In Italy, tax deductions for sports sponsorship expenses and the deductibility of those expenses are a very important issue when it comes to sports marketing. The subject matter is delicate and full of details (VAT on sports sponsorship, tax relief, advertising expenses, and so on) and must be approached methodically, as the rule is very important for both the big team and the Amateur Sports Association and must be handled with familiarity by anyone who wants to deal with sponsorship. That’s why we talk about it today with Riccardo Maria Ceresi, a Certified Public Accountant who helps us shed light on the topic.
Sports sponsorships are an important opportunity for companies to increase their visibility and promote their brand. In addition to marketing benefits, these expenses can also offer significant tax advantages in the form of deductibility. In this article, we will explore in detail the conditions and limits of sports sponsorship deductibility in Italy, providing a comprehensive guide for companies wishing to take full advantage of this promotional tool.
Definition and Characteristics of Sports Sponsorships.
Sports sponsorships are characterized by the existence of a synallagmatic relationship, that is, a contract between the sponsor and the sponsored party, in which both parties agree to provide a service.
Specifically, the sponsor agrees to provide consideration in cash or in kind, while the sponsoring party agrees to advertise and propagate the sponsor’s product, brand, or activity.
This contractual relationship is key to framing sports sponsorships within the realm of advertising expenses, rather than entertainment expenses, as we will see below.
The Regulations on the Deductibility of Sports Sponsorships.
The deductibility of sports sponsorship is regulated by special legislation, introduced by Art. 90, paragraph 8, of Law 289/2002.
According to this provision, consideration in cash or in kind disbursed to companies, amateur sports associations, foundations established by educational institutions and school sports associations that carry out activities in the youth sectors recognized by sports federations or sports promotion bodies, constitutes for the disbursing party advertising expenses up to a total annual amount not exceeding 200,000 euros.
This means that, within the annual limit of 200,000 euros, sponsorship expenses incurred by companies are fully deductible from business income as advertising expenses.
This statutory provision represents an absolute legal presumption, i.e., a rule that admits no exceptions or room for assessment by the Internal Revenue Service.
Therefore, companies that meet the requirements of the law can fully deduct sports sponsorship expenses up to 200,000 euros without having to prove the actual advertising effectiveness of the investment.
Requirements for Deductibility of Sports Sponsorships.
In order for sports sponsorship expenses to be considered fully deductible, certain conditions must be met:
Sponsored Subject
The beneficiary of the sponsorship must be an **amateur sports club or association** (ASD or SSD) **affiliated with CONI**. [4] You can check the affiliation on the CONI website, in the section dedicated to sports clubs.
Promotional Activities
Actual advertising activity implemented by the sponsoring party, aimed at promoting the sponsor’s image and products/services, must be detectable.
This activity may consist of affixing the company’s brand name on uniforms, signage, posters and flyers related to sports competitions.
Expenditure Limit
The consideration paid, whether in cash or in kind, shall not exceed the total annual amount of **200,000 euros**.
Sponsorship Agreement
It is important to prepare asponsorship contract that formalizes the obligations undertaken by the parties and the agreed promotional activities.
By meeting these conditions, companies can benefit from full deductibility of sports sponsorship expenses up to 200,000 euros annually.
Sports Sponsorships: Advertising Expenses vs. Representation Expenses
A crucial aspect to consider is the distinction between advertising and entertainment expenses, as the tax treatment provided for these two types of costs is very different.
Sports sponsorships fall within the scope of advertising expenses when the main objective is to promote corporate image or products/services with a view to financial return in the form of increased sales.
In this case, expenses are either fully deductible in the year they are incurred or can be amortized over 5 years. In addition, the VAT on such expenses is fully deductible.
On the contrary, sponsorships may be considered entertainment expenses when the main objective is the mere promotion of corporate image, without a direct link to productive activity. In this case, deductibility is limited: up to 10 million in revenues, expenses are deductible to the limit of 1.5 percent of annual revenues generated by the enterprise.
It is therefore essential that the sponsoring company be able to demonstrate the business reasons for investing in sports sponsorship in order to qualify for full deductibility as an advertising expense.
Tax Credit on Sports Sponsorships
In addition to the deductibility of expenses, companies that have made sports sponsorships in the years 2020 and 2021 can also take advantage of a 50 percent tax credit on the cost incurred.
This tax break was introduced by the government to support the sports sector during the health emergency period related to the COVID-19 pandemic.
To be eligible for the tax credit, companies must meet specific conditions, including an annual spending limit and the allocation of sponsorships to certain sports entities, such as amateur clubs and associations.
Tax Advantages and Growth Opportunities
Sports sponsorships represent an attractive opportunity for companies to combine marketing and tax-saving goals.
Thanks to the full deductibility of advertising expenses and the possibility of taking advantage of tax credits, companies can significantly reduce the tax burden associated with these promotional investments.
In addition, sponsorship of amateur sports clubs and associations can help strengthen the corporate image and create closer ties with the local area and community, providing additional opportunities for growth and development.
In conclusion, the deductibility of sports sponsorships is an important tool available to companies to optimize their tax strategy without sacrificing marketing and visibility benefits. Through proper planning and compliance with regulatory requirements, businesses can take full advantage of this tool for promotion and investment in the sports sector.
