"My Donation Okay?"... Government Takes Swift Action Against Opaque Organizations

Exclusion of 9 Public Interest Organizations from Donation Designation in First Half
Number of Organizations with Designation Canceled Last Year Expanded from 0 to 15
Declining Donation Participation... "Crackdown on Fraudulent Activities"

The government is strengthening the management and supervision of public interest organizations that handle donations. Institutions that do not meet the requirements have been excluded from designation as public interest organizations, and the number of cancellations of designations has also significantly increased. This measure aims to enhance transparency through rigorous supervision, as the poor management of some organizations, such as the private misuse of donations, has lowered the overall public donation awareness.

According to the Ministry of Economy and Finance on the 25th, the government decided to exclude the designation of nine organizations as public interest organizations for donations in the first half of this year. Public interest organizations are groups registered under the Nonprofit Private Organizations Support Act. When selected as a public interest organization, donors can receive a tax credit of 15% of the donation amount (up to 30% of income). The Minister of the Interior and Safety recommends organizations, and the Minister of Economy and Finance designates and announces them; 10% of the 99 recommended organizations failed the Ministry of Economy and Finance’s review.

An official from the related ministries stated, “Some organizations did not align with the purpose of donation management organizations, but this was not disclosed until now,” and emphasized, “If they do not meet the requirements, such as not conducting profit-making activities, their designation will be canceled.”

The main reason for disqualification was failure to properly comply with donation management regulations. Nonprofit private organization A, which supports disabled persons, was excluded from designation as a public interest organization due to inadequate management of membership fees and donation income. To be designated as a public interest organization, membership fees and donation income must be managed through a bank account in the name of the nonprofit private organization for more than one year, but this condition was not met.

There were also cases where the regulations on the use of donations were not clearly established. Organization B was disqualified under the member fellowship provision of the Enforcement Decree of the Income Tax Act. Public interest organizations must ensure through their articles of association that donation income is not used for fellowship or member benefits. Additionally, donations must be used for the public good, and the direct beneficiaries of the projects must be unspecified multiple persons, not specific individuals. Organization C, a local cultural and arts sponsorship institution, was also excluded under the same provision. Furthermore, support groups voluntarily formed by hospital staff and social welfare organizations were excluded from designation due to insufficient website establishment.

Number of 'Designation Cancellations' Increased from 0 to 15: "Crackdown on Fraudulent Activities"

In the second half of last year, as many as 15 organizations had their designations canceled. In the previous first half, no organizations faced cancellation. Considering that only one or two organizations had been canceled before, this is a stringent measure. Most failed to meet the condition of having less than 50% individual donation ratio or did not disclose donation amounts and utilization records. Some organizations were canceled for failing to submit settlement reports or income statements or for being subject to additional gift tax assessments exceeding 10 million KRW.

The government is increasing the level of management and supervision over organizations receiving donations. Earlier this year, the National Tax Service announced it would intensively crack down on fraudulent activities in public interest corporations. In addition to serious misconduct such as private misuse of donations, verification of opaque accounting and insufficient expenditure proof will also be strengthened. The policy also emphasizes including such organizations in a three-year post-management program if such issues are confirmed.

In February last year, the Enforcement Decree of the Income Tax Act was amended to allow designation cancellation if settlement reports and income statements are not submitted within the deadline. The obligation to submit documents for public interest organizations was also specified to within two months after the deadline. If documents are not submitted, the head of the National Tax Service will request the Ministry of Economy and Finance to cancel the designation. In February, the National Assembly’s work report also announced plans to publicly disclose the list of inappropriate donation organizations.

The government took these measures because the donation rate is rapidly declining. As the misuse of donations by some public interest organizations became known to the public, the willingness to donate dropped from 48.4% in 2013 to 37.2% in 2021. The participation rate in donations also fell from 34.6% to 21.6%.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics explained, “Generally, donations naturally increase as the economy grows, but this is not the case in Korea,” adding, “It is important that more people feel they have the capacity to donate compared to others around them, and the declining trust in how donated money is used is having an impact.”

This content was produced with the assistance of AI translation services.