The parity of charity

Globalisation is causing many charities to set up international bodies, or to revitalise existing ones so as to coordinate their dispersed activities. It started with the larger organisations, such as the International Save the Children Alliance, but the trend is now growing.

UK charities often set up overseas offices, and some coordinating bodies, such as the Red Cross' international federation Red Crescent, have been around for years, but there seems to be a current globalisation trend. One of the main motives is the desire to increase revenue. Multinational companies are offering large sums of money to charities that can establish cross-border cause-related marketing relationships with them.

For multinational – often internet-related – companies it is a great incentive to be able to liaise with one central body which holds all the legal rights to a charity's brand, and which can guarantee consistency in cause-related marketing deals. Even where bilateral agreements between the commercial partner and the local charity are necessary for tax reasons, the role of the coordinating body can be crucial in clinching these deals in the first place.

More traditional reasons for establishing an international office are that charities, like international corporations, often wish to centralise standards, coordinate membership lists and achieve a more cost-effective use of resources. They may also seek to maximise their lobbying potential by replicating the structure of organisations they wish to lobby, such as UN agencies.

Switzerland and the Netherlands have always been popular locations for charities to base their international bodies, but many are starting to look at London as an alternative.

There are a number of important factors to consider before a charity decides where it should be based. It is important to realise what tax benefits are available for UK charities. The UK is acknowledged as having an extremely generous tax system for charities. In a survey of a number of leading charity-giving countries, undertaken by Bates Wells & Braithwaite, no jurisdiction other than the UK allowed trading subsidiaries of charities to claim 100 per cent tax relief on donated trading profits.

In the past year, a raft of innovative tax reforms have consolidated this advantage. For example, Gift Aid provisions have been simplified with the abolition of a minimum donation and the introduction of a much more flexible form of declaration. In addition, companies which do not reside in the UK can use the Gift Aid scheme as part of a groundbreaking new relief. The value of mainly quoted UK and overseas shares and securities given to a charity can now be offset against a donor's taxable income.

It must also be clear what the available structures are for establishing a charity in the UK. This country offers a unique range of structures, ranging from limited liability companies to trusts and unincorporated associations. Limited liability for directors of charitable companies has to be seen in the context of potential personal liability for breaches of trust. However, the fact that trustees' indemnity insurance is an option makes the overall package of risk exposure through a charitable company an attractive route, and one which is not on offer in every jurisdiction.

But are there any restrictions on foreign nationals serving on the board of a UK charity? For charitable companies in the UK there is no requirement stating that the majority of board members must be resident here. With regards charitable trusts, provided the charity has substantial assets in the jurisdiction and is constituted by a UK trust deed, it may be possible to have a majority of non-resident trustees. Again, this flexibility is not on offer in every jurisdiction.

The rules, regulated by government and non-government agencies, are also important. Few countries have a specific body dedicated to the regulation and furtherance of the charitable sector, such as the Charity Commission, whose jurisdiction covers England and Wales. It is true that this regime may be among the toughest, with incorporated charities also subject to the regulation of Companies House, but tough regulation is often seen as a positive attribute, building confidence with donors and beneficiaries.

London has long been a centre of the financial markets, but thanks to a beneficial tax regime, flexible structures and a respected regulator, it is now also becoming the heart of international donor activities.

It is trademarks (along with domain names) and copyright issues that impact most significantly on the work of charities, with some major developments in the past year.

Charities have always run into problems around the descriptiveness of newly-created trademarks. Where there is use, the Trade Mark Registry has been willing to place an economic value on the role played by celebrity patrons and supporters. For instance, Diana Princess of Wales was renowned for her charity work, and although her memorial fund had problems with registering her name as a trademark, registration has recently been obtained of The Princess of Wales Rose as a UK trademark for the British Lung Foundation. This application succeeded because Princess Diana was a patron of the charity and justification for the trademark had been built up prior to her death.

Aside from issues of use, the UK Trade Mark Registry has recently announced a major departure in its practice concerning registration of retail services, which will affect charity shops, charity catalogues and their e-shopping sites. It is now possible for charities to register as retail services (Class 35). Prior to this, an application had to be made to register each individual class of goods and services that were being sold.

The case of Phonographic Performance Limited v South Tyneside Metropolitan Borough Council, decided in November 2000, is important in clarifying the nature of which organisations can take advantage of Section 67 of the Copyright and Designs Patent Act 1988, which gives charities permission to use sound recordings without infringing copyright. In this case, a local authority was deemed to be outside the scope of the section concerned with clubs, societies or other organisations that are “charitable or otherwise concerned with the advancement of religion, education or social welfare”.

A recent court judgment in the case of Paddy Ashdown against the Telegraph Group, could also have far-reaching implications for charities and other organisations in terms of the impact of the Human Rights Act 1998 on copyright. This case concerned the leaking of the minutes of a meeting between Tony Blair and Paddy Ashdown. Decided in January 2001, judgment was awarded in favour of Paddy Ashdown, stating that Article 10 of the convention (the right to freedom of expression) could not be relied upon to create a defence to infringement in addition to those already in the act. This decision is being appealed. The outcome will affect charities in terms of their strategies to police the exploitation of their copyright material.

Lawyers generally regard the Human Rights Act, implemented in October 2000, as a sword or a shield, but for many charities and other voluntary organisations, it has the potential of a Swiss Army knife – it has a multitude of purposes.

The act brings home the rights and freedoms guaranteed by the European Convention on Human Rights, and many of those rights are concerned with voluntary organisations. They can audit legislation to ensure that the rights of their beneficiaries or constituencies are not infringed; they can lobby ministers to take action where rights are being infringed and support (by funding or intervening in) actions by victims. But charities have less freedom than other voluntary organisations to undertake such political action and must take account of the Charity Commission's guidelines on political activities and campaigning (see pages 32-33).

The act might also create new charitable purposes, such as the promotion of human rights. Religious organisations not yet recognised as promoting religion under charity law may secure charity registration. The Church of Scientology was recently rejected for registration and charity lawyers are waiting to see whether an appeal will be lodged and whether the Human Rights Act will be invoked.

Many charities are public authorities and so are directly affected by the act. Some are established to perform public functions, such as the National Trust, while others are taking on state functions, particularly in the fields of health and social welfare, which are minefields for convention rights.

Many charities see the Human Rights Act as an opportunity to audit their practices. Most which do so will find that they meet the convention's requirements or if not, they can easily adopt the new practices. n

Rosamund Smith and Philip Kirkpatrick are partners, and Virginia Henley and Lawrie Simanowitz are assistants at Bates Wells & Braithwaite