EU – Impact of Financial Regulation on Non Profit Sector

Last month, the European Commission published a Synthesis Report on Submissions to the Public Consultation on the Review of the Financial Regulation. The Financial Regulation (FR) is the EU’s financial manual.  The Commission is conducting the review and proposing updates to the FR in response to the passage of the Lisbon Treaty in 2009. 

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

NGOs submitted 46% of the responses. 

The Synthesis Report raised a number of issues regarding the FR that concern nonprofits.  One of the topics highlighted most by respondents was flexibility in the interpretation of the nonprofit rule.  The nonprofit rule determines access to EU grant money.  According to the report, the majority of respondents saw a need for greater flexibility while only the minority supported the status quo on the nonprofit rule. 

The current rule requires that “grants may not have the purpose or effect of producing a profit for the beneficiary.” (Art. 109(2) FR).  Under the Implementing Rules (IR) which explain the FR, the meaning of “profit” is determined by the type of grant that is provided.  (Art. 165 IR).  In the grant for action context, “profit” means “a surplus of receipts over the costs incurred by the beneficiary 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 European Center for Not-for-Profit Law, once finalized, the future FR will be adopted jointly by the European Parliament and Council following the entry into force of the Lisbon Treaty, and the IR will then be proposed by the Commission, and are expected to be adopted.

SS