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THE LAW REFORM COMMISSION OF HONG KONG REPORT CHARITIES This report can be found on the Internet at: <http://www.hkreform.gov.hk> DECEMBER 2013 The Law Reform Commission of Hong Kong was established by the Executive Council in January 1980. The Commission considers for reform such aspects of the law as may be referred to it by the Secretary for Justice or the Chief Justice of the Court of Final Appeal. The members of the Commission at present are: Chairman: The Hon Rimsky Yuen, SC, JP, Secretary for Justice Members: The Hon Chief Justice Geoffrey Ma, GBM The Hon Mr Justice Robert Tang Ching, SBS, PJ Mr Paul Wan How-leung, JP, Law Draftsman Mrs Pamela Chan, BBS, JP Mr John Budge, SBS, JP Mr Peter Rhodes Professor Michael Wilkinson Mrs Eleanor Ling, SBS, OBE, JP Ms Angela W Y Lee, BBS, JP Mr Anderson Chow, SC Mr Eugene Fung, SC The Secretary of the Commission is Mr Stephen Kai-yi Wong, Principal Government Counsel and the Commission's offices are at: 20/F Harcourt House 39 Gloucester Road Wanchai Hong Kong Telephone: 2528 0472 Fax: 2865 2902 E-mail: [email protected] Website: http://www.hkreform.gov.hk THE LAW REFORM COMMISSION OF HONG KONG REPORT CHARITIES CONTENTS Chapter Page Preface 1 The Law Reform Commission's reference on charities 1 Purpose and format of this report 2 1. Introduction 3 What is a charity? 3 The growth of philanthropy in Hong Kong 4 The need to review Hong Kong's charity law 5 Other initiatives in relation to non-profit organisations in Hong 6 Kong Objectives of the review by the Sub-committee 7 Overview of the current law and regulatory framework relating to 9 charities in Hong Kong The legal definition of "charity" 9 The privileges associated with charitable status 11 Formation of a charity: the legal structures available 15 Oversight of charitable organisations 15 Dissolution of charities and the doctrine of "cy-près" 18 Perceived deficiencies in the regulatory framework for supervision of 19 charities in Hong Kong Problems in the oversight of charitable organisations 19 in Hong Kong 2. Recommendations on the definition of charity 23 Current situation in Hong Kong 23 The legal definition of "charity" 23 i Chapter Page Historical development of the common law position on 23 charities The specific heads of "charitable purpose" at common law 25 Purposes held not to be charitable 28 The extent to which "charity" is defined under Hong Kong 29 legislation Problems with the current law and the need for reform 32 Outdated definition 32 The law is confusing and unclear 33 Pros and cons of having a statutory definition 33 Consultees' responses 35 Our view 35 Issues to be considered in defining charitable status 36 Exclusively charitable purposes 36 Other considerations 36 Possible reform models: definitions in other jurisdictions 37 England and Wales 37 Scotland 40 Categories of charitable purpose 42 "The prevention or relief of poverty" 42 Consultees' responses 43 Our view 43 "The advancement of education" 43 Consultees' responses 44 Our view 44 "The advancement of religion" 44 Consultees' responses 45 Our view 45 "The advancement of health" 46 Consultees' responses 47 Our view 47 "The saving of lives" 47 Consultees' responses 48 Our view 48 "The advancement of citizenship or community development" 49 Consultees' responses 50 Our view 50 "The advancement of the arts, heritage, culture or science" 50 Consultees' responses 51 Our view 51 "The advancement of public participation in sport" 51 Consultees' responses 52 Our view 53 "The promotion of religious or racial harmony" 53 Consultees' responses 54 Our view 54 "The promotion of equality and diversity" 54 ii Chapter Page Consultees' responses 54 Our view 54 "The advancement of environmental protection or 55 improvement" Consultees' responses 55 Our view 55 "The relief of those in need by reason of youth, age, ill-health, 55 disability, financial hardship or other disadvantage" Consultees' responses 56 Our view 56 "The advancement of animal welfare" 56 Consultees' responses 56 Our view 56 "Any other purpose that may reasonably be regarded as 57 analogous to any of the preceding purposes" Consultees' responses 59 Our view 60 "The advancement of human rights, conflict resolution 61 or reconciliation" Consultees' responses 64 Our view 67 Whether or not the advancement of human rights should be a 68 charitable purpose (a) Arguments for the inclusion 68 (b) Arguments against the inclusion 72 "Conflict resolution and reconciliation" 73 The need for a public benefit test? 74 Consultees' view 75 Our view 76 Advantages of imposing the requirement "for the public 77 benefit" Disadvantages of removing the presumption of public benefit 78 "Grandparenting" 80 3. Recommendation on the legal structures of 83 charities Current situation in Hong Kong 83 Types of charitable organisation structure 83 Governing instrument 89 The Sub-committee's proposals in the Consultation Paper and our 89 final recommendation on the legal forms of charitable organisation Consultees' responses 89 Our view 91 iii Chapter Page 4. Recommendations on registration of charities 92 Current situation in Hong Kong 92 Lack of a formal register of charities 92 Registration systems for charities in other jurisdictions 96 The Sub-committee's deliberations 97 The Sub-committee's proposals in the Consultation Paper and our 98 final recommendations on registration of charities Consultees' responses 99 Our view and final recommendations 104 5. Recommendations on the framework for governance, 108 accounting and reporting by charities Current situation in Hong Kong 108 Inland Revenue Department requirements 108 Companies Ordinance (Cap 32) and Societies Ordinance 109 (Cap 151) requirements Social Welfare Department requirements 109 Home Affairs Bureau requirements 109 Education Bureau requirements 110 Department of Health requirements 111 The Sub-committee's proposals in the Consultation Paper and 112 our final recommendations on the framework for governance, accounting and reporting by charities (1) Compliance with charitable objects 112 (2) Notification of change of particulars 112 Consultees' responses 113 (3) Disclosure of interests and matters relating 114 to governance Consultees' responses 115 (4) Financial reporting 115 Filing accounts and statements 115 Consultees' responses 117 Filing of activities report and financial statements annually 119 Contents of the annual report of activities 119 Maintaining accounting records 120 Consultees' responses 121 The position on financial reporting standards in Hong Kong 122 The position in other jurisdictions 123 England and Wales 123 New Zealand 125 Consultees' responses 126 Our view 128 Disclosure of information by charities 130 (5) Powers of investigation 131 iv Chapter Page Consultees' responses 134 (6) Providing false or misleading information to be 134 an offence Consultees' responses 135 Enforcement and remedies 135 (1) Removal of charitable status 136 (2) Referring criminal offences to the appropriate law 136 enforcement agencies (3) Civil actions 136 (4) Protection of the property of a charity 136 Proposed powers relating to enforcement and remedies 136 Consultees' responses 137 Proposed power to protect properties of charities in extreme 138 cases Consultees' responses 138 Our view 139 6. Recommendations on the regulation of 141 charitable fundraising activities Current situation in Hong Kong 141 The extent of statutory regulation of charitable fundraising 141 activities The development of voluntary guidelines on charitable 147 fundraising Monitoring of charitable fundraising activities in other jurisdictions 152 England and Wales 152 Ireland 154 The Sub-committee's proposals in the Consultation Paper and our 156 final recommendations on the regulation of charitable fundraising activities Consultees' responses 158 Our view 159 Public access to information relating to charitable fundraising 161 activities Consultees' responses 163 Our view 164 Display of a charity's registration number 164 Consultees' responses 164 Our view 164 Other types of fundraising activity 165 Consultees' responses 166 Our view 167 Professional fundraisers 169 Ad hoc fundraising 170 Further possible issues for consideration in the future 170 Consultees' responses 171 v Chapter Page Our view 172 Public education 173 Consultees' responses 174 Our view 175 Co-ordinated effort by Government bureaus or departments 175 Consultees' responses 175 Our view 176 7. Recommendations on charities and tax 179 Current situation in Hong Kong 179 Tax exemptions for charitable organisations 180 Tax deductions for charitable donations 182 Filing of accounts and reports 183 Charities and tax in other jurisdictions 184 The Sub-committee's proposals in the Consultation Paper and our 185 final recommendation on the taxation of charities in Hong Kong Consultees' responses 186 Our view 187 8. Recommendations on the cy-près doctrine 190 The situation in Hong Kong regarding the cy-près doctrine, 190 resulting trusts and dissolution of charities The cy-près doctrine and resulting trusts at common law 190 Dissolution of charitable organisations 193 The application of the cy-près doctrine in other jurisdictions 194 England and Wales 194 The Sub-committee's proposals in the Consultation Paper and our 202 final recommendation on the variation of charities Consultees' responses 203 Our view 203 9. Recommendations regarding the establishment 205 of a charity commission in Hong Kong Need for a 'one-stop shop'? 205 Overseas experience 206 England and Wales 207 Ireland 207 New Zealand 208 The Sub-committee's proposals
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