Sponsorship of an individual or budget institution

Sponsorship is a fairly common type of activity in Russia. The business models of many companies without fail include activities related to the provision of financial assistance to certain budgetary, non-profit organizations, sports organizations, and individuals.

A type of activity close enough to sponsorship is charity. A large number of Russian organizations are also involved in it. According to a number of criteria, various types of activity associated with the provision by companies of financial and other kinds of material support in relation to budget structures and individuals are defined as entrepreneurial activity. In some cases, as a charity. There are interpretations of a mixed nature.

By what signs is the difference between the activities of these types determined? What criteria are important in terms of taxation? Why is sponsorship beneficial for many business people? What principles does the Federal Tax Service adhere to when calculating fees from sponsors and beneficiaries?

Who is the sponsor?

The term "sponsor" is quite common. Depending on the context, its interpretation may vary from one case to another. Let's try to determine the meaning of the word "sponsor" by contacting the sources of law. Do they have any definition of the term? There is, and quite straightforward. It is contained in the Federal Law "On Advertising". According to this law, sponsorship is an activity that involves a certain response by the sponsored object regarding the provision of financial and other kinds of support.

The person who helps with the money through sponsorship usually counts on the subsequent return on investment.

As a rule, the main mechanism that is used in such cases is advertising.

For example, suppose sponsorship is provided to a school.

The employees of this educational institution, it turns out, are then obliged to post data on the subject who helped, in accessible media channels, booklets, talk about him at public events.

Sponsorship subject

What kind of help, from the point of view of Russian legislation, can be recognized as sponsorship? Paragraph 9 of Article 3 of the Federal Law "On Advertising" states that this may be the provision of funds for the purpose of holding an event of a sporting character, cultural or in other areas, creating a product for broadcast on TV, radio or any other subject of creativity.

Differences between sponsorship and regular advertising

As we said above, sponsorship involves a subsequent response from the sponsored entity in the form of facilitating the placement of information about who helped in the media and other channels. Such actions are classified by law as "sponsorship advertising." However, it, in accordance with a number of by-laws, differs from the traditional, as such, commercial one.

Firstly, according to one of the letters of the FAS, advertising cannot be considered sponsorship if it involves the publication of information about a brand, trademark without reference to a funded event or project.

Secondly, if the person who helped with the money controls the campaign to promote his name in the media, then, according to the position of the FAS, he still uses the channel of commercial advertising. The criteria here may be different. For example, the fact that the newspaper where the sponsor announcement is published belongs to him.

Thus, a message like “Buy products of OJSC Fresh Pineapple as part of a branded distribution network in the central areas of our city” is in the nature of commercial advertising.In turn, the phrase “We thank the company Fresh Pineapple OJSC, represented by a distribution network in the central part of our city for helping organize a sports rally for students in grades 9–11 of high schools,” may well be classified as a typically sponsored advertisement. The difference is quite felt.

Sponsorship Documentary

Sponsorship usually has formal clearance procedures. The relationship between the assistance provider and the funder is subject to the standards set forth in chapter 39 of the Civil Code. That is, here we are talking about the provision of services having a sign of retribution. A sponsorship agreement is being drawn up. A sample of it may contain the following items.

1. The subject is determined: the sponsor finances the events (creation of a creative product), and the recipient of the assistance agrees to post through available mechanisms information about who helped.

2. The conditions of the contract are indicated:

• the content of the information published about the sponsor, the method of its distribution (media, leaflets, oral announcement, etc.);
• the place where the event will be held;
• the duration of the sponsorship advertising campaign;
• type of assistance provided (cash or property);

3. Information is noted reflecting the way of confirming the fact that the obligations of the parties have been fulfilled. Usually this is an act of acceptance (supplemented by relevant documents - certificates, layouts of advertising banners, etc.).

Sponsorship Taxation

Sponsorship assistance is taxed in accordance with the norms of the Tax Code of the Russian Federation. In accordance with them (in particular, with Article 1 of the Code), the subject of support should include VAT (regardless of whether it is cash or property). The rate is 18%. From the point of view of the Federal Tax Service, the object of sponsorship is an advertising distributor.

He receives compensation for his services from the sponsor, that is, the advertiser. And therefore, it is obliged to pay VAT for the services provided. In some cases, it is possible to offset VAT accrued on sponsorship and a similar tax on expenses related, for example, to interactions with contractors during an advertising campaign. This applies to aspects related to the object of transfer of assistance.

Is Sponsorship a Business Benefit?

What about the taxes of the party that provides support? The most remarkable thing is that the provision of sponsorship can be attributed to the costs of the organization.

That is, the sums of money transferred to the support object (or the value equivalent for the property) can be used to reduce the tax base if, say, the sponsor organization works on the simplified tax system.

True, this will be legitimate only if the targeted use of funds is proved. As follows from some Letters of the Ministry of Finance, the Federal Tax Service recognizes the following expense items to reduce the tax base:

• promotional events through the media;
• production of advertising banners, light elements;
• printing of brochures, booklets, catalogs.

Relevant costs must be supported by documents of a primary nature. As a rule, the subject of reduction of the tax base, acceptable from the point of view of the Federal Tax Service, is the presentation of sponsorship as advertising costs. The most important criteria here are economic feasibility, correct documentary evidence, as well as focus on profit. Specific types of expenses prescribed by law in this part are set out in Article 264 of the Tax Code.

In some cases, however, the law provides an opportunity for entities and objects of assistance to receive preferences related to taxation. The fact is that in 2012 the Tax Code of the Russian Federation was amended, according to which some sponsor relations may, on the one hand, not provide for the calculation of VAT (which is beneficial for the objects of support), and on the other - be subject to a reduction in the tax base regarding the subjects of provision help.We are talking about advertising of a social nature (aimed at informing various social groups and the population as a whole about the existence of such and such problems and possible measures to solve them).

As an advertisement?

Sponsorship, as we have already determined, is onerous. It implies assistance from the object of her provision of advertising information about who helped. There is one caveat here. The publication of relevant materials in the media and other channels available to the sponsored entity must be accompanied by a direct indication that the information is published as an advertisement.

This is required by the same Federal Law No. 38. If this is not done, then the sponsor will not be able to reflect the relevant expenses in his tax documentation. And at the same time, the obligation to pay VAT for the recipient of assistance will remain. It turns out, if you forget that the information is distributed as an advertisement, both parties will lose.

Gratis sponsorship and charity

Will those activities that do not imply retribution in the form of advertising promotion be considered sponsored? Law No. 38 contains rules that allow this to be allowed. The main thing is that those types of events, as well as the creation of specifically those products that are listed in the 9th paragraph of the 3rd chapter of the specified Federal Law, are the subject of financial support.

Gratuitous sponsorship - a phenomenon that is allowed by regulatory law. But how is she, in this case, different from charity? We can find the answer to this question in the Federal Law No. 135, adopted on August 11, 1995. According to the norms contained in this legal act, charity cannot extend to commercial organizations, various kinds of political associations, and a number of some other forms of institutions.

That is, the fundamental difference between sponsorship and charity is in whose address the support is directed. The subject of its provision is also important - that is, sponsorship to an individual or provided to an NGO that conducts sports, cultural and other events, or creates a creative product, can be considered charity.

In this case, these are synonyms. Another important criterion that distinguishes sponsorship from charitable assistance is the presence or absence of a counter obligation on the part of the support object to the entity, which, in accordance with Federal Law No. 38, is an advertisement in the media and other channels available to the sponsored party. According to experts, in some regional structures of the Federal Tax Service, it is customary to consider exclusively voluntary activities of individuals and organizations related to the free transfer of money or material assets to other citizens or legal entities (as well as the free performance of work and the provision of services).

Meanwhile, such a status of assistance, such as charity, may not suit some sponsors. The fact is that this kind of support, according to generally accepted interpretations of the law, is not aimed at the subsequent extraction of income.

The assistance subject transfers money and property without assuming a subsequent payback of this kind of “investment”, in contrast to the onerous format of interaction with the recipient of support. In turn, charitable assistance is not subject to VAT. This may be a plus for the subjects of its provision. But by what criteria does the Federal Tax Service sponsor an individual or a budget organization clearly qualify as charity?

Charity from the point of view of the Federal Tax Service

How to report on the receipt of gratuitous support in order not to pay VAT (which, as you know, is charged by default on sponsorship property)? The most important thing is to make the Federal Tax Service understand, experts say that the sponsor did not sell the goods to the assistance facility.The fact is that, in accordance with Article 146 of the Tax Code of the Russian Federation, if the Federal Tax Service does not recognize the fact of the charitable orientation of sponsorship, the support entity will be required to calculate the corresponding VAT both from the sale of goods or services.

Therefore, it is very important that the status of support provided by the sponsor is guaranteed to be presented as charity. Otherwise, assistance will be interpreted by the Federal Tax Service as entrepreneurial activity, and you will have to pay legal VAT. In some cases, the Federal Tax Service does not suffice for the fact that the object of the assistance is not a political party or a commercial structure. Additional evidence may be required that the transaction does not imply a business interest on the part of the sponsor.

Experts recommend using the following mechanisms to prove that aid is charitable. They are applicable if sponsorship is provided to the school, NGOs and other non-profit organizations. The first mechanism implies that the relationship between the object and the assistance subject began some time before the actual settlements between them. In this case, a document that reflects a request for sponsorship at no cost can help. Typically, this is a letter drawn up in a certain way. If sponsorship is provided to a budget institution, then on behalf of its head.

The second mechanism is the collection of documents that can clearly indicate that the support is charitable. Of course, a sponsorship letter may apply. But most often these are correctly drawn up contracts, which reflect the gratuitousness of the relationship between the assistance object and the subject.

Alternatively, documents proving that the funds or property were used in a targeted way (and not as a mechanism for the sponsor to extract income). If we are talking about the transfer of material assets, then, as some experts point out, documents that reflect a completely 100% discount not prohibited by law are quite suitable. That is, it turns out that the subject of charity, on the one hand, purchases a product, on the other hand, pays zero rubles for it. Accordingly, VAT is also equal to zero in this case.

In a number of regional divisions of the Federal Tax Service, the main criterion for distinguishing between sponsorship and charity is the content of documents of the second type, that is, a letter of sponsorship for inspectors may not play a role. The most important thing is the content of documents reflecting the nature of civil law relations between the one who helps and the object of support. In this case, the structure of the contract for gratuitous sponsorship plays an important role.

Gratuitous aid agreement

In the document in question, the tax authorities strongly recommend that the following points be reflected:

• purpose of support;
• the purpose of the property that the sponsor transfers to the support facility;
• emphasis on the gratuitous nature of relations between the parties.

But since the policies of different regional structures of the Federal Tax Service may differ, sponsors are advised to supplement the agreement with additional documents. We have given examples of these above. This can be a “zero” waybill or a letter of sponsorship. A sample of the most effective evidence set is a combination of all types of documents. Of course, all of them should be drawn up extremely correctly.

By the way, possible suspicions on the part of the Federal Tax Service may occur if free sponsorship is provided to a budget institution or other organization. As a rule, if the object of its provision is an individual, then the Federal Tax Service, as experts say, does not have any special questions for the one who helped.

But even in this case, it will not hurt to document the relationship between the parties to the contract (in the form of an act, invoice, etc.). By the way, any kind of sponsorship for individuals is subject to personal income tax. Those citizens who receive assistance with which the corresponding fee was not calculated on time by the support entity itself (acting as a tax agent) must pay the necessary amount to the treasury themselves.

It is also worth noting that tax accounting for sponsorship of a gratuitous type does not imply the calculation of VAT if support is provided in cash. In this case, we are not talking about the sale of goods or the provision of services. The transfer of cash in cash or non-cash, of course, must comply with the requirements of the relevant types of legislation.