When talking about the tax treatment of sponsorship expenditures, often ambiguities appear regarding their impact over the corporate tax. Firstly, it is important to make the difference between the deductibility of the sponsorship expenditures and the sponsorship tax credit. Next, we shall present the tax treatment of this expenditures category and what are the applicability limits.
Regarding the corporate tax, according to art. 25, para. 1 from the Tax Code, an expenditure is considered deductible at the profit tax calculation, if it is performed with the purpose of developing the economic activity.
Further, art. 25, para. 4), letter i) provides that the sponsorship and/or patronage expenditures are non-deductible, but companies that make sponsorships, decrease the respective amounts from the corporate tax owed at the level of the minimum amount among the following:
1. the calculated valued by applying 0.5% to the turnover;
2. The value representing 20% of the owed corporate tax.
Moreover, the amounts that are not decreased from the corporate tax shall be reported in the following 7 consecutive years. Recovering these amounts shall be done in the order of their registration, in the same conditions, at each corporate tax payment term.
In order for a sponsorship/patronage expenditure to be included in the provisions mentioned above, these actions have to be achieved according to the Law no. 32/1994 regarding sponsorship, that defines the sponsorship and patronage terms as follows:
- „Sponsorship is the legal transaction through which two persons agree on transferring the ownership right over assets or financial means with a view to supporting non-lucrative activities run by one of the parties referred to as recipient of sponsorship.”
- „Patronage is an act of liberality by which a natural person or a legal entity referred to as patron, transfers without any direct or indirect compensation duty its ownership right over assets and financial means to a natural person as a philanthropic activity of humanitarian nature to run activities in the cultural, artistic, medical and sanitary or fundamental and applied scientific research areas.”
In practice, there are situations in which the representatives of a company ask themselves if they can grant welfare benefit to a natural person. For example, if a company grants welfare benefit to a natural person (help for a medical treatment or help for the acquisition of household material goods), this amount cannot be considered patronage, because it does not comply with the definition from above (the amount is not used by the natural person to run activities in the cultural, artistic, medical and sanitary or fundamental and applied scientific research areas). As a consequence, the company should take into consideration the alternative of registering this expenditure as donation and as a consequence as non-deductible expenditure, and shall not apply the sponsorship tax credit.
There are also situations in which the shareholders of a company want to grant medical support for people related to their employees (husband, wife, children etc.), besides the tax regime explained above, there is the risk, that in an aggressive approach, in the case of a tax inspection, the control bodies to consider that, actually the employer granted to the employee a salary benefit that would require a taxation similar with the salary taxation.
In conclusion, when a company registers sponsorship and/or patronage expenditures, it has to pay careful attention to the Law 32/1994 for the application of the tax credit, whereas there is the risk that a wrong tax treatment of this type of expenditure to attract adjustment at the level of the company’s corporate tax and the eventual tax ancillary obligations.
Article published on Avocatnet.ro.
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