European Foundation

From Max-EuP 2012

by Thomas von Hippel

1. Definition

The European Foundation has not thus far been introduced. However, there are proposals to establish the European Foundation as an additional, optional supranational European legal form which would have legal personality and exist to promote a specific purpose with its assets.

To date, there are three other supranational European legal forms: the European Economic Interest Grouping (EEIG), introduced in 1985; the European Company (Societas Europaea), introduced in 2001; and the European Cooperative (Societas Cooperativa Europaea). Additionally, there are plans to introduce a European Private Company (Societas Europaea Privata). There was another initiative to introduce a European Association (EA) at the beginning of the 1990s, but this proposal was withdrawn in 2005.

2. Development of the discussion

Since the turn of the millennium there have been initiatives both in scholarship and in practice to introduce a European Foundation as an additional supranational optional form. First taking root with several comparative publications authored on foundation law as well as with the collection of empirical data on foundations, the idea of introducing the European Foundation was supported by the European Foundation Centre (EFC)—the European association of foundations—as well as by several important national foundations. The efforts of legal scholars and practitioners culminated in an academic project which was coordinated by the Max Planck Institute for Comparative and International Private Law in Hamburg. Based on the participation of 25 legal experts in the fields of foundation law and tax law who were drawn from 13 countries, the project published a draft for a European Foundation Statute, the publication being supplemented with extensive commentary and comparative analysis.

Meanwhile, the idea of a European Foundation was also considered by the High Level Group of Company Law Experts set up by the European Commission in September 2001 to make recommendations on a modern regulatory framework in the EU for company law. According to the final report of the High Level Group, a European Foundation is, alongside the European Company, worth considering but should not assume priority in the short or medium term, because it is not imperative for the conduct of cross-border activities. Of particular note, the Group noted that national differences in foundation law must be borne in mind, these variations being greater in Member State foundation law than in company law. In presenting their conclusions, the High Level Group also referred to the results of a survey conducted in connection with their interim report, which, among other points of inquiry, asked whether a European Foundation should be introduced and whether harmonization of national foundation laws was desirable. While a large majority of the respondents answered both questions in the negative, deeper analysis showed that the answers stemming from the foundation sector supported the introduction of a European Foundation although rejecting harmonization.

In 2003 the European Commission took up the suggestion of a European Foundation in their Action Plan on Modernising Company Law and Enhancing Corporate Governance in the European Union (COM (2003) 284 final of 21 May 2003): ‘With respect to the possible development of a proposal for a Regulation for a European Foundation, before deciding to submit a proposal, the Commission intends to launch a study aimed at assessing in depth the feasibility of such a Statute. Such an assessment will have to take account of the lessons to be drawn from the adoption and use of the other European Statutes, so that it should best take place in the medium term.’

From December 2005 until March 2006 the Directorate-General of the Internal Market undertook a further ‘Public consultation on future priorities for the Action Plan on the Modernisation of Company Law and Corporate Governance’, which also asked whether it would be useful to carry out an examination on the feasibility of a European Foundation Statute (Question 13). According to the published results of the consultation, 71 of the 217 submissions (32.72 per cent) were issued by Member State foundations and addressed only Question 13, all answering it in the affirmative.

In spring 2007 a call for tenders for the feasibility study on a European Foundation Statute was launched. The Max Planck Institute for Comparative and International Private Law in Hamburg and the University of Heidelberg in Germany (particularly the Centre of Social Investment and Investigation (CSI) and the Law Faculty) applied as a consortium and ultimately secured the bid. The consortium started its work in autumn 2007 and finished the study in November 2008; the text was published on the internet in February 2009.

3. The European Foundation as a means of overcoming national barriers to cross-border activities

The aim of the European Foundation is to overcome national barriers which hinder cross-border activities. One encounters legal barriers to cross-border activities of Member State foundations in civil law and, especially, in tax law (ie tax benefits available only for national public benefit foundations and not for foreign public benefit foundations). As in the case of company law, some of the barriers can already be surmounted, but compliance costs result which will often be higher than they would be in company law given that the legal and institutional environments vary (among other reasons, Member State foundation law and tax law seem to entail greater legal uncertainty because of a paucity of case law and fewer specialized lawyers, and also because foundation board members will often be less experienced in legal matters).

a) Civil law barriers

In respect of civil law rules, the transfer of a foundation seat from one Member State to another would not appear to be contemplated by the law and, as a practical matter, is unachievable. To date, no case of an (attempted) transfer has been reported, thus leaving it somewhat unclear if such transfers are not perceived as necessary or if their insurmountability has proven a definitive restraint. Recognition procedures envisioned by some Member State laws pose less significant, if existent, obstacles.

Yet particularly as concerns recognition procedures, a compelling argument can be made that the European Court of Justice jurisprudence on foreign companies (freedom of establishment) should be extended to foundations (as well as associations) that are engaged in entrepreneurial activities. Consequently, exactly those foundations which do not fulfil the requirements of national foundation law could conceivably invoke the freedom of establishment and—short of instances of abuse—engage in activities in the target Member State.

b) Tax law barriers

Given that the tax law provisions in nearly all Member States extend tax benefits to domestic organizations, foundations seeking to circumvent this obstacle have taken to utilizing ‘networks’ of ‘sister organizations’ (typically nonprofit associations or public benefit foundations) which are to be found in the various countries where tax benefits are sought. The bureaucratic effort associated with such cross-border cooperations can, however, be quite daunting.

To a certain extent, the European Court of Justice has ameliorated existing tax-law barriers with its decisions in Stauffer (ECJ Case C-386/04 [2006] ECR I-8203) and Persche (ECJ Case C-318/07 [2009] ECR I-359). On the basis of the fundamental freedoms (especially the free movement of capital, which encompasses donations), the ECJ has prohibited discriminatory tax law provisions as regards public benefit activities (discrimination (general)). Accordingly, national provisions may not discriminate against Member State foundations which – apart from their seat – would otherwise satisfy the national law prerequisites determining favourable treatment in connection with the commission of public benefit activities (foundation).

At the same time, the implementation of this non-discrimination principle is presently complicated by the comparability test which must in each instance be undertaken to determine whether the foreign foundation (or other nonprofit organization) also satisfies the domestic provisions determining public benefit status. This inquiry can prove particularly demanding: although current research suggests that the prerequisites for public benefit status are surprisingly similar across the Member States in terms of general content, differences exist in respect of individual requirements and in respect of terminology and structure. These differences can, moreover, be compounded by the fact that statutory provisions are often formulated broadly and must be construed in light of the authorization rules applied by financial agencies as well as the case law of the national jurisdiction in question. Individual determinations whether a foreign foundation does or does not (any longer) fulfil the requirements for a domestic foundation can be extremely difficult, particularly since this determination is made not by the ECJ, but by the national courts or the financial authorities.

The European Foundation represents one of the possible means of overcoming this remaining and practically significant barrier, an obstacle which the ECJ can only to a limited extent otherwise alleviate. Thus, an ambitious but conceivable solution would be formulating the European Foundation Statute such that a European Foundation would by definition satisfy the tax law requirements of all (or at least the particularly significant) Member States, with the result that tax benefits could be enjoyed in all the accounted-for Member States on the basis of the non-discrimination rule already developed by the ECJ. Even if this step were not to be taken, it would seem likely that Member States would more readily confer tax benefits to a European Foundation than to an unknown foreign legal entity.

4. Main conclusions of the feasibility study on a European Foundation Statute

The authors of the feasibility study on a European Foundation Statute support the introduction of a European Foundation Statute, which should be limited to the promotion of public benefit purposes. This proposal is based on the following conclusions:

(1) The European foundation sector is a major economic force. Allowing for all statistical uncertainty and problems of validity, it is estimated that the European foundation sector has assets of between €350bn and €1,000bn and annual expenditures of between €83bn and €150bn.

(2) The public benefit foundation is the only type of foundation which is accepted in every Member State and in practice public benefit foundations are the most important type of foundation.

(3) In the 27 Member States, considerable regulatory differences can be found. However, as regards public benefit foundations there are also important similarities which on balance are more substantial than the remaining differences.

(4) In respect of both civil law and tax law, the cross-border activities of Member State foundations are subject to legal barriers. As in company law, most of the barriers can be overcome, but compliance costs result which will often be higher than they would be in company law.

(5) The calculable cost of barriers to the cross-border activities of European foundations ranges from an estimated €90,000,000 to €101,700,000 per year. Additionally, there are incalculable costs (costs of foundation seat transfer, costs of reduplication, psychological costs, costs of failure, etc) which are certainly higher.

(6) Five policy options emerge for addressing cross-border barriers and thereby stimulating foundation activities. These policy options differ substantially in terms of their cost effects as well as in their legislative and administrative implications. In comparing the various models, the European Foundation Statute seems to be the preferable policy option.

(7) Apart from the reduction of the costs for cross-border activities, a European Foundation Statute could have further positive effects on the general governance of foundations and trusts; on the behaviour of donors; on the corporate sector; and on the European economy, especially in the field of research and development (R&D).

5. Outlook

Whether and, if so, in what form a European Foundation will be introduced remains an open question. The European Commission has decided to start the impact assessment process which it has to undertake before submitting any new legislative proposal for adoption by the EU institutions. The impact assessment aims to analyse the proposed initiative, its objectives and its likely impacts in the economic, environmental and social fields. The result of this analysis is expected in the near future.


Thomas von Hippel, ‘Zur Idee einer Europäischen Stiftung’ [2004] Zeitschrift zum Stiftungswesen 120; Klaus J Hopt, W Rainer Walz, Thomas von Hippel and Volker Then, The European Foundation (2006); Klaus J Hopt and others, Feasibility Study on a European Foundation Statute (2009).

Retrieved from European Foundation – Max-EuP 2012 on 14 April 2024.

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