How not to found a social venture fund: the Austrian example
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Setting up a social venture fund – sounds easy?
Not if you have to wrestle with the concept of
Gemeinnützigkeit. Michael Fembek of recently-joined EVPA member ANTARA explains.
How not to found a social venture fund: the Austrian example
Michael Fembek
The basic concept of a social venture fund is straightforward: you set up a fund, under whichever legal vehicle your
country allows. The fund gets the money from donors, who believe in the fund and its ventures. It then invests the
money in selected NGOs (or social entrepreneurs, or even for-profit-organisations) under certain rules to ensure a high
social return on investment.
Not so in Austria. You can set up a commercial venture fund. It is not very popular (the VC/GDP ratio is one of the
lowest in the 15 EU countries), but it is possible. When you switch the concept of a venture fund to the non-profit world,
a completely different set of rules applies and the concept of Gemeinnützigkeit (common public interest) becomes key.
Gemeinnützigkeit is a necessary prerequisite for being an NGO. It does not actually confer any benefits, but it allows
you to avoid certain liabilities. You need to have that status to avoid income tax and corporate tax, also to avoid being
considered a commercial venture.
Now, Gemeinnützigkeit turns out to be not only an obstacle, but a real roadblock to founding a Social Venture Fund
because it requires every NGO to run or at least be accountable for every project that it sponsors. The NGO has to
work directly (unmittelbar), which prohibits NGOs that want to act as intermediaries, as funds or as agencies.
But Gemeinnützigkeit is still more restrictive. It means that a Stiftung (Foundation), Trust or any other NGO cannot give
money, for example, to an organisation like SOS Children Village, a worldwide organisation for raising children in small
group homes, to build a new house or even rebuild the roof of a house. In such a case, it would be SOS Children Village
who – in the eyes of Austrian tax administration - got the money in order to help the poor and needy, and not the poor
and needy themselves. Only if the money were used to buy clothes, beds or books which are then given directly to
individual children would it be considered to be unmittelbar (direct) and not mittelbar (collateral).
There is only one way to set up an NGO that can help another NGO: research organisations have no problems with
Gemeinnützigkeit, and they even have a chance of qualifying for the exclusive list of organisations whose donors can
deduct their giving from their income tax. Of course the research approach has its limits. But if the NGO, by doing the
research, effectively facilitates the gift, and the donor then makes the gift direct to the social entrepreneur, it can be
done.
This is just one example of how Austrian laws impose obstacles to private or corporate giving. I’ve said nothing
about the scant opportunities for tax deduction or the lack of a proper legal form for setting up an NGO. The most
commonly used, Verein (society, union) is basically a concept where a group of people come together for a common
purpose, be it to do good or to run an ice hockey club. It was not designed with individual social entrepreneurs in mind.
Gemeinnützige Privatstiftungen (private foundations), on the other hand, require a lot of bureaucracy and formalities
which makes them prohibitive for start-ups. If venture philanthropy is to make any headway in Austria, clearly the
government will have to review the legal regime for donor organisations.
Michael Fembek is Director of ANTARA
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Gemeinnützigkeit. Michael Fembek of recently-joined EVPA member ANTARA explains.
How not to found a social venture fund: the Austrian example
Michael Fembek
The basic concept of a social venture fund is straightforward: you set up a fund, under whichever legal vehicle your
country allows. The fund gets the money from donors, who believe in the fund and its ventures. It then invests the
money in selected NGOs (or social entrepreneurs, or even for-profit-organisations) under certain rules to ensure a high
social return on investment.
Not so in Austria. You can set up a commercial venture fund. It is not very popular (the VC/GDP ratio is one of the
lowest in the 15 EU countries), but it is possible. When you switch the concept of a venture fund to the non-profit world,
a completely different set of rules applies and the concept of Gemeinnützigkeit (common public interest) becomes key.
Gemeinnützigkeit is a necessary prerequisite for being an NGO. It does not actually confer any benefits, but it allows
you to avoid certain liabilities. You need to have that status to avoid income tax and corporate tax, also to avoid being
considered a commercial venture.
Now, Gemeinnützigkeit turns out to be not only an obstacle, but a real roadblock to founding a Social Venture Fund
because it requires every NGO to run or at least be accountable for every project that it sponsors. The NGO has to
work directly (unmittelbar), which prohibits NGOs that want to act as intermediaries, as funds or as agencies.
But Gemeinnützigkeit is still more restrictive. It means that a Stiftung (Foundation), Trust or any other NGO cannot give
money, for example, to an organisation like SOS Children Village, a worldwide organisation for raising children in small
group homes, to build a new house or even rebuild the roof of a house. In such a case, it would be SOS Children Village
who – in the eyes of Austrian tax administration - got the money in order to help the poor and needy, and not the poor
and needy themselves. Only if the money were used to buy clothes, beds or books which are then given directly to
individual children would it be considered to be unmittelbar (direct) and not mittelbar (collateral).
There is only one way to set up an NGO that can help another NGO: research organisations have no problems with
Gemeinnützigkeit, and they even have a chance of qualifying for the exclusive list of organisations whose donors can
deduct their giving from their income tax. Of course the research approach has its limits. But if the NGO, by doing the
research, effectively facilitates the gift, and the donor then makes the gift direct to the social entrepreneur, it can be
done.
This is just one example of how Austrian laws impose obstacles to private or corporate giving. I’ve said nothing
about the scant opportunities for tax deduction or the lack of a proper legal form for setting up an NGO. The most
commonly used, Verein (society, union) is basically a concept where a group of people come together for a common
purpose, be it to do good or to run an ice hockey club. It was not designed with individual social entrepreneurs in mind.
Gemeinnützige Privatstiftungen (private foundations), on the other hand, require a lot of bureaucracy and formalities
which makes them prohibitive for start-ups. If venture philanthropy is to make any headway in Austria, clearly the
government will have to review the legal regime for donor organisations.
Michael Fembek is Director of ANTARA
Back to first page
2008 Jun