Myroslava Chornousko, Lawyer at the Centre for Democracy and Rule of Law

Constitutional framework of charity and CSO activities

According to the Preamble to the Constitution of Ukraine, it was adopted to guarantee human rights and freedoms and worthy conditions of human life, caring for the strengthening of civil harmony in Ukraine and striving to develop and strengthen a democratic, social and law-based state.

According to Article 3 of the Constitution of Ukraine, the human being, his or her life and health, honor and dignity, inviolability and security are recognized in Ukraine as the highest social value.

Article 46 of the Basic Law stipulates that citizens have the right to social protection that includes the right to social provision in cases of complete, partial or temporary disability, the loss of the principal wage-earner, unemployment due to circumstances beyond their control and also in old age, and in other cases established by law.

This right is guaranteed by general mandatory state social insurance on account of the insurance payments of citizens, enterprises, institutions and organizations, and also from budgetary and other sources of social security; by the establishment of a network of state, communal and private institutions to care for persons incapable of work.

In addition, Article 48 stipulates that everyone has the right to a standard of living sufficient for himself or herself and his or her family that includes adequate nutrition, clothing and housing.  At the same time, Article 8 of the Basic Law guarantees that the norms of the Constitution of Ukraine are norms of direct effect

Ensuring the enforcement of a significant number of constitutional guarantees takes place, among other things, through the charity tools.

Given that these norms suggest the general focus on the development of civil society and the perpetuation of charity as a permanent and integral element of the social component in the normal functioning of the state and society, the Basic Law serves as a deep foundation for further development of this institution in Ukraine.

According to the Ministry of Social Policy, the results of 2020 show an increase in poverty based on the main criteria. In particular, for expenditures below the actual subsistence level, it increased from 41.3% in 2019 to 47.2%, and for incomes below the actual subsistence level – from 23.1% to 23.2%. Instead, the level of “absolute poverty”, based on the statutory subsistence level, has increased to 1.6% (vs. 1.1% in 2019). At the same time, official data from the State Statistics Service show that due to the hryvnia devaluation, the solvency of Ukrainian pensioners decreased in 2020, despite the increase in the level of hryvnia pensions. Thus, pensioners continue to be one of the objectively important beneficiaries of charitable assistance. 

At the same time, the report of the United Nations University World Institute for Development Economics Research contained data that, in the worst case scenario of the economic crisis, the number of people living below the poverty line could increase by 420-580 million. OXFAM, an association of 20 non-governmental organizations working to fight poverty, has previously claimed this growth. In turn, the UNICEF report issued in April 2020 had data on Ukraine: According to experts, the poverty rate was projected to increase due to the pandemic from 27.2% to 43.6%, and under the pessimistic scenario – up to 50.8% of the total population. The reasons for such predictions, which have come true in part, include complication in labor migration due to restrictions on crossing interstate borders and the loss of jobs by a large part of the population.

All of the above actually demonstrates the expansion of categories of citizens in dire need of social (financial and domestic) support, with the tools of charitable activities being one of its sources. 

Charity in Ukraine: statistical context

Every year for the past ten years, the leading international charity Charities Aid Foundation publishes the World Giving Index as one of the main benchmarks of achievements and failures of the states in this field, which allows providing an objective assessment of their achieved goals and lost opportunities, and, consequently, determining the priorities of this area important for the formation and development of civil society. 

This ranking, among other things, demonstrates the existence of some achievements of Ukraine in this context. Thus, according to the 2019 study, our state ranked 101st, but according to the 2020 results, Ukraine jumped into the top twenty countries with the best performance. 

The ranking is based on survey data on the involvement of citizens from 128 countries in the existing forms of charity. Thus, the analysis is based on respondents’ answers to the three key questions regarding their involvement in activities such as making financial donations; volunteering in NGOs; helping strangers. In particular, according to the survey, 6% of Ukrainians provided assistance to strangers, 19% were involved in volunteer activities of public organizations, and 43% provided charitable donations. 

What is behind “ranking success”?

At the same time, according to the State Statistics Service, as of September 1, 2021, there are 20,097 charitable organizations and 95,380 NGOs in Ukraine (out of a total of 1,423,677 registered legal entities).  This indicator, compared to the same period in 2018 (18,205 charitable organizations) and 2014 (15066 charitable organizations), indicates a rapid increase in public interest in charity. It can be assumed that this state of affairs is due to, first of all, the global tendency to strengthening the role of civil society in addressing priority issues, including social ones, which the state alone, taking into account objective and subjective factors, cannot do at the current stage. Moreover, given the prolonged armed aggression on the part of the Russian Federation in Eastern Ukraine and the coronavirus pandemic, the vast majority of citizens has been increasingly feeling and continues to feel the need to express empathy for those whose lives have been significantly affected by such determinants. Thus, since the beginning of events in Eastern Ukraine, citizens have exhibited and continue to exhibit a significant level of interest in financial, economic and domestic support of Ukrainian military personnel, volunteers who defended the territorial integrity of Ukraine, as well as support the local population on the demarcation line and internally displaced persons. Such reality conditioned a value reorientation of the majority of Ukrainian society, which, in turn, served as the basis for a shift in focus of existing CSOs, as well as the creation of new specialized NGOs and charitable foundations. 

Thus, it can be stated that the challenges the state has faced over the past few years have led it to take a leading position in the World Giving Index. In general, the analysis of successful global practices in the field of charity helps us conclude that both their timely response to today’s challenges and the proactivity of states in general and CSOs in particular is an indicator of their new level of understanding the interaction between the state and society in terms of consolidating efforts regarding the quality and full transformation of CSOs as entities capable of self-financing, as well as public support for those entities or areas that need it.

Taking into account the above, it seems fair to talk about the presence of significant potential for further development of charity in Ukraine. Meanwhile, it should be noted that improving the “climate of promoting” the development of charity still remains a key issue that needs to be addressed at the state level in the nearest future. Below is the research into the tools for achieving this global objective. 

Charity in Ukraine: certain issues of regulatory support

The Law of Ukraine “On Charity and Charitable Organizations” does not contain sufficient norms for favorable regulation and comfortable law enforcement. Adopted in 2013, the original version has hardly changed. The latest changes concerned only a superficial regulation of patronage in sports, given the adoption of the relevant law, which entered into force in July 2021. The remaining norms are characterized by neither exhaustiveness, nor legal certainty, nor relevance in addressing the main challenge in this area today – the promotion of charity, including as part of business engagement and encouragement of citizens. 

In particular, according to the author, the list of charitable entities is not exhaustive.

“Article 4. Charitable entities

1. Charitable entities are charitable organizations established and operating in accordance with this Law, as well as other benefactors and beneficiaries.
2. Restrictions on political parties, candidates for elective offices in state or other public service as charitable entities are determined by the laws of Ukraine.
3. Charitable entities have the right to carry out charitable programs, joint charitable activities and other types of charitable activities together with non-residents, taking into account the features determined by the laws or international treaties of Ukraine.”

1. The issue of patronage is not clearly regulated. 

Thus, within the meaning of the Law, patronage is charitable activity in the fields of education, physical culture and sports, culture and art, protection of cultural heritage, science and research, which is carried out in the manner prescribed by this Law and other laws of Ukraine.

At the same time, it is quite clear that the issue of patronage in sports has recently been settled at the level of the Law on Physical Culture and Sports. In particular:

“Patronage activities in the field of physical culture and sports mean voluntary gratuitous provision by individuals and legal entities (patrons of physical culture and sports) of financial or other support of physical culture and sports to the acquirers of patronage assistance;

Patronage assistance means support or assistance in the development of physical culture and sports, which is provided by the patron of physical culture and sports to individuals and / or legal entities within the types and areas specified by law.

At the same time, it should be noted that the law takes into account the European practice of supporting sports by business representatives and the specifics of domestic legislation, determines the areas and types of such activities, in particular: Providing facilities and resources for the development of physical culture and sports, financial and other assistance to athletes, assistance in preparing for and participating in the Olympic, Paralympic and Deaflympic Games, etc.

In addition, Article 51-1 regulates the issues of patronage in the field of physical culture and sports, in particular:

• Patronage activities in the field of physical culture and sports are carried out in order to develop and promote physical culture and sports, increase their importance in society, promote physical and spiritual development of the individual in the following areas:
• Providing facilities and resources for the development of physical culture and sports;
• Participation in the implementation of projects and programs for construction, reconstruction, repair (including overhaul) and upgrade of sports facilities in Ukraine;
• Financial and other assistance to Ukrainian athletes and specialists in the field of physical culture and sports in order to help them achieve the best sports results;
• Financial and other support for sports events;
• Preparation for participation and participation in the Olympic, Paralympic and Deaflympic Games, the Global Games of Athletes with Intellectual Disabilities, the World Games in Non-Olympic Sports.

The subjects of patronage in the field of sports are:

• Patron of physical culture and sports means a legally capable natural person or legal entity of private law (including charitable organization) that carries out patronage activities in the field of physical culture and sports in one or more areas specified in part one of this article;
• Recipient of patronage assistance means a subject of physical culture and sports as defined by section II of this Law;
• Beneficiary means a natural person or legal entity that is a resident of Ukraine, designated by a patron of physical culture and sports or a recipient of patronage assistance in the agreement on patronage as a patronage assistance acquirer. Beneficiary is the ultimate recipient of patronage assistance and is obliged to use it only in the field of physical culture and sports in accordance with this Law and may not act as an intermediary in receiving patronage assistance by another acquirer.
• The patron of physical culture and sports, the recipient of patronage assistance and the beneficiary may not be related persons within the meaning of subclause 14.1.159 clause 14.1 Article 14 of the Tax Code of Ukraine.

Patronage activities in the field of physical culture and sports are carried out by patrons of physical culture and sports as follows:

• Gratuitous transfer (donation) of buildings, premises, structures, unfinished buildings, land plots, vehicles, funds to the ownership of the beneficiary;
• Gratuitous assignment of property rights in favor of the beneficiary;
• Purchase and transfer to the ownership of the beneficiary of sports equipment, gear, garments, other property necessary for activities in the field of physical culture and sports;
• Gratuitous transfer of income from property and property rights to the beneficiary;
• Gratuitous rendering of services and performance of works by the patron of sports in favor of the beneficiary.
• Beneficiaries may use the patronage assistance acquired by them in accordance with the patronage assistance agreement in the following areas:
• Construction, reconstruction, repair (including overhaul), upgrade and use of sports facilities and other sports infrastructure;
• Procurement of sports equipment, gear, garments, other property necessary for activities in the field of physical culture and sports;
• Organizing and holding in Ukraine sports competitions, physical culture and health-improving events, as well as methodical, judicial, educational, scientific, medical and other events, ensuring the preparation and participation of athletes in such events, information support in the field of physical culture and sports;
• Preparation and participation of Ukrainian athletes in official international sports competitions and sporting events outside Ukraine, included in the Unified calendar plan of physical culture and health and sports activities of Ukraine;
• Training, retraining and advanced training of athletes and coaches, sports judges, scientific and methodological and medical support of sports activities, measures to combat doping in sports.

Patronage activities in the field of physical culture and sports are carried out on the basis of a written agreement on patronage between the patron of physical culture and sports and the beneficiary or between the patron of physical culture and sports and the recipient of patronage for the benefit of beneficiaries as determined by the patron of physical culture and sport or the recipient of patronage. The agreement on patronage assistance is not subject to mandatory notarization, unless otherwise stipulated by law or agreement.

The essential terms and conditions of the agreement on patronage assistance shall be as follows:

• Provisions on the type of patronage activity and areas of use of patronage assistance by the recipient and beneficiary (beneficiaries) of such assistance;
• The scope and duration of the patronage assistance;
• The procedure for exercising control over the use of patronage assistance, including the procedure for access to financial statements;
• Liability of the parties in case of breach of contract.
• Other terms of patronage assistance, not contradicting the legislation, may be stipulated by agreement between parties as essential conditions of the agreement.
• State control of patronage activities in the field of physical culture and sports is carried out in accordance with the law.

In this context, it should be noted that it is debatable to establish at the legal level the rules governing the requirements of the agreement, and even more so – their exhaustive list, given the need to ensure flexible rules of interaction between stakeholders to create an atmosphere of maximum assistance to those who show readiness to join patronage, which will further expand the range of such persons and entities through such encouragement. 

At the same time, it seems appropriate to review the approach to state control over the implementation of patronage activities. It would be appropriate to entrust its implementation to third parties accredited by the state, again in order to ensure the principle of deregulation, which will ensure the transparency of the relevant controls.

Article 51-2. State support and guarantees of patronage in the field of physical culture and sports

State support for the activities of patrons in the field of physical culture and sports shall be provided by:

• Giving state awards, honorary awards to patrons of physical culture and sports;
• Promoting the perpetuation of the name of the patron of physical culture and sports in buildings, structures, sports facilities provided as patronage assistance or created as a result of providing patronage assistance in the field of physical culture and sports;
• Implementing organizational and informational measures to promote patronage activities in the field of physical culture and sports;
• Providing benefits and other assistance to patrons of physical culture and sports in accordance with the law.

The state shall guarantee individuals and legal entities the opportunity to freely carry out patronage activities in the field of physical culture and sports. No one shall have the right to restrict the patron’s freedom of choice of physical culture and sports in the areas and types of patronage activities defined by this Law.

Article 51-3. Information support for patronage in the field of physical culture and sports

Acquirers of patronage assistance shall have the right to place a trademark, logo, other designation of the patron of physical culture and sports with whom they have an agreement on patronage, in any advertising related to the activities of the acquirers of patronage.

The peculiarities of using the designation of a patron of physical culture and sport in advertising of the acquirer of patronage should be established by the agreement on patronage.

The designation of the patron of physical culture and sports in the advertising of the acquirer of patronage is not considered advertising of the patron of physical culture and sports or their goods or services within the meaning of the Law of Ukraine “On Advertising”.

Posting information about the patron of physical culture and sports during the preparation and holding of official sports events is equated to social advertising.

However, the issue of patronage in other areas remains outside the scope of detailed legal regulation, and therefore needs to be regulated in order to increase the applicability of such an institution.

2. Management of charitable endowments is still not a common type of charity, given the vagueness of legal regulation, so an effective charity tool is currently effectively constrained by the state.

There is currently no universally recognized concept of endowment. There are many types of endowments with different purposes, timing, and sources of formation, etc. For example, in Ukraine the single definition of endowment is currently contained in Article 170 of the Tax Code and is defined as the amount of funds or securities that a philanthropist deposits into a bank or other financial institution for at least 12 months and uses interest and dividends accrued on this amount for charitable assistance; Beneficiaries do not have the right to alienate the principal amount of the endowment without the consent of the benefactor. There are no restrictions on minimum capital, specific goals and acquirers, or even the amount of reinvestment. Instead, all non-financial assets (such as real estate) are excluded from the principal amount of endowments, and it is difficult to understand why financial institutions are required to participate. In EU countries, on the contrary, endowment management is the prerogative of charitable foundations (EU Directive 77/388/EEC) and is not recognized as a financial service if the fixed capital is owned by such foundations.

At the same time, tax benefits for philanthropists in Ukraine, including income and profit tax rates, are currently the lowest in Europe. The only special benefit is that the gratuitous transfer of securities to endowments is exempt from VAT. 

• There are no clear special regulations for the execution of wills, bequests and inheritance agreements for charitable activities. Thus, in order to promote this method of charity assistance, it is necessary to establish clear and transparent provisions that allow the proper exercise of both the rights of the testator and the rights of the heir. An analysis of judicial and notarial practice in this area is necessary.
• An unfavorable factor for the activities of philanthropists is the current procedure of state control over their activities. Thus, according to the relevant law, state control in the field of charitable activities is exercised by executive authorities and local governments within their powers. The need to deregulate the activities of charitable organizations is indicated by the fact that today 14 state control bodies aim their activities at scheduled and unscheduled inspections of charitable organizations, excluding local self-government bodies. 
• There is a need to study the issue of the effectiveness of the regulation of volunteer activities, in particular the functionality of the register of volunteers, the establishment of benefits and guarantees of their activities, as well as the functionality of the institute of Presidential Commissioner for Volunteer Affairs and its use to build volunteering capacity. At the same time, there are questions about the taxation of volunteering, compensation for travel, accommodation, meals, participation in CSO activities and taxation of services received from CSOs. Despite the fact that the relevant law establishes the relevant benefits, in accordance with item “d” subclause 164.2.17 clause 164.2 of Article 164 of the Tax Code of Ukraine, additional benefit in the form of the amount of monetary or property reimbursement of any expenses to a person is credited to their taxable income. In case of such a conflict in the legislation, the provisions of the Tax Code of Ukraine have higher legal force, and therefore the amount of reimbursement of the above costs to the volunteer, except for the costs of volunteers entered in the Register of ATO volunteers (item “b” subclause 165.1.54 clause 165.1 of Article 165 of the Tax Code of Ukraine) is credited by the non-profit organization to the taxable income of the volunteer and is subject to personal income tax and military duty.
• Today there are no incentives for business representatives to carry out charitable activities. In particular, there are no tax and customs benefits that could help involve business organizations in charitable activities, so there is a need to amend the Tax and Customs Codes. At the same time, advocacy for socially responsible business is needed. 

Practice and achievements of foreign countries in the field of charity. Tools for Ukraine

Based on the analysis of open source data we see that the largest charitable foundations are located in the United States, the Netherlands and the United Kingdom. It can be assumed that this situation has become possible due to the creation of favorable conditions for donors, charities and non-governmental organizations. We will try to find out in our further analysis whether this is really the case and as well as the specifics of the charity system functioning in foreign countries. 

According to the World Giving Index, since its inception, the United States have been at the top of the ranking followed by Myanmar and New Zealand, respectively. The latter is the only country that managed to be in the top ten of the world’s leading countries by all indicators. At the same time, the top ten includes Ireland, Great Britain, Sri Lanka, Australia, Canada, the Netherlands and Indonesia. Logical for Ukraine, which approached the leaders for the first time this year, entering the top twenty, is the question of key approaches to regulating the various forms of charity that provide sufficient incentives for such activities; however it is still premature to talk about the well-established understanding of charity in Ukrainian society. At the same time, the organization compiling the ranking focuses on the fact that the most necessary elements for success in this area are dissemination of information on relevant initiatives, ensuring transparent and clear regulation of CSO activities, creating conditions for funding organizations that support donors and CSOs in creating an infrastructure capable of raising funds for the benefit of civil society upon completion of donor assistance, building public confidence in CSOs, involving citizens in the management of state and public affairs on the ground to fully disclose and strengthen local civil society, recognizing the possibility of assisting grantees in establishing a sustainable support system at the local level and ensuring their appropriate funding.

For example, in the United States, until 2017, citizens had the opportunity to have part of their charity expenses reimbursed through tax returns and were deprived of this right due to the adoption of relevant tax changes, which, in turn, was one of the factors behind decline in charity. A similar negative trend is observed in Canada. Meanwhile, a common trend for most countries is an increase in the involvement of citizens in charitable activities after the age of 50. However, in developing countries, this feature is more often due to religious or cultural motives rather than the high level of well-being of people of retirement age. For example, extrapolating this approach to Ukraine, pensioners are more likely to be recipients of charitable assistance. Moreover, in addition to charity in the traditional sense, in the U.S. and Canada the field of social work is widespread, while in Ukraine it is actually only in its infancy. 

In fact, the activities of administrative funds that manage charitable accounts of individuals or companies are (if any) unregulated in Ukraine and, instead, quite popular in the United States. Depositors receive tax benefits in the amount deposited in the account, and the fund, guided by their wishes, transfers funds to charity. In addition, a similar situation applies to wills for charitable purposes. One of the reasons behind this situation is the lack of legislative regulation, along with the low level of awareness of Ukrainians about the possibility of such a mechanism. 

One of the key points of US law that should be implemented into national law in order to promote charity and expand the network of CSOs is the ban on interference by public authorities and their officials in the activities of charitable organizations.  Instead, in Ukraine there is a reverse trend towards strengthening state control over CSOs. 

If we talk about the involvement of businesses in charity, the most common are social investments (in Ukraine this area is also developing, for example, the Ukrainian holding “Metinvest” initiated the establishment of university that will train specialists for further employment in the holding companies, and a number of leading companies in various areas, as well as NGOs, offer students internships so that they could gain experience with a view to further employment, initiating and ensuring participation of companies in important social projects to protect the environment, help the seriously ill, etc.), corporate philanthropy. One of the most successful countries that have recognized the value of working with CSOs is Canada, where businesses are actively involved in social activities. At the same time, the analysis of global trends allows us to state that the vast majority of companies began to participate in corporate philanthropy before 2000. Meanwhile, for Ukraine today, this is a newer experience, the foundation of which it started building after this period, with the intensification becoming possible as a result of the adoption of the relevant law. 

Conclusion. According to a survey conducted by the Zagoriy Foundation, Ukrainian companies complain about the lack of conditions created by the state for charitable activities, including a number of bureaucratic barriers (as stated at the beginning of our study), lack of optimal mechanisms to control the use of funds. At the same time, it should be noted that there is a lack of sufficient and appropriate tools for free CSO activities in general independent of state pressure. 

To summarize, it is necessary to note the need to strengthen the institutional and functional capacity of civil society organizations that can help the state in solving socio-cultural problems of citizens and support for research works and projects.

The views expressed in this article are those of the author and do not necessarily reflect the views of CEDEM, USAID or the US Government