Revision of Swiss foundation law - strengthening Switzerland as a foundation location?
In order to strengthen Switzerland as a foundation location, a parliamentary initiative was submitted in 2014 calling on Parliament to create a framework for an effective and liberal Swiss non-profit and foundation system. In 2021, Parliament complied with this request, at least in part, and decided to revise Swiss foundation law under the title "Strengthening Switzerland as a foundation location". The changes will come into force on January 1, 2024.
The new foundation law grants founders more extensive rights. The main changes concern the new statutory foundation supervisory complaint, the possibility of a reservation of the right to make organizational changes by the founder, the facilitation of making minor amendments to the foundation deed and the clarification that amendments to the foundation deed pursuant to Art. 85-86b nZGB are no longer subject to public notarization.
Foundation supervisory complaint
Art. 84 ZGB places foundations under the supervision of the public authorities. Supervision should not only guarantee the functionality of the foundation, but also ensure that the purpose of the foundation is realized and that the will of the founders is adhered to.
In addition to this direct supervision, third parties were previously given the opportunity to lodge a complaint with the competent supervisory authority against actions or omissions by the foundation's governing bodies that were in breach of the law or the articles of association. Although there was previously no legal basis for this, the necessity of the contestability of conduct by the foundation bodies in breach of their duties was recognized (instead of many: BGE 107 II 385, E. 4).
Art. 84 para. 3 nZGB creates a new explicit legal basis for foundation law appeals.
Art. 84 nZGB
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3 Beneficiaries or creditors of the Foundation, the founder, contributors and former and current members of the Board of Trustees who have an interest in ensuring that the administration of the Foundation complies with the law and the deed of foundation may lodge a complaint with the supervisory authority against acts and omissions by the Foundation's governing bodies.
Although the codification of the supervisory appeal is to be welcomed against the background of legal certainty, the legal text is incomplete and too narrowly formulated in the view expressed here. The exhaustive list of persons entitled to lodge a complaint excludes, for example, successors of the founder and other foundation bodies from the possibility of lodging a complaint, even though they are presumably often close to the events and are aware of inadequate foundation management. The statutory provisions are also incomplete with regard to the required interest and any deadline for lodging a complaint.
Reservation for future organizational changes
The previous law, Art. 86a para. 1 ZGB, only offered founders the opportunity to change the purpose of the foundation if this was reserved in the foundation deed. In addition, changes to the deed of foundation were already possible if they appeared necessary for objective reasons and did not affect the rights of third parties, but only as long as they were "insignificant". With regard to organizational changes that have an impact on identity-defining features of the foundation, it is no longer possible to speak of insignificant changes. Consequently, the requirements for significant organizational changes always had to be met in such cases.
Art. 86a para. 1 nZGB also creates the possibility of changing the organization of a foundation with a corresponding reservation. However, this reservation, like the reservation regarding a change of purpose, must be stipulated when a foundation is set up and cannot be added to the foundation deed at a later date. If it is included, it provides a certain degree of flexibility for long-term adjustments to the organization, for example in the event of a simultaneous change of purpose, newly arising conflicts with family members who were originally granted participation rights, or in the event of unexpectedly high foundation assets.
The change not only brings the flexibility described above, it also reinforces the founders' position vis-à-vis the Board of Trustees as persons who determine the purpose and direction of the foundation.
Amendments to the foundation deed
Art. 86b ZGB previously provided for insignificant amendments to the foundation deed, provided these were deemed necessary for valid objective reasons and did not affect the rights of third parties.
The revision relaxes these requirements in Art. 86b nZGB by dispensing with the requirement of justification. Lowering this hurdle seems sensible in view of the increased flexibility and effectiveness of foundation law.
In addition, Art. 86c nZGB clarifies that amendments to the foundation deed do not require public notarization. The amendment decree of the competent supervisory authorities is sufficient. This simplification of administrative processes and expenses is also to be welcomed.
Review and outlook
With the revision, the rights of the founders have been strengthened to the extent that their subsequent possibilities for exerting influence have been expanded and administrative processes have been simplified. The legal basis of the foundation supervisory complaint increases legal certainty and is therefore to be welcomed, even if it will probably not have any significant new effects in practice.
Restricting the right of appeal to the named, specific persons seems to miss the mark. Similarly, the interpretation of what interest is required to lodge an appeal remains a matter for the court. The revision does not appear to have made any progress in this respect.
Unfortunately, the issue of a foundation's tax exemption if its management bodies are to be appropriately remunerated remains unresolved. The cantonal tax authorities are currently largely guided by the practical guidelines of the Swiss Tax Conference on the tax exemption of legal entities dated January 18, 2008, which stipulate that normal activities as a member of a foundation board are assumed to be altruistic. However, it is recognized that, depending on the size and area of activity, the management of foundations requires a commitment of resources that can justify a "moderate" attendance fee. In this interpretation, the tax authorities have considerable discretionary scope with regard to the granting of tax exemption. In the absence of a revision in this regard, the previous different and non-transparent cantonal practices will probably remain in place.
The scope of the impact of the revision remains to be seen. Although the amendments are largely to be welcomed, they are unlikely to lead to a real, relevant strengthening of Switzerland as a foundation location. A real increase in the attractiveness and professionalism of Switzerland as a foundation location would have been achieved if one of the key concerns of the reform had been incorporated into the revised Swiss Civil Code: a legal clarification that the appropriate remuneration of foundation board members must not jeopardize the tax exemption of the foundation.
Balthasar Wicki will be happy to answer any questions you may have about foundation law.