Finance and public benefit – helpful guidance on the possibilities within the ANBI-regime

1. The ANBI-regime

The Dutch ANBI-regime refers to the requirements and regulations for public benefit institutions (in Dutch “Algemeen Nut Beogende Instelling” or ANBI). The ANBI-status applies, upon request to the Dutch Tax Authorities (DTA), to institutions that qualify as an ANBI. If the ANBI-status has been granted, the institution and donors could benefit from certain tax benefits. The ANBI-status is, for example, of importance to avoid gift tax on donations received by an ANBI, but also to avoid gift tax on donations made by an ANBI and will provide donors the possibility to deduct the gift in their individual or corporate income tax returns. In addition, qualification as an ANBI is generally seen as a Hallmark of good standing for not-for-profit organisations in the Netherlands.

2. Background of Decree

The Decree follows years of lobbying by the philanthropy sector and should provide more flexibility within the ANBI-regime for impact investments. It attempts to provide clarity on the question of whether impact investments are allowed under the ANBI regime and should not be subject to the anti-hording rules (as ANBIs may argue) or should be qualified as regular investments potentially breaching the anti-hording rules and hence the ANBI regime (as the tax authorities may argue).

3. Requirements public benefit investment

An investment for the purposes of this Decree means the provision of funds and/or goods, whether or not against the acquisition of shares or profit-sharing certificates, of which the (counter)value remains visible as an asset of the investing ANBI. Making funds available also includes the provision of loans.
An investment may be qualified as a public benefit investment and thus comply with the ANBI-requirements, if the following requirements are met:

a. Primarily and directly serving one or more of the ANBI's public benefit objectives
The purpose of the investment is to serve primarily and directly one or more of the ANBI's public benefit objectives as included in its articles of association. The public benefit objective(s) must be determined in a sufficiently concrete manner and must be entirely (or almost entirely – 90%) served by the investment.

b. No primary purpose to obtain a benefit/profit
The investment may not be a business activity with the primary purpose to obtain a benefit/profit instead of serving the public benefit. For this element it is of relevance that other commercial parties should not (or insufficiently) be willing to make that same investment given the financial risks involved. As such, applying market conditions will be seen as a business activity.

c. The use of the invested amount
The (amount of) the investment must (almost) entirely be used by the recipient for the purpose of the activity(s) or project related to the purpose of the investment made by the ANBI. Meeting this requirement requires an active attitude and involvement of the ANBI and the ANBI should agree on the use of the investment.

d. Involvement of board members and associated persons
A board member of the ANBI or a person associated with that board member (natural person or legal entity) is in no way involved as a founder, board member, shareholder, other capital provider or employee with the organisation in which the ANBI invests.

e. Financial records
The ANBI includes the investment visibly in its financial records and labels it as a public benefit investment. The ANBI also includes making public benefit investments in its policy plan or interim amendments to it.

This should not only be assessed when making an investment, but also over time.

4. Flexibility in case investment is not or no longer qualified as a public benefit investment

Furthermore, the Decree states that if the above requirements are not met for specific investments, this should be reported to the ANBI inspector within six months after the publication of the Decree. The ANBI inspector can offer the ANBI a reasonable period of time to meet the requirements. Also, when the requirements may no longer be met over time, the ANBI should report this. The ANBI inspector may then still offer a reasonable time for recovery.

Barbara den Exter, Associate Tax at Bird & Bird and part of the dedicated NGO team, says: “This Decree provides a very welcome framework for not-for-profit organisations that are also seeking for other forms of philanthropy in these challenging times.”

Arnoud Knijnenburg, Partner Tax at Bird & Bird and part of the dedicated NGO team, concludes: “The Decree offers institutions more clarity on the possibilities of investing in sustainable and social enterprises while maintaining their ANBI status and will be received by the sector with great interest.”