tax treatment and benefits granted to domestic public benefit purpose entities. Indeed, referring to income and capital gains taxes, gift and inheritance taxes, property and land taxes, transfer taxes, registration taxes, stamp duties and similar taxes, the same tax treatment is applicable to the European Foundation which has its registered office in Member State of the EU and to public benefit purpose entities established in that Member State. The same principle is applied to donors and beneficiaries of the European Foundation.

By choosing European Foundation form public benefit purpose entities may receive a number of advantages ensured by the Proposal for a Council Regulation on the Statute for a European Foundation. The most important advantages of the European Foundation are the following:

Notwithstanding the European Foundation’s advantages and ability to ensure the development of foundations in the EU Member States, no consensus has been reached on legislative measures, because of substantial controversies on some key matters:

1) the terminology used to key terms of the Proposal;

2) the minimum period of time of activities of a European Foundation and requirements on cross-border component and activities;

3) the minimum level of assets required for registration of a European Foundation (on the one hand, the aim of facilitating the creation of European Foundations throughout the EU, on the other hand, the aim to ensure the financial soundness of foundations);

4) transparency and accountability provisions (including threshold requirements for auditing);

5) the possibility of having the registered office and the headquarters in different Member States of the EU;

6) frequent references to the national legislation of the EU Member States in the Proposal (become a source of legal uncertainty for European Foundations in the absence of rules on harmonization).

The Commission decided to consult the European Economic and Social Committee (EESC) on the Proposal for a Council Regulation on the Statute for a European Foundation in May 2012 [13, 57-60]. The EESC supported the Proposal and recommended that the European Parliament and the Council adopt the Proposal without delay. At the same time, the EESC made some noticeable comments. First, the EESC had to take note of the translation of specific terms in the Proposal, namely the concept of public benefit, which in some languages may be translated as public utility or general interest. Second, European Foundations set up in perpetuity should spend their annual income in a reasonable period of time, for example, within a period of 4 years. Third, the EESC had to point out that the Proposal's requirements in terms of transparency are more demanding for the European Foundations in relation to the size of their required assets than existing requirements for national foundations across the EU. That is why, audit requirements should be effective only above certain threshold.

The opinion of the Committee of the Regions on “The Statute for a European Foundation” was published in January 2013 [14, 81-90]. The Committee of the Regions also supported the Proposal and made some initiatives. First, the terminology used should be harmonised to refer to the “public interest”, which should be used uniformly in each Member State of the EU when determining the purpose of the European Foundation. It is necessary, because “public benefit” and “public interest” cover different concepts in some Member States. Second, the Proposal should be amended with precise definition of the limits of economic activities of European Foundations. It is necessary to ensure that the European Foundations do not lose their basic character as not-for-profit bodies. Third, the European Foundations should undertake cross-border activities both when they are first established and throughout their lifetimes. It will ensure activities of European Foundations in several Member States of the EU throughout their lifetime, not just when they are first set up. Fourth, the minimum level of assets required for registration of a European Foundation should be increased to 50,000 euro in order to ensure the financial soundness, and this level of assets should be maintained throughout the lifetime of the European Foundation. Fifth, the procedures for auditing of European Foundations should be clarified and made more specific.

The Committee on Legal Affairs adopted an Interim report on the Proposal for a Council Regulation on the Statute for a European Foundation in June 2013 [15]. This report had the following recommendations. First, the existence of a European Foundation in any Member State should be open-ended or set for a specified period of time of not less than 4 years (with an exception in some cases – 2 years). Second, the minimum level of assets of 25,000 euro should be maintained throughout the lifetime of the foundation. Third, the threshold for auditing of foundations should take into account the total assets (of 200,000 euro), the annual income (of 2 million euro) and the number of employees (an average of 50 employees). Fourth, the registered office and the administrative headquarters of a European Foundation should be in the EU Member State in which it is established, in order to ensure effective oversee.

The European Parliament in its resolution of 2 July 2013 on the Proposal for a Council regulation on the Statute for a European Foundation accepted recommendations made in Interim report of the Committee on Legal Affairs [16].

Despite some debates took place in the Council in February 2014, with the adoption of the Commission's Work Programme for 2015 in December 2014, the Commission decided the withdrawal of 73 pending legislative proposals, among them was the Proposal for a Council Regulation on the Statute for a European Foundation. The Commission withdrew the Proposal on 7 March 2015 [17, 17-23]. The official reason of withdrawal was deficiency of progress and unanimity in Council and, therefore, prospects to reach an agreement.

At the moment the Commission has not made any announcement concerning presentation of the new proposals in order to regulate foundations’ or mutual societies’ activities neither in Work Programme 2015 nor in Work Programme 2016.