As a general rule, an organization is exempt from certain taxes only if all individuals having ties to it, including board members, management, employees and third parties, have no direct or indirect interest in its operations or assets. [10] It is also generally accepted that founders of corporate foundations, as well as founders and donors of public utility foundations and public utility associations, may not maintain any property interests or rights of reversion for any contributed property, since this would violate their fundamental requirement to serve the public benefit (Model Charters for Public Utility Associations and Foundations, Conseil d’Etat {in French}).

There are certain exceptions, however. Members of declared associations and general interest associations may retain an ownership interest in their donation and, if permitted by the organization’s governing documents, over any contributions to the association’s endowment capital and any membership dues paid (Article 15, Implementation Decree of the Associations Law). [11]

C. Dissolution

Associations

Upon the dissolution of a declared or general interest association, the contributions of members, including dues may be returned to these members. All other assets may be transferred to a government agency or an NPO authorized to receive contractual donations, which are generally organizations that provide a public benefit in accordance with the association’s governing documents or pursuant to a decision of the general assembly (Article 15, Implementation Decree of the Associations Law). [12]  Similarly, a dissolved public utility association may transfer its assets to government agencies, public utility organizations with similar purposes, or associations whose purposes are exclusively charitable or related to scientific or medical research (Model Charter for Public Utility Associations, Conseil d’Etat).

Foundations

Upon dissolution, a corporate foundation may only distribute its assets to a government agency or public utility organization with similar purposes (Article 19-12, Law on Philanthropy Development). A public utility foundation may distribute its assets upon dissolution to government agencies, public utility organizations with similar purposes, or associations whose purposes are exclusively charitable or related to scientific or medical research (New Model Charter for Public Utility Foundations released on March 13, 2012, Conseil d’Etat). The Conseil d’Etat must approve any plan for distribution of assets of a dissolved public utility foundation. [13] The Conseil d’Etat has indicated that it is theoretically possible, though highly unlikely, that assets could be distributed to a for-profit legal entity, provided its primary objectives are similar to those of the liquidated foundation.

D. Activities

1. General Activities

Associations may engage in any activities except those contrary to law, morals, or the integrity of the territory or the republic. All types of foundations must carry out activities that benefit the general public.

2. Economic Activities

Associations and foundations may engage directly or indirectly in any commercial activity, and generally there is no distinction between related and unrelated economic activities. [14] In order to remain an NPO and receive concomitant tax benefits, however, an organization’s economic activities should not be its "predominant" activity (Instruction of 1998).

E. Political Activities

Declared associations and general interest associations may engage in political activities. [15] A special category of associations may provide direct financial support to a political party or an election campaign. Such political associations are established for a limited period of time and are restricted to engaging in these stipulated activities only. [16] Public utility associations and public utility foundations may not engage primarily in political activities (Opinion of the Conseil d’Etat of June 13, 1978, No. 322894).

F. Discrimination

Article L111-1 of the Education Code provides that the "acquisition of general education and of a recognized qualification is granted to all youth regardless of their social, cultural or geographic origin." 

G. Control of Organization

Nothing in French law prevents a French NPO from being controlled by another organization. A French association or foundation might be established and controlled (but not owned) by a for-profit entity; this situation would generate additional IRS scrutiny. A French association or foundation, likewise, could be controlled but not owned by an American grantor charity; this situation would have to be disclosed in the affidavit.

V. Tax Laws

The following section discusses relevant tax legislation, recognizing that taxes may affect the amount of the grant actually flowing to the grantee.

A. Tax Exemptions

French law generally exempts all associations, corporate foundations, and public utility foundations from commercial taxes such as the corporate income tax, turnover tax, and the professional tax; special rules apply to VAT. Similarly, earnings from economic activities are exempt from taxes, provided that they are not distributed as profits and that other features are present to distinguish the organization from a commercial enterprise (The Tax Instruction of 2006, which has now become BOI-IS-CHAMP-10-50-20120912). [17]  Specifically, under Article 261,7.1° of the Tax Code, an NPO with annual revenue exceeding €60,000 is eligible for tax-exempt status if:

1) Management does not have a financial interest in the NPO (the "disinterestedness" factor); and

2) The NPO does not compete with the commercial sector; or, if it does, an inquiry concludes that the NPO does not conduct its activities in the same manner as those in the commercial sector. [18] The not-for-profit nature of the activity will depend on its compliance with the "four "P" rule" defined in the 1998 Tax Instruction:

1) the [P]roduct offered satisfies a need not met by the private sector;
2) the [P]ublic is unable to afford the product offered by the private sector;
3) the [P]ricing is lower than in the private sector; and
4) the [P]romotion of a public interest mission may not use advertising or marketing tools in the same manner as corporations.

An NPO with annual revenue below €60,000 qualifies for tax-exempt status only if (1) its principle activities are not-for-profit; and (2) it does not distribute any income or assets to any private interests (Article 206,1bis, Tax Code).

B. Tax Credits for Charitable Contributions

Legal entities are eligible for tax credits for donations to general interest associations, public utility associations, and public utility foundations. Tax credits are calculated at 60% of the value of the donation, and a legal entity’s total tax credits for one year may not exceed 0.5% of their annual turnover. Excess amounts may be reported to the tax authorities, and credited against tax due on a carry-forward basis for the subsequent five years.

Individuals are eligible for tax credits for donations to public utility organizations, associations of general interest, and religious organizations authorized to receive contractual donations. Tax credits are calculated at 66% of the value of the donation, and an individual’s total tax credits for one year may not exceed 20% of their taxable income. Employees of a commercial entity that make a donation to a corporate foundation founded by their employer are eligible for this tax credit. [19]

Individuals are also eligible for tax credits for donations to certain charitable organizations that serve the needy. Such tax credits are calculated at 75% of the value of the donation, not to exceed €521. [20] Donations over this amount are eligible for a tax credit calculated at 66% of the donation and not to exceed 20% of the individual’s annual income. As is the case with legal entities, individuals may report excess amounts to the tax authorities, which will be credited against their taxes on a carry-forward basis for the following five years.

Law No. 2007-1223 of August 21, 2007 in favor of Work, Employment and Purchasing Power ("TEPA Law") established a tax credit on wealth tax for those taxpayers who make donations to public utility foundations (cash or full ownership of listed companies’ shares).  The tax credit is calculated at 75% of the donation, with a limit of €50,000.

Tax on Contractual Donations ("Registration Fees" – Droits d’enregistrement)

French law treats simple donations differently than contractual donations, which include gifts made by will. [21]  Most NPOs may receive simple donations and contractual donations given by public utility organizations. [22]  The law, however, restricts which organizations are entitled to receive contractual donations given by entities other than public utility organizations:  

• Public utility organizations (Article 10, Associations Law; Model Charter for Foundations, Conseil d’Etat);

• Religious organizations;

• Accredited federations of family associations;

• Associations engaged in medical or scientific research, or charitable assistance for the needy (Article 6, Associations Law);

• Associations that finance electoral campaigns;

• Associations financing political parties; and [23]     

• Endowment funds.

In order to receive contractual donations, these organizations must receive prior administrative approval.

Public utility foundations, such as the Fondation de France, are able to receive contractual donations on behalf of associations that do not otherwise qualify to receive contractual donations. To do so, the public utility foundation maintains an account for the recipient organization.

Contributors are able to use these accounts to make donations, including contractual donations, which the beneficiary would otherwise be unable to receive.  

Simple donations are tax-exempt. Contractual donations, however, are subject to registration fees [24] unless the donations are granted to: 

• Public utility organizations whose revenue is exclusively allocated to scientific, cultural or artistic, environmental or charitable purposes, or animal protection;

• Associations whose revenue is exclusively allocated to scientific and medical research;

• State-subsidized public utility organizations engaged in higher education and popular education activities;

• Religious organizations; and

• Associations for the purpose of building commemorative war monuments (Article 795, Tax Code).

• Endowment funds (Article 795, Tax Code).

C. Value Added and Turnover Taxes

The standard VAT rate is 19.6%. A reduced rate of 5.5% is applied to certain goods and services, including medicine and pharmaceutical products, equipment for handicapped individuals, the provision of housing and food at elderly care facilities, and others relevant to NPOs (Article 278-0 Bis Tax Code). [25] The following activities are exempt from VAT (BOI-TVA-CHAMP-30-10-20120912):

• Services with a social or philanthropic character provided to any person, as long as the price has been accredited by the state and does not distort market prices. "Social and philanthropic activities" are described by the tax authorities as including activities related to childhood, social tourism, shelter, and socio-education;

• Services and goods related to the activities of organizations whose main goals are primary, secondary, superior, university, or professional education;

• Hospice care for the elderly;

• Hospitalization expenses for health care organizations;

• Services that social, cultural, educational, sports, philosophical, religious, political, patriotic, and civic organizations, as well as professional unions, provide for their members; and

• Six fund-raising events per year.

If an NPO uses its assets to further for-profit and not-for-profit activities, however, any VAT exemptions to which it is entitled are calculated as a pro rata ratio of the organization’s income from its VAT-exempt and non-exempt activities (Article 212, Appendix 2, Tax Code).

D. Import Duties

Certain goods imported by organizations with "charitable or philanthropic organization" status granted by the French Customs Authorities are exempt from customs duties and taxes (Article 50 octies, Tax Code, Appendix IV).  The goods that qualify include:

• Basic necessities such as food, medicine, clothing, and bed linens distributed free of charge;

• Goods, not to exceed €13,000 in value per year, received free of charge and used for fundraising at occasional charity events that benefit needy persons;

• Donated equipment and office materials, not to exceed €6,000 per year, that will serve an organization’s operational needs, or charitable or philanthropic objectives;

• Goods for distribution to or to be made available free of charge to victims of disasters in the EU; and

• Goods imported by disaster-relief agencies to be donated to victims of disasters during the period of the organization’s activity.

Other categories of goods exempt from customs include:

• Educational, scientific, and cultural materials, as well as scientific instruments imported by scientific, educational, or cultural organizations;

• Cultural goods listed in appendix I of European Council Directive imported by public utility organizations and others accredited by the customs authority; and

• Imports by organizations accredited by the customs administration that provide education and assistance for the blind or handicapped (Article 48, European Council Directive No. 2009/132).

Goods imported under these exemptions, with the exception of those destined for accredited organizations that provide education to the blind and handicapped, which are lent out, rented, or transferred will be subject to import duties.

E. Double Tax Treaties

The United States and the French Republic have signed two double tax treaties:

1. The Convention Between The United States Of America And The French Republic For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Estates, Inheritances, And Gifts (November 24, 1978 modified on December 8, 2004); and
    

2. The Convention Between The Government Of The United States Of America And The Government of the French Republic For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income and Capital (August 31, 1994 modified on December 8, 2004 and January 13, 2009).

Article 10 of the Convention on Estates, Inheritances, and Gifts provides entities transferring funds to a French organization an exemption from the U.S. federal gift tax and estate tax if the recipient would otherwise qualify as tax-exempt U.S. Organization.

F. Donations to Not-for-profit Organizations in the European Union and European Economic Area

In order to comply with community case law, France has extended the patronage system to donations made in favor of organisations that pursue the same objectives and present characteristics similar to eligible French organizations, if their headquarters are located in a Member State of the EU, in Iceland, or in Norway (law no. 2009-1674 of 30 December 2009).

France has thus waived the criterion of establishment in France that restricted the benefit of the patronage regime solely to donations made in favor of an organization established in France.