From:Filiz Bikmen, Programme Director, Türkiye Üçüncü Sektör Vakfı (TÜSEV)

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Date:May 18, 2004

Meeting Summary Report:

Roundtable on Foundations and Philanthropy in Turkey14 June 2003

This summary report was prepared based on a roundtable meeting in Istanbul, Turkey on 14 June 2003, hosted by the Third Sector Foundation of Turkey (TÜSEV)with Turkish and foreign foundation representatives[1]. The objective of the meeting was to identify and discuss current challenges and opportunities facing foundations in Turkey. Items referring to legal and fiscal issues are subject to change due to frequent current legislation reforms. For more information regarding these topics and subsequent activities, please contact .

Legal and FiscalEnvironment

The ‘Definition’ of Foundation:

Turkish law distinguishes between foundations (asset-based) and associations (member-based). Foundations tend to be operating (as opposed to grantmaking) and several of them are also actively fundraising. Due to the lack of a sector-wide research study (such as CIVICUS CSI and Johns Hopkins) the third sector has yet to officially classify the myriad of different types of organizations which comprise ‘foundations’ and ‘associations’. The emerging organizational model of NGOs (neither member nor asset based, formed with purpose of public benefit) is creating new debates on the frameworks which exist to support civic organizations.
Turkish law does recognize differences between state and privatefoundations, although this is not well understood by the public at large and leads to misconception of the purpose and aim of a foundation. Furthermore, there are many emerging differences in types of private foundations (family, company sponsored, etc.) which currently go unrecognized and lead to governance and operational challenges.
State foundations are currently under State scrutiny, in the sense thatthey are being considered bodies of the government and therefore, with regards to procurement activity, it is suggested that they act as such (e.g. open tenders for purchasing of materials, etc.).Should this law take effect, universities and hospitals in particular, will have serious difficulty supporting the financial and operational needs of their respective institutions.

International Fundraising and Cooperation:

Turkish foundations can accept donations from foreign foundations and organizations only after obtaining permission from the Department of Foreign Affairs and Interior Ministry.This is a deterrent and the process is long and arduous. After accepting one donation, the second (from the same organization) is considered a partnership and requires further approval. There are cases of Turkish foundations which are dealing with law suits due to this law. Part of the problem is that the law does not clearly recognize differences between gifts, donations, project support and other ‘types’ of income for foundations.

Asset Management in Foundations:

Minimum capital to start a foundation is between $200,000 and $400,000 USD. This acts as a deterrent especially to local organizations and has also created an increasingly popular model of foundations in which a membership structure is formed, in an effort to raise the money required to form a foundation, creating other governance and management issues in the long term (since members are defined as ‘trustees’).
All foundations are required by law to keep their cash assets in State banks, whichprevents gain from more competitive rates in private banks- regardless of the fact that the State is currently undergoing privatization of its own State owned banks.
Financial managers of foundations are in need of more skill building with regards to asset management of foundations, especially due to the turbulence of the economic environment.

Tax Exemption:

Of the 4576 foundations in Turkey, only 210 have tax exemption status (and of the 78,000 associations, only 340) and since 1999, the government has ceased granting this benefit and is considering now to eliminate this completely. Even those granted exemption do not benefit much as many activities are still taxed. Regardless of their status, they do not benefit at all compared to any other private entity.
Only foundationswith activities in health, scientific research and education areas are granted exemption, although this is not the only criteria. The process and criteria for being granted ‘tax exemption’ status is highly political and non transparent.
Most State foundations, on the other hand, are 100% tax exempt. This further challenges the private and public foundation status and discourages their potential support.

Tax Deductions of Donations:

Individuals: Individuals can donate, with no limit, but can only claim exemption (5%)if the organization they are donating to is one that is tax exempt or one that is State formed (both comprise a very small percentage of the total number of foundations and associations) or 10% if the organization is found in a developing region of the country (e.g. Southeast Turkey). In addition to this being below the desired standard, for individuals, tax laws do not enable a mechanism and process to claim this deduction so it is, in effect, defunct.
Corporations: Private companies can donate, with a limit of 5%, to a foundation or association, but can only claim exemption if the organization they are donating to is one that is tax exempt or one that is State formed (full list of approved organizations not included here). According to the new 6th framework package, there is 100% exemption for building/repairing of schools and hospitals.

EU Accession as a Policy Development Influence:

Turkey’s candidacy for accession to the EU has created a platform on which NGOs and civic initiatives have been able to influence policy reform with regards to issues such as association and foundation law. Although the process of adopting Copenhagen Criteria benefited the association reform, foundation law has yet to undergo similar reforms.
It is important to note: Turkey has an existing foundation law (however restrictive) in place since 1936 (even prior to that in the Ottoman Empire). The EU, on the other hand, is only recently in the process of adopting a ‘model statute’ ( for which the EFC, via the EU committee, has taken on the responsibility of developing).The committee scored a big win by making the case that foundations have a separate definition and statute from associations. However, this also indicates that foundation law reform is unlikely to come as an accession ‘requirement’ from the EU, as they are just newly defining this criteria themselves. It is ever so important that TUSEV and Turkish foundations work closely in collaboration with the EFC on its Legal and Tax framework for foundations initiative in order to use this as a model statue for foundation law in Turkey.

OperationalFactors

Local Giving, Grantmaking and Philanthropy:

There is a strong tradition of giving and social service in Turkey, motivated both from a community perspective and a religious one. The goal is to systematize this giving, and develop mechanisms for more strategic and organized philanthropy. Because it is not systematic, we also can not clearly state official indicators of how much is ‘given’ and what types of donations - and to whom - are being made.
Turkey’s foundations tend to be operational rather than grantmaking. The law does have restrictive claims that only organizations with similar missions can make donations to one another. However the limitation also extends to practice and tradition. Foundations prefer to manage their own programs and work directly in the field rather than function to support other NGO initiatives. Thus, we see a lack of this activity though there is potential for it to become a viable model.
Challenges to local funding are not limited to the lack of mechanisms. Many organizations are struggling from the continuous negative impact of economic instability and extremely high inflation rates and the excess resources drained by ineffective use of capital by governments.
The ‘tender’ system: Foundations and other potential institutional donors shy away from the idea of grantmaking because they compare it to a tender system and do not want to be seen as favoring NGOs by selecting them. Instead, they prefer to seek out partnerships through their own personal network and contacts.
Compared to its neighboring countries and regions and the size of its population, Turkeyhas received significantly less support from the international donor community and thus relies on local forms of support to carry out initiatives.

Credibility and Capacity of NGOs:

There are a limited amount of NGOs that know how to seek and apply for available funding due to an overall lack in capacity to reach out to potential donorsto develop sustainable operations and programs. NGOs that can tend to dominate the sector, leaving less room for other smaller/more regional recipients.
“Supply and demand of the philanthropic dollar”- NGOs are not successful in making the argument –for how their work adds value. This can be attributed also to the point made above about the lack of systemic funding. Turkish NGOs are not acquainted with the process of ‘applying’ for funds, and having to document who they are, what they do, and why it is important to support them.
Over the past few years, there have been an increasing amount of initiatives to support the skill development of NGOs in Turkey. Both informal and formal training programs are being developed and delivered nation-wide, most recently under the auspices of the European Commissions Civil Society Development Programme (2 million €) which targets underdeveloped regions in Turkey. However, it is important to develop both the suppliers and deliverers of civil society simultaneously, so that as NGOs learn how to ask, and how to thank, donors are learning what to support, how to give and evaluate. TUSEV aims to implement what would be Turkey’s first donor education program that would include this, and other topics.

Supporting Development of Local and Provincial Foundations:

Foundations working at the national level have more strength and capacity to reach wider audience and establish international contacts. Foundations at the local level have less capacity to be able to communicate their needs and seek support. Efforts should be focused on helping these foundations who are doing critical work in their communities.
There is a lack of data and research regarding these ‘community’ foundations and organizations, which are actually quite prominent in regions throughout Turkey. The unique structure and operation of these foundations as opposed to national foundations has yet to be analyzed and understood.

Role of Corporations in the Support of Civil Society:

Corporations tend to adopt a one-off or case-by-case approach to giving programs. Corporate philanthropy, corporate social responsibility and just plain sponsorship are all concepts that are slowly taking shape in the private sector (although the nuances between these concepts are not well understood), and have influencedTurkish companies via the practices of multinationals and the formation of Turkey’s first Corporate Volunteer Council.
Turkey has a large number of small and medium size businesses which work at the community level in all regions of this vast countries. They can be cultivated to work together with local foundations and associations in achieving joint outcomes. There are some examples of this and it is a model that has high potential.
There is a trend of large Turkish corporations putting forth ‘seed capital’ in starting NGOsand foundations. By doing so, the founding company attracts other sponsors and donors which builds the base for diversified future support.
Many companies use PR agencies to seek opportunities and manage relationships with NGOs, and are allocating their marketing and advertising budgets to these initiatives. This is indicative of increasing activity and interest. However, companiesand their PR counterparts lack of knowledge on how to effectively measure needs, develop joint programs, manage relationships, allocate funds and measure progress.

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[1] Representatives from the following organizations participated: Bosphorus University Foundation, Compagnia di San Paolo (Italy), Eczacibasi Foundation, European Foundation Centre (Brussels) , Mother Child Education Foundation, Open Society Institute (Turkey), Third Sector Foundation of Turkey, Turkish Informatics Foundation, Turkish Kidney Foundation, H. Sahin, C.P.A and Tax Consultant for TÜSEV.