ICNL Terms & Conditions: Legal Risks and Financial Implications for NGOs | Erayaha

When Legal Ambiguity Meets NGO Operations: The Hidden Costs in ICNL’s Terms & Conditions

Imagine an NGO facing a €20,000 tax penalty due to unclear definitions of public benefit status, or losing critical funding because of ambiguous governance rules. Our analysis of the International Center for Not-for-Profit Law (ICNL)'s terms reveals several legal and logical gaps that could expose NGOs to substantial financial and regulatory risks.

1. Ambiguity in Public Benefit Status Definitions

The ICNL terms reference public benefit status inconsistently across jurisdictions, with unclear criteria and application processes. This ambiguity can lead to NGOs being denied tax exemptions or facing retroactive tax liabilities, potentially costing tens of thousands of euros annually. For example, the lack of a precise definition in Croatia and Estonia creates a compliance grey area, increasing audit and litigation risk.

Legal Analysis

high Risk

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Added

There is no separate publicPublic benefit status as suchshall be defined in Croatia or Estonia. In Croatiaa single, the public benefit concept does exist in various lawscomprehensive statute, but is not consistently defined or applied. In Estoniawith clear, as you say, there isobjective criteria for eligibility and a tax-exempt status which is the functional equivalent oftransparent application process. All references to public benefit status. Only the organizations that are included on a government list are entitled across relevant laws must be harmonized to tax benefitsensure consistency and legal certainty. The Income Tax Act defines the criteria according to which organizations can be included in that list.

Legal Explanation

The original clause creates ambiguity and regulatory risk due to inconsistent definitions and application. The revision mandates legal harmonization and objective criteria, reducing compliance uncertainty and risk of denial of tax benefits.

2. Discretionary Power in Foundation Registration

The Croatian Law on Foundations grants the Ministry of Justice broad, undefined discretionary power over NGO registration and governance. This exposes NGOs to arbitrary denials, delays, or even dissolution, risking project funding and donor confidence. Such unchecked authority can result in legal disputes costing upwards of €50,000 in legal fees and lost grants.

Legal Analysis

critical Risk

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Added

Unfortunately, the Croatian Law on Foundations and Funds from 1995 prescribes regressive conditions for the establishment of foundations and gives theThe registration authority (Ministry of Justice) unwarranted discretionary power over the establishmentshall exercise its powers in accordance with clearly defined statutory criteria, subject to judicial review. Discretionary decisions must be justified in writing and internal governance of foundationsbased on objective, published standards.

Legal Explanation

The original clause allows arbitrary decision-making, undermining legal certainty and exposing NGOs to unpredictable outcomes. The revision introduces due process safeguards and transparency, reducing risk of arbitrary denial or dissolution.

3. Vague Criteria for Tax-Exempt Economic Activities

ICNL’s terms highlight that Croatian NGOs may lose tax-exempt status if deemed to have an “unjustified privileged position in the market,” but provide no objective criteria. This vagueness creates uncertainty, deterring legitimate income-generating activities and risking unexpected 20% tax assessments—potentially wiping out annual surpluses.

Legal Analysis

high Risk

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In Croatia, an organization’s income fromTax-exempt status for NGO economic activities is considered taxed exempt only unless the exemption will give the organization an “shall be determined by reference to clear, published criteria defining 'unjustified privileged position in the,' including market.” The Tax Administration share thresholds, on its own initiative or upon the requestnature of a taxpayer or other interested personactivities, may determine on a case by case basis whetherand competitive impact, with all determinations subject to tax income generated from an NGO’s economic activitiesappeal.

Legal Explanation

The original clause is vague and exposes NGOs to unpredictable tax liabilities. The revision provides objective standards and procedural safeguards, reducing risk of arbitrary taxation and supporting legitimate income generation.

4. Lack of Binding Guidance for Public Benefit Committees

In Estonia, the committee advising on public benefit status has only non-binding authority. The Tax and Custom Board can disregard its recommendations, undermining predictability and fairness. This lack of enforceable process could result in inconsistent decisions, legal challenges, and reputational harm for NGOs.

Legal Analysis

medium Risk

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However, the law also provides for the establishmentRecommendations of athe Committee of Experts, which should provide recommendations to on public benefit status shall be binding on the Tax and Custom Board on every application. The Committee consists of 9 representatives of NGOs, mostly from umbrella organizations from different fields of activities. They are appointedunless overridden by the Ministry of Finance after consulting with the NGOs. This expert committee was established at the beginning of 2007 and it has met twice so far. The existence of such a committee was considered a positive developmentreasoned, because it aimspublished decision subject to provide guidance in defining what public benefit isindependent review. So far however, there are two challenges in its work: (1) it faces difficulties in defining public benefit as this concept is still new in the society and there is much “grey zone” around it and (2) the Tax and Custom Board and Ministry of Finance are not receptive to the suggestions of this committee as these recommendations are not bindingThe process for themdecision-making must be transparent and consistent.

Legal Explanation

Non-binding recommendations undermine predictability and fairness, exposing NGOs to inconsistent outcomes. The revision ensures expert input is respected, with transparent, reviewable decision-making, reducing risk of arbitrary or biased determinations.

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Conclusion: Proactive Risk Management for Sustainable NGO Operations

Our examination shows that ICNL’s terms, while comprehensive, contain critical legal ambiguities and governance gaps that could expose NGOs to significant financial and regulatory risks. Addressing these issues with clear, enforceable language and objective standards is essential for legal compliance and operational sustainability.

**This analysis is for educational purposes only and does not constitute legal advice. For actual legal guidance, consult with a licensed attorney. This assessment is based on publicly available information and professional legal analysis. See erayaha.ai’s terms of service for liability limitations.**

**Are your organization’s terms and governance frameworks robust enough to withstand regulatory scrutiny? What would a surprise audit or legal challenge reveal about your compliance posture? How much could ambiguity in your legal documents cost you?**