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Among the many points that play in favor of investing in sports sponsorships there is one that is less "clear" but absolutely not negligible. Expenses of this type in fact fall within the scope of deductibility according to current legislation. This can be verified in the laws of numerous countries, each obviously with specific dynamics and procedures.

If we examine the situation in our country we can delve into the parameters to be respected in order to enjoy this type of regime in more detail. Sponsorship expenses may be considered deductible from your business taxes if they are deemed a marketing or advertising expense. However, there may be limits and restrictions regarding the type of organization that is eligible for deductions, and the requirements can vary greatly.

In this case, we can enclose the needs to be fulfilled within a short list, the cornerstones of which are congruity and inherence. The sponsorship must first and foremost have a declared commercial purpose and should be linked to the company's business. Typically, it must be demonstrated that the sponsorship is a marketing or advertising expense intended to promote the business and generate benefits for the company. It goes without saying that it is therefore appropriate to clearly and thoroughly document the type of exposure, the scope and characteristics of the initiative, as well as possibly the objectives of the campaign.

It is therefore essential to have a formal and well-documented sponsorship agreement, which clearly sets out 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 skills or other return on investment.

The presence on vehicles, uniforms or in any case within the paddock should be aimed at an audience relevant to the company's activity. If a company decides to associate itself with a rider, a team or a federation, it is essential that the public and other operators present in that context are in line with its target and its reference sector. All transactions must be transparent and properly recorded in the company's books.

At the tax regime level, 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 which provides for a return of image and a commercial impact in exchange for a payment in money or of a professional nature. In the second case we are instead talking about free expenses that a company makes in order to increase 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 relating to multiple financial years are deductible within the limit of the amount attributable to each financial year.

  1. Entertainment expenses are deductible in the tax period in which they are incurred if they comply with the relevant requirements established by decree of the Minister of Economy and Finance, also depending on the nature and destination of the same. The expenses of the previous period are commensurate with the amount of revenues and income from the characteristic management of the company resulting from the tax return relating to the same period in an equal amount:
  2. a) 1,5 percent of revenues and other income up to 10 million euros;
  3. b) at 0,6 percent of revenues and other income for the part exceeding Euro 10 million and up to 50 million;
  4. c) at 0,4 percent of revenues and other income for the part exceeding Euro 50 million. However, expenses relating to goods distributed free of charge with a unit value not exceeding €50 are deductible."

It therefore becomes quite evident to guarantee maximum effectiveness in the drafting and compliance of sponsorship contracts so that these disbursements correctly fall under the heading of advertising and are not associated with other treatments.

To protect yourself, not only must you comply with the parameters listed above but it is highly advisable to demonstrate that the expected economic and image return and the consequent relative expense are proportionate. This congruity does not only concern the amount of the sponsorship campaign but also its impact on the company's turnover. Excessive spending with a reduced investment possibility or in the presence of a limited return would expose the company to investigations and sanctions.

In this virtuous circle we can therefore note that a well-done marketing study can guarantee:

  • Identifying the most suitable space and context for displaying your brand
  • The achievement of realistic and measurable objectives
  • The certainty that investments are classified correctly and do not fall into less advantageous categories.

Relying on an agency like Fastback with many years of experience in the sector and which enjoys direct relationships with the main MotoGP and Superbike teams can help validate the specific steps within this path.

Continue to follow ours blog to stay updated on this and other topics. If you need further information do not hesitate to contact us.

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