As a starting point for the broad concept of advertising sponsorship, it is worth mentioning the definition contained in the Law 34/1988, of November 11, General Advertising, which establishes in its article 22 that the sponsorship contract It is one by which the sponsored party, in exchange for financial aid for carrying out its sporting, charitable, cultural, scientific or other activity, undertakes to collaborate in the sponsor's advertising.
Going deeper into the topic we want to address, the concept of sponsorship contract: what is said about?
Sponsorship delimits sponsorship to the sports field; Nowadays, sponsorship has become one of the most important phenomena in our society; these contracts are a fundamental part of the development of many business activities and sporting events. These types of financial and commercial agreements have gained increasing importance in the marketing and advertising strategies of companies around the world.
Sponsorship is configured as a business strategy and is considered a resource to obtain advantageous positions in the market; it is an issue of great relevance for both the companies that sponsor and those that are sponsored. In this article, we will analyze the key aspects of the taxation of sponsorships, taking into account the regulations that govern this type of agreements.
Thus, the sponsorship or sponsorship contract is characterized by the following defining notes:
- It is an onerous contract, which is characterized by the commitment and willingness of the sponsored to collaborate in the sponsor's advertising.
- The contract is of successive tract, it is about continuous conduct of supply of funds for financing during a certain period of time for advertising purposes.
- The sponsored party must comply with the sponsor's dissemination, without there being any alteration, defect or impairment of the essential elements of the sponsorship.
- In the event of non-compliance, if repetition of the sponsorship is not possible, the sponsored is obliged to pay compensation for damages.
In a second order of ideas, we are going to analyze the tax implications of sponsorship, taking into account the forms of financing of sports activities in which both natural and legal persons can participate, therefore, it is worth mentioning:
1. Donations and tax incentives for patronage
This being so, there are donations to non-profit entities that cause non-deductible expenses, but that have a deduction in the tax rate. Likewise, there are other tax incentives for patronage whose expenses, under the established conditions, are either deductible in the IS or generate a deduction for business activities.
The 16 article of the 49 / 2002 establishes that the tax incentives provided for in Title III will be applicable to donations, donations and contributions that, in compliance with the established requirements, are made in favor of the following entities:
- Non-profit entities to which the tax regime established in Title II of this Law applies.
- The State, the Autonomous Communities and the Local Entities, as well as the autonomous bodies of the State and the autonomous entities of a similar nature of the Autonomous Communities and the Local Entities.
- Public universities and the colleges attached to them.
- The Cervantes Institute, the Ramon Llull Institute and other institutions with similar purposes of the Autonomous Communities with their own official language.
- Public Research Organizations dependent on the General Administration of the State.
Article 20 of Law 49/2002 establishes that donations made will have the following tax regime:
- They will not be considered a tax-deductible expense.
- 35% of the deduction base will be deducted from the full quota reduced by bonuses, deductions for double taxation, internal and international, and deductions for business incentives, with a limit of 10% of the tax base.
- The percentage will be 40% based on the deduction, if in the two immediately preceding tax periods donations, donations or contributions with the right to deduction had been made in favor of the same entity for an equal or greater amount, in each of them. , to that of the previous tax period.
- The amounts not deducted may be applied in the immediate and subsequent 10 years.
2. Business collaboration agreements in activities of general interest
Regarding the collaboration agreement, this is applicable only to entities declared of public utility, thus article 25 of Law 49/2002, of December 23, defines business collaboration agreements as those by which the beneficiary entities of the patronage undertake to disseminate, by any means, the participation of the collaborating businessman, in exchange for financial aid for carrying out the activities they carry out in compliance with their specific object or purpose, without such dissemination being considered a provision of services by part of the non-profit entity.
The donee or beneficiary entities of patronage must be, according to article 16 and additional provisions of Law 49/2002, one of those indicated below, when they meet the requirements of article 3 of Law 49/2002:
- Associations declared of public utility.
- The non-governmental development organizations referred to in Law 23/1998, of July 7, on international cooperation for development, with the legal form of a foundation or association declared of public utility.
- Delegations of foreign foundations registered in the Registry of Foundations.
- The Spanish sports federations, the regional territorial sports federations integrated into them, the Spanish Olympic Committee and the Spanish Paralympic Committee.
- The federations and associations of the non-profit entities mentioned above...
The amounts paid or the expenses incurred by the collaborating entity will be considered deductible expenses for determining the tax base. However, the treatment of such contributions as a tax-deductible expense is incompatible with any other tax incentive, based or in quota, contemplated in Law 49/2002 itself.
On the other hand, their treatment in terms of Value Added Tax is as follows: as we mentioned in the Business Collaboration Agreement in Activities of General Interest, non-profit entities that are considered beneficiaries of patronage, in exchange for financial aid to carry out the activities they carry out in compliance with their specific object or purpose, "they undertake in writing to disseminate, by any means, the participation of the collaborator in said activities", without such commitment including, therefore , the dissemination of any advertising message by the sponsor.
Law 49/2002 itself declares in the aforementioned article 25 that “the dissemination of the participation of the collaborator within the framework of the collaboration agreements defined in this article does not constitute a provision of services”, so there will be no taxable event subject to VAT and hence VAT will not have to be charged to the invoice.
3. Sponsorship contract
The advertising sponsorship contract is one by which the sponsored party, in exchange for financial aid to carry out its sporting, charitable, cultural, scientific or other activity, undertakes to collaborate in the sponsor's advertising. This contract is governed by the rules of the advertising distribution contract insofar as they are applicable.
The beneficiary entity, in exchange for financial aid to carry out its activity, undertakes to collaborate in the sponsor's advertising.
The position of the sponsored entity is much more active by collaborating in the sponsor's advertising, not only limiting itself to giving notoriety to the company's participation in exchange for the financial aid received.
The tax treatment is the same, tax-deductible expense in Corporate Tax.
Thus, the advertising expense produced by the sponsor's contribution in compliance with the sponsorship agreement is tax deductible, is considered related to the company's activity and has the purpose of obtaining income.
However, we find a difference with respect to the Value Added Tax since the operation is subject to VAT when it is configured as a provision of advertising services carried out by the sponsored entity in exchange for an economic consideration.
In short, by way of conclusion, the consequences of the contribution modalities mentioned are as follows:
In this sense, it is essential to determine what type of contribution is chosen, since in the cases in which the sponsor disseminates his collaboration it is no longer possible to consider the contribution as a donation, in this sense, binding consultations are pronounced. DGT CV0990-15 and CV0997-15, of March 25, 2015, according to which, if the collaborating company disseminates and publicizes the collaboration with the non-profit entity, it is no longer considered a donation or donation and will be considered a business agreement , accrues VAT and will not be exempt income. In this sense, it is indicated that "the dissemination carried out by the collaborator himself, either through mention in his advertising or through the transfer of use of the name and logo by the non-profit entity, would be an activity that cannot be classified as a collaboration agreement."
Regarding the accounting treatment, the BOICAC Consultation Number 90/JULY 2012-5 of 31-07-2012 establishes:
To determine the correct accounting treatment of this type of contributions, it is necessary to consider what is the cause of the transfer of assets, for which it is necessary to previously analyze the economic background of the collaboration agreement, in such a way that two conclusions could be reached:
- If the non-profit entity assumes an obligation equivalent to the consideration received to disseminate the collaboration of the contributing entity, the agreement should be classified as the provision of an advertising service and the allocation of the expense to the profit and loss account should comply with the accrual principle and, consequently, be recognized as incurred in the provision of the service by the foundations.
- But, if, on the contrary, the conclusion is reached that the cause that justifies the transfer of assets is none other than granting aid to the aforementioned entities in exchange for a symbolic consideration, compared to the amount committed, consisting of disseminating the collaboration of the contributor in the activities carried out by the foundations, the agreement signed, unlike sponsorship contracts (which are governed by the General Advertising Law) does not seem to contain two obligations to be executed by the parties, but rather its legal nature and, consequently, economically, it would be closer to donation. If this were the case, from an accounting point of view, to the extent that the outflow of resources is probable, the obligation incurred by the company should lead to the recognition, at the initial moment, of an expense and the corresponding liability for the current value of the amount. totally committed.
Consequently, to determine the type of contribution that the sponsor should lean toward, the determining factor would be to establish what objective is pursued with said contribution: positioning, image, commercial strategy, marketing? Thus, at a tax level, when the tax rate is sufficient, a priori, it would be more beneficial to make donations to non-profit entities rather than collaboration agreements or sponsorship agreements, since, as we have commented in the case of donations, the deduction in quota is 35% and up to 40%, without losing sight of the limit of the deduction base, established at 10% of the corporate income tax base.
Mariams Manosalva Anaya
TOMARIAL Tax Department