Non-profit status in Germany hinges on an entity and its actions being "of benefit to the public" ("gemeinnützig"). We are convinced that what CCT sets out to do is actually "of benefit to the public", so we applied for non-profit status with the tax authorities. Benefits for CCT in terms of tax-reduction is just what comes with this. Our reasoning was:
a) We believe that helping open source projects and developing open source technologies is actually beneficial to the wider public. We wanted to see this represented in our bylaws and accepted by the legal authorities.
a) It helps us financially, as we do not have to pay corporate tax.
a) It enables tax-deductible donations to us or to our projects, which is quite an incentive for potential donors.
As an entity incorporated in Germany, we have to adhere to German tax laws - and tax laws are what determine non-profit status. Most important in this is § 52 Abgabenordnung (https://dejure.org/gesetze/AO/52.html), which lists all activities that are accepted as being of benefit to the public. While there is currently a discussion to widen these categories to include, for example, political action, as of now non-profits have to adhere to these categories: only entitities pursuing the goals listed in § 52 AO can apply for non-profit status. Also, ALL major activities of an entity have to fall in these categories. Commercial side activities are possible (and resulting profits are taxed normally), but the non-profit core work must always dominate.
The conditions listed above mean that we had to set up our bylaws in a way that explains how our work falls into the categories listed in § 52 AO - specifically into the categories of (1) promotion of science and research, (2) consumer advice and consumer protection, (3) education, including adult and vocational education, and student aid, (4) the promotion of art and culture, and (5) the promotion of civic engagement in favor of the aforementioned non-profit purposes.
We believe CCT's activities, from the development of an open-source accounting platform and its other host activitties to the actual open-source developments of its member organizations, can fall into all these categories - so we applied for all of them.
Tax authorities insist on describing the planned activities in the bylaws in a quite detailed manner. Simply "we promote research" is not enough. We therefore had to be rather specific on open source technology and why and how its promotion in all categories we list is of benefit to the public.
This meant we had to find a description and terms for open source that would be accepted by German tax authorities for non-profit status. Using the final "wide" definition made this possible. We understand this may not be everyone's definition of open source - which is why we will adhere to proper definitions of "open source" nonetheless. Our internal agreements and project agreements will specify this.
German tax authorities will review draft bylaws (in up to three revisions) and respond to them indicating whether they expect them to pass for non-profit status. This was of great help to us, because we therefore could construct the bylaws most likely to pass as non-profit before acutally incorporating CCT. However: this is never a guarantee; tax authorities are not bound by their initial review of draft bylaws and different tax offices may well come to different conclusions. This is why it is important to have draft bylaws reviewed by the same tax office (and ideally, the same person) later responsible for the incorporated entity.
Most important for non-profit review is §2 of our bylaws, where we list the aims and purpose of CCT. Other paragraphs rather cover internal matters, e.g. the role of the CEO or the advisory council.
a) Our first draft of bylaws, version of 5 April 2016.
(insert bylaws 2016.04.05)
In this version, we split §2 (on aims and purpose of CCT) into two smaller parts: one listing all the tax-exempts goals we would be pursuing, one listing all the actions we would perform in order to achieve these goals. We thought this made sense because each of the goals would be achieved by several of the actions. We also added a short definition of open source below the two sections, to explain the repeate use of "open and free technologies" in the sections above.
b) Feedback on the first draft of bylaws, received 2 May 2016
(insert feedback 2016.05.02)
After stating again that their review would not guarantee that the proposed changes would result in certain approval as non-profit (which they never can guarantee), tax authorities listed a number of issues that needed clarification:
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the bylaws in draft 1 did not make it sufficiently clear to any (!) reader (that is: especially not those with absolutely no previous knowledge of the organization's aims and purpose) which goals CCT would pursue and which specific actions ("zweckverwirklichende Maßnahmen") would ensure the implementation of these goals.
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the bylaws thus have to restructured so that each of the goals has its own section on how CCT intends to achieve these goals.
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CCT needed to make clear that it pursues these goals in an immediate manner, e.g. not by simply granting funds to others who would then perform the actions. The goals and actions would have to be performed directly by CCT. Their example: it must be clear that CCT itself organizes and executes meetings and workshops.
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the proposed actions needed further details or examples.
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the section of stipends and scholarships needed clarification so as to display clearly that tehse are generally open to the public (and that therefore the availability of scholarships and the guidelines for application would have to be public)
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the section on liquidation of CCT needed further clarification to ensure that upon dissolution of CCT, all its remaining assets would fall to a similarly recognized non-profit entity.
c) Our second draft of bylaws, version of 30 May 2016.
(insert bylaws 2016.05.30)
We adhered to the tax office's recommendations. In particular, we added specific actions to all goals, and thus folded the previously split § 2 into one long list of goals with relevant actions detailed right after. We also took care to stress that CCT itself will carry out the actions in question. We also moved the "definition" of open source technologies up front, now being part of §2 a).
We were confident this would settle all questions.
d) Feedback on the second draft of bylaws, received 9 June 2016
(insert feedback 2016.06.09)
Tax authorities were still not content with our proposed bylaws. In particular, they suggested:
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further clarification of our intended goal of promoting arts and culture (e.g. which kinds of projects we have in mind there), and how we would accomplish this goal.
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changing our § 2e: Here, we had stated we would also collect funds to promote all the goals of public benefit mentioned in §§s 52, 53 and 54 Abgabenordnung. Instead, they recommended, we should only list the goals we ourselves would pursue, and not the longer list of categories currently listed. The tax authorities' reasoning was that we should not collect funds for goals we do not pursue ourselves, because we did not demonstrate how we would achieve these further goals (note: this suggestion concerned a point that was no commented on by the tax authorities in our first draft).
They also wrote they would review one further draft.
e) Our third draft of bylaws, version of 15 June 2016.
(insert bylaws 2016.06.15)
To address these further demands, we
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added examples to our goal of promoting arts and culture (by adding "cultural work or works in the area of free technologies, such as installations, performances, visual art and text works that address the relationship between technology, people, and freedom)
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used the suggested correction regarding the collection of funds. CCT can now only collect funds for goals and activities specifically listed in §2. We do not think the broader array previoulsy listed there (including e.g. promotion of sports or charitable work for the disenfranchised) is necessary for our actual work.
f) Feedback on the third draft of bylaws, received 13 July 2016 (a little earlier also per phone / mail)
Tax authorities stated they have no further objections to our bylaws. However, they repeated that this was simply their (informed) opinion on our draft, and not legally binding for their (or any other tax office's) examination of our actual bylaws - so no guarantee, that CCT would be recognized as non-profit (but there is never such a guarantee beforehand).
We used this final approved draft for our actual bylaws with no further changes.
CCT was founded based on these bylaws on 7 July 2016.
On 5 October 2016, we received conformation from the tax authorities that the bylaws used in incorporating CCT on 7 July 2016 are the same as those submitted for review in our third draft and that therefore we should be able to claim tax-exempt status for our non-profit work. Note: THIS IS NOT THE OFFICIAL CONFIRMATION OF OUR NON-PROFIT STATUS. However, we needed this to finalize our CCT's entry in the commercial register.
(insert gemeinnuetzigkeit 2016.10.05)
We received final written confirmation of our non-profit status on 16 December 2016. The confirmation also explicitly acknowleges that we are recognized as non-profit for pursueing ALL goals and activities listed in our bylaws. This also allows us to issue donation receipts.
(insert final.gemeinnuetzigkeit 2016.12.16)
HOWEVER, non-profit and therefore tax-exempt status always hinges on actual activities. Insofar, such confirmations of non-profit status are always preliminary.
CCT's activities have to reflect CCT's bylaws; only if our actions confirm to the goals and activities set out in our bylaws, will CCT continue to be recognized as non-profit. This is also what the tax office's periodical review is for: should they ever find that CCT's activites were not in line with our bylaws (and the conditions of being for the beneifit of the public), then CCT could also lose non-profit status retroactively.
The first review of our actual activities in 2016 is due at the tax authorities in May 2017. However, as CCT incorporated and started work only late in 2016, our report will be quite short. This is of course normal for newly founded organizations.
In all this, we did not expect our proposed name, Center for the Cultivation of Technology, would be much of a problem. We came up with this in a meeting in April 2016, and used it in all conversation with the tax authorities.
On 4 August 2016 however, about one month after CCT had been founded, our notary informed us that the Register Court (Registriergericht Berlin) would not accept "Center for the Cultivation of Technology" as our commercial firm name. They argued that the chosen name was "simply descriptive" and needed furhter individualisation so it could be distinguished form other businesses ("Center for the Cultivation of Technology gemeinnützige GmbH“ [ist] zu beanstanden, da sie rein beschreibend ist und somit nicht den Anforderungen des § 18 Abs. 1 HGB genüg[t]. Ein Individualisierungszusatz [ist] erforderlich."). We could either argue with the Chamber of Industry and Commerce (IHK), and have them confirm to us and the Register Court they see no issue with the name, or actually change the name, for example by adding "CCT" to the name.
Adding "CCT" before or after our full name, resulting in "CCT - Center for the Cultivation of Technology gGmbH" or "Center for the Cultivation of Technology - CCT gGmbH" would most likely have solved the dispute, but we did not particularly like the forced addition of the abbreviation, and we also were convinced the name was not simply of descriptive nature. One can handle such matters alone and argue with the Chamber of Industry and Commerce (IHK) directly, but we resorted to a lawyer with experise in the matter, to be safe. His task was to defend us against two claims:
- "Center for the Cultivation of Technology" is not actually a "center" (raised by the IHK)
Their argument was that "center" per definition requires considerable size and influence in the area in question, e.g. being the leading actor in terms of sales and revenue in the market, number of customers, or similar benchmarks. As we cannot demonstrate such influence, we should not call ourselves a "center".
- "Center for the Cultivation of Technology" is a purely descriptive term, the firm name being derived from the object of the enterprise alone (raised by the IHK and the Register Court)
Here they argued that our name was empty and featureless, as it simply described the company's business (as would be the case of an energy provider calling itself "Energy" and not "Betelgeuse Energy" or "n-rg"). As such a featureless name ("Sachfirma"), it could not be registered.
On 13 September 2016, our lawyer addressed each issue in the following manner:
- Being a "center"
Firstly we argued that "Center" is actually not as restrictive as "Zentrum" in German. While "Zentrum" may indeed require a dominant role in the market, the english translation does not necessarily elicit such expectiations in readers. Secondly, "Center" has been accepted in normal usage in other areas where size is not the sole criterion, such as in "Fitness-Center" or "Bowling-Center". Thus, such standing should also not be required of us. Thirdly (perhaps most importantly), we argued that in our area, we actually do (or aim to) provide a broad, near full-scale range of services, from raising funds for open source projects to handling accounting, organisation, and most other issues.
- Being a fantasy name
We argued that "Center for the Cultivation of Technology" was not at all a purely descriptive term. Firstly, it was not a German name (not "Zentrum zur Kultivierung von Technologie") and thus already removed from the object of the enterprise (at least in German). Secondly, we demonstrated that the combination of "Cultivation" and "Technology" in either English or German was not at all common. In fact, "Kultivierung von Technologie" is so uncommon in German that it should, we argued, definitely qualify as a fantasy name (which is perfectly acceptable). Our lawyer actually resorted to definitions of "Kultivierung" on wikipedia to demonstrate that the term is publicly understtod to mean something clearly related to the field of biology and not technology. This, he argued, clearly made "Cultivation of Technology" an "imaginative combination of two words that intentionally departs from literal sense in order to distinguish our firm from others".
On 19 September 2016, the Chamber for Industry and Commerce (IHK) followed our lawyer's interpretation and withdrew its reservations against "Center for the Cultivation of Technology". Their written statement then convinced the Register Court to accept our commercial firm name as well.