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TAX & BUSINESS
Charitable status of an association
Charitable associations receive tax benefits when they undertake tasks in the public interest. However, associations are only classified as charitable if they pursue certain purposes that promote the public good.
The public is considered to be involved when the (supported) group of persons is neither limited by membership requirements nor numerically "closed off". However, there is no requirement for an unlimited group of persons. A sufficiently large segment of the public or a group of persons representing a cross‑section of the population is usually adequate. As public, for example, members of a nationwide professional group or of a federal state are regarded as such, but not the employees of a single enterprise or the doctors of a particular hospital department. The promotion of entire economic sectors, such as tourism, is not eligible. Whether the supported group of persons is too narrowly defined must be assessed on a case‑by‑case basis.
Permitted restrictions
The restriction of the group of persons supported by the association is also possible through the re‑definition of the beneficiary purpose. If an association, for example, supports a very rare disease, the association can still be charitable even though only a few persons are affected by that disease. As long as the supporting activity is directed outward, a restriction of the supporters (association members) does not affect the charitable status.
This gives rise to two conceivable ways of supporting the public:
Whether the support of the public and thus the charitable status of a tax‑benefited association actually exist should be examined, in particular before submitting an application for donation benefits. In this context, the statutes should also be evaluated, as the tax office currently scrutinises the foundations for charitable status very closely before granting donation benefits.
Permitted restrictions
The restriction of the group of persons supported by the association is also possible through the re‑definition of the beneficiary purpose. If an association, for example, supports a very rare disease, the association can still be charitable even though only a few persons are affected by that disease. As long as the supporting activity is directed outward, a restriction of the supporters (association members) does not affect the charitable status.
This gives rise to two conceivable ways of supporting the public:
- The first possibility is that a limited or "closed" number of members or supporters supports the public (closed association). This is, for example, the case when an association – with the aim of combating cancer – conducts research on complex diseases and therefore restricts membership to suitably qualified scientists, while the results of that research are made available to the public.
- A second possibility is that the support is limited solely to association members, but membership is generally open to anyone (open association). This may apply to a sports club – with the purpose of promoting sport – where the support mainly benefits the club members, yet anyone has free access to the club and the members therefore represent at least a segment of the public. This is the case, for example, with a tennis club that anyone may join, although its tennis courts can only be used by club members. If the number of members is limited for reasons of exclusivity (e.g. by high entry fees), this constitutes self‑support. The support of the public is then no longer present.
Whether the support of the public and thus the charitable status of a tax‑benefited association actually exist should be examined, in particular before submitting an application for donation benefits. In this context, the statutes should also be evaluated, as the tax office currently scrutinises the foundations for charitable status very closely before granting donation benefits.