This paper has several parts and is designed to be useful in thinking about a variety of questions that have arisen in the implementation of the 2016 Charity Law in China. It presents the parts with the view that comparisons are generally very useful for legal analysis and setting up new legal procedures as China and its Ministry of Civil Affairs (MCA) must now do.
Background
China is essentially a “civil law” country, but without a full civil code like Germany or Japan. The National People’s Congress (NPC) just recently passed a format for such a code called “General Provisions on Civil Law (GPCL),” adopted in March 2017 (http://www.chinadaily.com.cn/opinion/2017-03/14/content_28546809.htm). This will go into effect in October of this year (these “Provisions” are significantly different from the 1986 “Principles,” also known as GPCL). In civil law countries like Germany and Japan, the concept referred to in the Chinese (and British) legislation as “charity” is called “public benefit” (Germany) or “public interest” (Japan). One must wonder the reasons behind the thinking of the NPC legislators in choosing the term “charity” (cishan) to describe the concept of public benefit (gongyi) and consider how the scope of the law is narrowed as a result[1].
Definitions of “charitable”
China’s NPC passed the progressive new piece of legislation it called the Charity Law (CL) last March. It went into effect last September. It defines charitable activities thus:
(1) poverty alleviation and assistance;
(2) eldercare, aid for orphans, aid for the ill, assistance for the disabled, or special aid;
(3) relief from damage caused by natural disasters, disasters caused by accidents, public health incidents and other emergencies;
(4) promotion of the development of education, science, culture, health, and sports etc.;
(5) prevention and control of pollution and other public harms, and protection and improvement of the environment; and
(6) other public interest activities compliant with the provisions of this law.
These activities are similar to the purposes defined in the Charities Act (2011) in England and Wales:
- The prevention or relief of poverty;
- The advancement of education;
- The advancement of religion;
- The advancement of health or the saving of lives;
- The advancement of citizenship or community development;
- The advancement of the arts, culture, heritage or science;
- The advancement of amateur sport;
- The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
- The advancement of environmental protection or improvement;
- The relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
- The advancement of animal welfare
- The promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
- Any other charitable purposes
One of the marked differences between the Chinese definition and that of England and Wales is the inclusion of religion in the latter, but that is historical and cultural, and we will not dwell on it in this short paper.
Also of note is that the English and Welsh definition uses “charitable purpose” whereas the Chinese uses “charitable activities.” The latter is then qualified, albeit open-endedly, with the words “through means such as the donation of property, or the provision of services.” Ultimately enforcers are given significant flexibility in their power to decide whether any other form of activity counts. Activities like holding a knowledge-sharing conference, engaging in policy advocacy[2], and running capacity building programs for other charities—all of which important forms of public interest work in China today—hang in the balance.
Systems of law
One thing that Chinese regulators and lawmakers may not know is that the England and Wales definition derives from the common law and the so-called “4 heads of charity.” They were set out in a specific case. The recent statute clarified the four classes and added more classes (there are now 11 — 10 plus a catchall) to make it easier for courts to make decisions about whether organizations could be classified as charities. While China has no common law (which means that no definitions can be derived from case law), the current definition of charity in Britain has been legislated and thus it is in that regard like the one in China. The same is true in Australia, for example, where the law provides for a definition (http://www.austlii.edu.au/au/legis/cth/num_act/ca2013104/s12.html) but the common law may still be relied upon in deciding whether an organization is a charity.
The GPCL creates the category of legal persons that are non-profits, but it does not define charities (the definition is left to the Charity Law). It does create classes of non-profits – social groups (shehui tuanti), foundations (jijin hui), and social service organizations (shehui fuwu jigou), but these are not yet qualified as “charities.” Thus, non-profit legal persons come into existence in a manner that is regulated by the MCA, where they register and obtain their legal personhood. They must then be “accredited” as charities, which entitles them to certain benefits, including tax exempt status and the right to issue tax receipts to donors so that they may take a deduction on their own individual (and corporate) returns. In China, as in the other countries mentioned so far in this discussion, the status of the entity is therefore de-linked from its tax status.
This is different from what happens in the United States, where the regulation of what is a charity is given to the Internal Revenue Service (IRS). Thus, we call the system in the US one that is driven by the tax code, even though the officials charged with implementing US 501 (c) (3) do not try to go after maximum revenues. In contrast to other revenue agents, who do seek to maximize revenues, those that oversee the charities in the US treat them with utmost respect and attempt to help them when necessary. The law that those revenue agents apply defines charitable purposes as follows:
“religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals….”[3] Despite its brevity, the US definition is similar to those in China and England and Wales.
What rules are followed to better classify charities and who issues them?
If we study only the England and Wales and the US definitions, it is obvious that more clarity is needed for the bureaucrats to apply the vague and perhaps overly broad rules to individual organizations seeking charity status. In the US, the more fine-tuned rules are found in Treasury Regulations and Revenue Rulings (issued by the IRS, and subordinate to the Treasury Regulations). In England and Wales, the Charity Commission issues such clarifying documents (of various levels of importance and breadth of scope).
Our suggestion is that a similar method be adopted in China. Because a division of MCA is already charged with accrediting charities, it seems it has sufficient authority to give administrative guidance to charities seeking to be accredited. So, for example, Jediism has been ruled by the Charity Commission not to be a religious charity in England[4].
In the US, “fake” churches do fare well being treated as religious organizations when they are set up as tax shelters. https://www.forbes.com/sites/robertwood/2016/12/05/man-guilty-of-tax-evasion-over-fake-church-could-face-25-years/#4419c8597ebb. So too in China, where there is extensive environmental legislation, the MCA should easily be able to decide whether an organization seeking classification as an environmental charity[5]. deserves that status. The MCA, like other administrative bodies around the world, can act proactively to challenge the status of an entity seeking to be classified as a charity and draw on the experience of the Charity Commission for England and Wales as to how China might provide more detailed guidance for the would-be charities.
Moving forward in China
Despite the differences in coverage and oversight agencies, the systems in China, the US, and England and Wales are quite similar. As such, it is probable that taking into account the experiences in the US and England and Wales would prove useful in China. It might also be useful to examine the new rules in Japan and the oversight commission there for guidance as to how to implement the Chinese Charity Law and the GPCL[6].
Karla Weber Simon is the President and Research Director of International Center for Charity Sector Law (ICCSL)
[1] The author worked with the team set up by BNU’s Institute of Philanthropy and urged the use of gongyi, but was unsuccessful in pushing for this.
[2] This would not be “legislative activity” under the law in the US.
[3] Here we have eliminated the provisions that deal with legislative activities of charities and the so-called “inurement” rule, which is also contained in the Chinese legislation.
[4] The Commission rejected an application to grant charitable status to The Temple of the Jedi Order. It said Jediism did not “promote moral or ethical improvement” for charity law purposes in England and Wales. In the 2011 census, 177,000 people declared themselves Jedi under the religion section, making it the seventh most popular religion.
[5] We are using this example for China, given that religion is not a charitable purpose.
[6] As we have said, Japan is a civil law country, and the UK and US are not. A good general summary of the provisions in Japan can be found at https://www.koeki-info.go.jp/pictis_portal/other/pdf/act.pdf. Further assistance on the Japanese system can be obtained by having a conversation with Ohta Tatsuo, head of the Japanese Association of Charitable Foundations (JACO) (ohta@kohoyo.or.jp)
