EU – Impact of Financial Regulation on Non Profit Sector

Last month, theEuropean Commission published a SynthesisReport on Submissions to the Public Consultation on the Review of the FinancialRegulation. The Financial Regulation (FR) is the EU’s financial manual.  The Commission is conducting the review andproposing updates to the FR in response to the passage of the Lisbon Treaty in2009. 

The Synthesis Reportcovers responses submitted by 235 citizens, NGOs, and public authorities acrossthe EU to questions published by the Commission, focusing on grants and theCommission’s handling of financial files.

NGOs submitted 46%of the responses. 

The Synthesis Reportraised a number of issues regarding the FR that concern nonprofits.  One of the topics highlighted most byrespondents was flexibility in the interpretation of the nonprofit rule.  The nonprofit rule determines access to EU grantmoney.  According to the report, themajority of respondents saw a need for greater flexibility while only the minoritysupported the status quo on the nonprofit rule. 

The current rulerequires that “grants may not have the purpose or effect of producing a profit for the beneficiary.” (Art.109(2) FR).  Under the ImplementingRules (IR) which explain the FR, the meaning of “profit” is determined by thetype of grant that is provided.  (Art.165 IR).  In the grant for actioncontext, “profit” means “a surplus of receipts over the costs incurred by thebeneficiary when the request is made for final payment.”  In the operating grant context, “profit”means “a surplus balance on the operating budget of the beneficiary.”

According to the EuropeanCenter for Not-for-Profit Law, once finalized, the future FR will beadopted jointly by the European Parliament and Council following the entry intoforce of the Lisbon Treaty, and the IR will then be proposed by the Commission,and are expected to be adopted.

SS