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- higher transparency of off budget activity in order to prevent the financing of off budget activity (the incomes from which are not fully controlled) at the ex pense of budget (by estimate) financing;

- ensuring efficient public control over the activity of budget funded organiza tions.

The goal of reforming the taxation of budget funded organizations may be come the introduction of exemptions from the tax on profit of budget funded or ganizations on condition of compliance with certain general requirements estab lished both for budget funded institutions and non government not for profit organizations.

In an event of a switchover to new types of budget financing (state personal fi nancial liabilities (GIFO) the system of money following students, insurance based financing in the health care system, etc.), the latter actually becomes analo gous to off budget financing and requires the introduction of appropriate changes in legislation. For purposes of a switchover to new competition based forms of fi nancing, which for formal reasons will be difficult to implement within the frame work of existing legislation, the following should be done:

either to change the organizational legal form of budget funded institu tions in order to provide opportunities for receiving budget financing not for the up keep of an institution by an estimate of expenses, but for specific activities relating to the rendering of specific services;

Annexs either to change the procedure for developing an estimate of expenses, which must be transformed from an instrument for planning and controlling the ex penditures on the upkeep of an institution into an instrument for activity planning, which records all types of revenues as incomes (including budget funding allocated by an estimate of expenses; budget funds allocated to the payment for services rendered by a given institution; off budget resources). That is, the estimate of ex penses designed for the upkeep of an institution must become part of an estimate of off budget incomes and expenditures of an institution, based on the latter prin ciple (an institutions independence in planning, the possibility of making adjust ments during the execution of an estimate of expenses, etc.).

These goals can also be achieved by introducing a new and special form of a not for profit organization.

Last autumn, the State Duma adopted Federal Law of 3 November 2006, No 174 FZ, On autonomous institutions, whereby a new type of a state (or municipal) institution was established that of an autonomous institution. This Law is disposi tive and thus is conducive to the preservation of the existing legal status of those not for profit institutions which need not be transformed into an autonomous insti tution.

An autonomous institution is to be recognized as a commercial organization created by the Russian Federation, or by its subject, or by a municipal formationfor purposes of carrying out work or rendering services in order to execute the powers granted to the bodies of state authority and local self government in the spheres of science, education, public health care, culture, social security, em ployment, physical culture and sports. An autonomous institution is a juridical per son and may, in its own name, acquire and execute ownership rights and personal non ownership rights, bear responsibilities, and act as a plaintiff or a defendant in a court of justice.

Autonomous institutions may be founded both by way of being created anew or by the reorganization of a budget funded institution, on condition that such re organization will not entail any violation of the rights of citizens in the social and cul tural spheres, including the right to receive medical care and education services free of charge, and the right to participate in the cultural life.

An autonomous institution is subject to State registration in the general pro cedure, as established by RF legislation in respect to State registration of juridical persons and individual entrepreneurs.

The founder should set tasks for an autonomous institution in compliance with its main type of activity as established by its charter. In accordance with the tasks set by its founder and the liabilities to an insurer in respect to mandatory social in surance, an autonomous institution is to perform its activity related to the works be ing carried out or to services rendered both free of charge or partly on a commer cial basis. The financial backing for the main type of activity, as established by the charter of an autonomous institution, is to be provided in the form of subventions No joint foundation of autonomous institutions (including by different bodies of authority or local self government) is allowed.

RUSSIAN ECONOMY IN trends and outlooks and subsidies allocated from an appropriate budget within the RF budget system, or to be covered from other sources that are not forbidden. The terms and proce dure for the tasks to be formulated by the founder and the procedure for the finan cial backing to be provided are to be established by the RF Government in respect to those autonomous institutions that have been created on the basis of federal property; or by the supreme executive body of state authority of a RF subject in respect to those autonomous institutions that have been created on the basis of property owned by that RF subject; or by local administration in respect to those autonomous institutions that have been created on the basis of municipal property, respectively. The services rendered to the population partly on a commercial basis must belong to the range of an autonomous institutions main type of activity. Other types of activity may be engaged in by an autonomous institution only to the extent that they serve the achievement of the goals, for the achievement of which the said autonomous institution had been created, and only on condition that such types of activity are specified in its charter.

The administrative bodies of an autonomous institution are to be represented by a Supervisory Board, by the director of an autonomous institution, and by other bodies envisaged in the federal law and in the charter of an autonomous institution (an academic council, an arts board, etc.).

The founder is to play a significant role in organizing the administrative proce dures for an autonomous institution. The founder is obliged to approve the charter of an autonomous institution and the introduction thereto of any changes and amendments; to coordinate the decisions concerning the creation of affiliations and the opening of the representative offices of an autonomous institution; to re solve issues relating to the reorganization and liquidation of an autonomous institu tion; to approve the deed of transfer of property and the division balance sheet; to appoint a liquidation board and to approve the intermediate and final liquidation balance sheet; to appoint and to terminate the powers of the director of an autonomous institution, as well as to conclude and terminate the labor contract with him, if no other procedure for appointing and terminating the powers of the di rector and (or) for concluding and terminating the labor contract with him is estab lished by the federal law in respect to a given sphere of activity; to consider and ap prove the proposals put forth by the director of an autonomous institution concerning the transactions in respect to the property of an autonomous institution in the event when, for such transactions to be concluded, the consent of the owner of an institutions property is required.

The distinctive feature of autonomous institutions, in which they differ from the budget funded ones, is the presence of a Supervisory Board, to be formed by the founder, within the structure of their administrative bodies. Among the mem bers of the Supervisory Board, alongside the representatives of an appropriate branch administrative body and the administrative body for the management of state or municipal property, there should also be representatives of the public. Be sides, the Supervisory Board may incorporate representatives of the labor collec tive of an autonomous institution, whose number, however, may not be in excess of Annexs one third of the total number of the boards members. This will ensure that autonomous institutions have a relatively higher degree of autonomy (as compared to budget funded ones) and are closer to non commercial organizations controlled by the public (or public ones).

Of the greatest interest in this connection are the certain limitations that have been established by the law in those spheres. Thus, neither the director of an autonomous institution nor his deputies may be members of the Supervisory Board, while no such restrictions are imposed on any other members of the labor collective. However, no other members of the labor collective may occupy the post of the chairman of the Supervisory Board.

At the same time, the opinions of the Supervisory Board in respect to the ma jority of issued to be considered by it are to be only of a recommendatory charac ter. The sphere of its competence includes only: the consideration of proposals concerning the introduction of changes and amendments to the charter of an autonomous institution; proposals concerning the creation of its affiliations and the opening of its representative offices; proposals concerning the reorganization and liquidation of an autonomous institution; proposals concerning the participation of an autonomous institution in other juridical persons, including those concerning the contribution of monies and other property to the charter (or joint stock) capital of other juridical persons, or concerning their transfer, in some other manner, to other juridical persons in the capacity of a founder (or participant); the draft plan of the financial and economic activity of an autonomous institution and the reports on its having been carried out; the annual accounting balance; the proposals put forth by the director of an autonomous institution concerning the conclusion of transactions in respect to the disposal of its immovable and especially valuable movable prop erty which, in accordance with Item 2 of Article 3 of the Federal Law On autono mous institutions, cannot be disposed of by an autonomous institution on its own;

the proposals put forth by the director of an autonomous institution concerning the conclusion of big transactions; and the proposals put forth by the director of an autonomous institution concerning the conclusion of transactions in respect to which it is a related party. In respect to some of the issues, the supervisory board may only offer recommendations to an autonomous institution, while in respect to other issues it may make decisions.

The Law determines the competence of the director of an autonomous institu tion only in most general terms.

Autonomous institutions are allowed to conclude transactions with the partici pation of related parties. Autonomous institution may indeed conclude transactions in which related parties are participants6 but, irrespective of the amount of a trans action, it must be coordinated with the supervisory board. In an event when such a transaction results in a loss, the related parties are to be brought to responsibility on a substantial level.

The related party must be either a member of staff of an autonomous institution, or a member of one of the administrative bodies. Besides, this party should be related to the second party in a transaction.

RUSSIAN ECONOMY IN trends and outlooks Such peculiarities of the legal status of an autonomous institution make it a more suitable form of organization for rendering budget funded services on the basis of targeted financing in accordance with the established norms by compari son with a budget funded institution, because, due to the expansion of its eco nomic independence (and primarily the elimination of the necessity to approve an estimation of revenues and expenses), the State is no longer responsible for the liabilities of an autonomous institution. Besides, the right of the founder to differ entiate the terms and procedure for formulating the tasks of an autonomous institu tion makes it possible to build the relations with such institutions on a contractual basis. In particular, in presence of alternative private suppliers on the market of certain services, the founder can minimize the scope of mandatory tasks by placing the order for appropriate services on the basis of a tender. For their part, autono mous institutions may participate in such tenders on equal terms with other suppli ers. The Law On autonomous institutions will come into force in early 2007, thus providing an impetus to the reorganization of the budget funded network at all the levels of the budget system.

The Law on the target capital of not for profit organizations In the last days of the year 2006, Federal Law of 30 December 2006, No FZ, On the procedure for forming and using the target capital of not for profit or ganizations was adopted. This Law has instutionalized a form of financing the ac tivity of not for profit organizations which is new for this country but has been ac tively used in countries with market economies (endowment). Target capital is determined in the Law as part of property of a not for profit organization, formed by donations of money and transferred by the not for profit organization to trust management by an asset manager for purposes of generating income, to be used for the financing of the charter activity of that not for profit organization. In the Law the relations arising during the formation of the target capital of a not for profit or ganization, its trust management, the use of the resulting incomes, etc., are subject to detailed regulation.

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