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Three Rs for Successful International Grantmaking: Regulation, Risk and Reputation March 14, 2016 Presented by: Ted Hart, ACFRE, CAP® CEO, CAF America

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Page 1: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Three Rs for

Successful International Grantmaking:

Regulation, Risk and Reputation

March 14, 2016Presented by: Ted Hart, ACFRE, CAP®

CEO, CAF America

Page 2: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

TED HART, ACFRE, CAP®

CEO at CAF America & President, of CAF Canada

Founder of ePhilanthropy Foundation

and Green Nonprofits

Radio Host- Nonprofit Coach (tedhart.com)

Author: Internet Management

People to People Fundraising

Nonprofit Guide to Going Green

Nonprofit Internet Strategies

Major Donors

Fundraising on the Internet

Welcome/Introduction

Page 3: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Charities Aid Foundation of America

(CAF America) is a global grantmaking

organization assisting corporations,

foundations and individuals. For over 24

years, we have been streamlining the

grantmaking process to eliminate risk and

administrative burden for our clients.

Through our work, we help donors support

great causes by assisting them in making

strategic, cost-effective and tax-advantaged

grants both internationally and domestically.

About CAF America

Page 4: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

CAF Global Alliance

Worldwide Collaboration

CAF LOCATIONS:

• United States • Canada• Brazil• United Kingdom• Bulgaria• Russia• South Africa• India• AustraliaAdvisor Networks• Asia Pacific• Africa

Page 5: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

We Understand Domestic

and International Grantmaking

*reflects giving for last five years through 7/15/15

*

Page 6: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Today’s Agenda

REGULATION, RISK & REPUTATION

Topics to be addressed:

• CAF Americas unique space in donor advised giving

•Challenges & roadblocks of international giving

• Ways to support international causes

• Restrictions when giving internationally

• Organizational vetting protocols &

IRS regulations

• Additional due diligence requirements

• Recent laws affecting international

philanthropy

• Best ways to mitigate risks

Page 7: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

• Most countries do not have “IRS-like” databases of approved charitable organizations

• Level of organizational vetting & compliance is more complex and costly than when issuing grants in the United States

• The barriers to ensuring that reputation will be protected is much higher

Challenges Conducting International

Giving

It is imperative to understand United States law as it pertains to international

giving as well as the rules and regulations of the countries where the

grantmaking/program support will occur

Page 8: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

• Make gift directly to organization (from the United States), receive no tax benefit

• Make donation though a Donor Advised Fund, and receive a tax receipt

• Utilize “in-country” funds to issue grants

3 Ways of Supporting International

Causes

Page 9: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

What are the restrictions of giving

internationally?

• No political activity

• No substantial private benefit orcommercial purpose

• Care must be taken to directsupport to individual employees

Restrictions When Giving

Internationally

Page 10: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

• No “earmarking”: No agreement, oral or

otherwise, that funds must go to predetermined

recipient or to recipient of donor’s choice.

• Must clearly inform donor that donor advised

fund has ultimate discretion/control over funds –

donor does not!

• IRS looks to reality, not just form:

• • Do we inevitably follow donor’s advice?

• • Do we provide our own expertise?

• • Are we serious about making sure grants

further our charitable purposes?

Restrictions When Giving

Internationally

Page 11: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

What protocols have the IRS

approved to allow giving

internationally?

• Equivalency Determination (ED)

• Expenditure Responsibility (ER)

IRS Regulations for International

Giving

Page 12: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Equivalency Determination (ED)

• Equivalency determination is the method by which a private foundation collects detailed information on a foreign charitable organization in order to determine whether or not it is the equivalent of a United States public charity described in Code section 501(c)(3).

*Please note that there are new regulations issued by the IRS in 2015

Page 13: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Equivalency Determination (ED)

Focused on Grantee as a Whole:

• Grant maker must make reasonable judgment/ good faith

determination that grantee meets U.S. standards

• Amendments to 26 CFR part 53 under chapter 42, subtitle D

of the Internal Revenue Code (Code). To avoid certain excise

taxes under chapter 42. www.cafamerica.org/latest-from-the-irs-new-standards-for-equivalency-determination/

• New Guidance: Qualified Tax Practitioners can provide opinions to third parties and affidavits are no longer considered sufficient to establish equivalency

Page 14: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Expenditure Responsibility (ER)

IRS Requirements and Penalty

• Pre-grant inquiry: “reasonable assurance” that

the expenditure is charitable

• Grant agreement restricts use of funds to

specific charitable projects

• Financial & narrative reports at least annually

& final cumulative report

• Reporting to IRS: Coming soon?

• 20% tax on amount of the grant if you get it wrong

Page 15: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Restrictions on Donor Benefits

25% tax on donor for any grant, loan,

compensation or similar payment to donor,

advisor or related parties (repayment required)

125% tax on other substantial return benefit

• Tickets, tuition credit, member dues, etc.

• Recognition for gift OK

• Round-tripping?

Page 16: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

International grantmakers need to follow U.S.

laws and provide for additional compliance

checks, such as:

• USA PATRIOT Act

• Executive Order 13224

• HR4 (the Pension Protection Act),

• U.S. Treasury Department Voluntary Guidelines

for International Grantmaking

• Foreign Corrupt Practices Act

Additional Due Diligence

Requirements

Page 17: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

Recently enacted and proposed laws are affecting the ways in

which companies conduct their international grantmaking in

such countries and international bodies such as:

• India

• Mexico

• China

• Russia

• E.U. Safe Harbor

Recent Laws Affecting

International Giving

Page 18: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

WHAT IS IT?

India is the first country in the world to mandate corporate social

responsibility, by implementing CSR guidelines requiring companies

to spend 2% of their (in country) net profit on social development

HOW IS IT AFFECTING CORPORATE GIVING?

• Companies with a large presence in India have already/may

soon reduce their grantmaking to other parts of the world in

response to the amount of funds now being allocated to India

• Changing the way companies consider their philanthropic

strategies within the country

• Long-term implications are still unknown

India’s CSR Law

Page 19: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

WHAT IS IT?

Due to concerns regarding the country’s issues around corruption

and drug-related money, Mexico places a very high level of burden

on grantmakers sending funds of $10,000 & greater to

organizations within the country.

HOW IS IT AFFECTING CORPORATE GIVING?• The regulations require that comprehensive documentation be provided

to the government from beneficiaries about the donor

• The information needed by the Mexican government includes copies of

IDs such as passports of the head of the donor organization and other

sensitive information

• Failure to understand and comply with these requirements will prolong

the grantmaking process & perhaps have more negative consequences

Mexico’s Grantmaking

Regulations

Page 20: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

WHAT IS IT? As proposed, overseas NGOs would be placed under the supervision of

the public security bureau, rather than the ministry of civil affairs, which

traditionally deals with them. In order to register, NGOs would be

required to find a government agency to sponsor them.

HOW IS IT AFFECTING CORPORATE GIVING?• While still in draft stage, the law could potentially have a significant

impact on companies already/wishing to issue grants within China

• It may also affect how existing charities operate within the country as

well as whether/how organizations attempt to register

China’s Proposed Overseas

NGO Management Law

Page 21: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

WHAT IS IT?

The Russian government assesses a 24% “tax” on charitable

organizations receiving funding from donors outside the country

HOW IS IT AFFECTING CORPORATE GIVING?

• Some grantmakers may shy away from granting there.

Russia’s “Tax” on Grants to

In-country NGOs

Page 22: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

• Within the EU, it is prohibited to send personal data outside of

the European Economic Area (EEA) unless there are adequate

arrangements and agreements in place

• Following a recent E.U. ruling, the Safe Harbor scheme is no

longer recognized as providing adequate protection for the

rights of EU individuals in connection with the transfer of their

personal data to signatories of the scheme in the USA.

• US organizations that collect, store or transfer personal data in

or from the EU will need to comply with the EU’s data-privacy

laws or risk sanctions from EU data protection authorities.

European Union Privacy Laws:

Safe Harbor

Page 23: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

KEY POINTS TO CONSIDER:

• Utilizing a Donor Advised Fund is typically more cost effective

than creating foundations in local countries where your

company conducts business, thus enabling you to allocate

more funds/resources towards programs (and ultimately

desired outcomes)

• Establishing a donor advised fund through an intermediary

organization enables companies to dramatically mitigate their

risk, while protecting its reputation and adhering to all

government laws and legislation

Best Ways to Mitigate Risks

when Granting Globally

Page 24: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

IRS tracks a long history of abuse

• “Donations” in lieu of tuition payments

• Grants for junkets or no charitable activity at all

Do not grant directly from a DAF scholarship awards

(or any other awards) to individuals

Equivalency Determination grants to charities for

scholarships are OK, so long as grantee selects

recipients “completely independently”

• No grantee rep or donor/advisor rep on

selection committee

• No non-charitable constraints (e.g., requirement that

only corporate executive children need apply)

Scholarship Programs

Page 25: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

QUESTIONS?

Page 26: Ted Hart presenting the 3 Rs of successful grantmaking at the Grants Managers Network Conference (GMN) New Orleans March 2016

CAF America – HQ

1800 Diagonal Road, Suite 150

Alexandria, VA 22314

202.793.2232

Ted Hart, ACFRE, CAP®

Chief Executive Officer, CAF America

[email protected]

www.cafamerica.org

Thank You!

CAF America – West Coast Office

50 California Street, Suite 1500

San Francisco, CA 94111

415.439.5347