Among the many points that play in favor of investing in sports sponsorships there is one that is less "ringing" but absolutely not negligible. Indeed, expenses of this kind fall within the scope of deductibility according to current legislation. This can be verified in the legislations of numerous countries, each of course with specific dynamics and procedures.
If we take a look at the situation in our country, we can go into more detail about the parameters to be met to enjoy this type of scheme. Sponsorship expenses may be considered deductible from business taxes if they are considered a marketing or advertising expense. However, there may be limits and restrictions regarding the type of organization that can benefit from the deductions, and the requirements can vary widely.
In the present case, we can encapsulate the requirements to be fulfilled within a short list, the cornerstones of which are appropriateness and inherence. First and foremost, the sponsorship must have a stated business purpose and should be related to the company's business. Generally, it must be demonstrated that the sponsorship is a marketing or advertising expense aimed at promoting the business and generating benefits for the company. It goes without saying, therefore, that the type of exposure, scope and characteristics of the initiative, as well as possibly the objectives of the campaign, should be clearly and thoroughly documented.
Consequently, it is essential to have a formal, well-documented sponsorship agreement that clearly states the terms and conditions of the sponsorship, including its amount, the services and/or benefits provided in return, and the responsibilities of both parties. Undertaking a sponsorship must provide commercial benefits to the sponsoring company. These benefits can be understood as advertising exposure, brand visibility, marketing opportunities, access to new markets or target audiences, increased sales, creation of new partnerships and collaborations, access to specific know-how and exchange of expertise, or other return on investment.
The presence on vehicles, uniforms or otherwise within the paddock should be aimed at an audience relevant to the company's business. If a business decides to link with a driver, team or federation, it is essential that the audience and other players present in that context are in line with its target audience and industry. All transactions must be transparent and properly recorded in the company's books.
At the level of tax regime, the practice of sports sponsorship is to be considered as an advertising expense and should not be confused with entertainment expenses. In the first case, in fact, there is-as we have seen-an economic exchange that provides an image return and a commercial spin-off in exchange for a payment in cash or of a professional nature. In the second case, on the other hand, we are talking about free expenses that a company makes in order to enhance its reputation, trigger public relations and generally have a long-term return. The deductibility of this second example is much lower and is regulated by Article 108 Consolidated Income Tax Act (TUIR), which states:
"1. Expenses related to more than one fiscal year shall be deductible to the extent of the portion attributable to each year.
- Entertainment expenses are deductible in the tax period in which they are incurred if they meet the inherency requirements established by a decree of the Minister of Economy and Finance, also depending on the nature and purpose of the expenses. Expenses in the preceding period are commensurate with the amount of revenues and income from the enterprise's core business operations resulting from the tax return for the same period in an equal amount:
- (a) 1.5 percent of revenues and other income up to 10 million euros;
- (b) 0.6 percent of revenues and other income for the portion exceeding 10 million euros and up to 50 million;
- (c) 0.4 percent of revenues and other income for the portion exceeding 50 million euros. However, expenses related to goods distributed free of charge with a unit value not exceeding 50 euros are deductible."
It then becomes rather obvious to ensure maximum effectiveness in drafting and complying with sponsorship contracts so that such disbursements fall properly under advertising and are not associated with other treatments.
In order to put oneself in the shelter, not only must one comply with the parameters listed above, but it is highly advisable to demonstrate that the expectation of economic and image return and the resulting related expenditure are proportionate. Such congruity concerns not only the amount of the sponsorship campaign but also its impact in relation to the company's turnover. Excessive spending in the face of a reduced investment opportunity or in the presence of a limited return would expose the company to assessments and penalties.
Thus, in this virtuous circle we can see that a well-done marketing study can ensure:
- Identifying the most suitable space and context for displaying your brand
- The achievement of goals that are realistic and as measurable as possible
- Assurance that investments are classified correctly and do not fall into less advantageous caseloads.
Relying on an agency like Fastback with many years of experience in the industry and who enjoys direct relationships with the major racing teams in MotoGP and Superbike can help validate specific steps within this path.