It's important to the tax office that the company doesn't support the club quietly and secretly. It must be clear during the tax audit that the sponsorship is clearly viewed as a promotional measure for the company. (Photo: © matimix/123RF.com)
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Are jerseys with advertising prints that a company provides to clubs eligible for input tax deduction? The Lower Saxony Finance Court has ruled on this. Tips on sponsorship in the trades!
Many companies, including those in the skilled trades, support sports clubs and youth teams in their region, for example through jersey sponsorship . They may be interested in a ruling by the Lower Saxony Fiscal Court , which decided on the question of whether input tax amounts from the purchase of sportswear with advertising imprints are deductible within the framework of VAT assessment .
The plaintiff ran a driving school. He had purchased jerseys with the advertising imprint "Driving School X" and made them available free of charge to various clubs in the region surrounding his driving school. These were primarily youth teams in different sports . Following an external audit, the tax office did not allow the corresponding expenses to be considered as tax-deductible.
The tax office justified its decision by stating that the teams' matches primarily involved youth games that attracted little to no spectators. It was therefore assumed that the printed logos would not have any significant advertising effect . Consequently, the jersey sponsorship was classified as falling under the "non-profit sector," and the input tax was not deductible.
The Eleventh Senate of the Lower Saxony Finance Court ruled in favor of the entrepreneur (judgment of January 3, 2022, case no. 11 K 200/20). While it is true that youth teams generally do not play in front of an audience, their games are primarily attended by coaches and, if necessary, some parents.
Operations management
Operations management
Operations management
However, this is not important, because the young athletes are mostly between 15 and 20 years old and are therefore precisely the target group that the plaintiff wants to address with his driving school.
Experience has shown that young people aged 16 or 17 and older typically take advantage of the opportunity to obtain a driver's license these days. The use of jerseys with the advertising imprint therefore constitutes a service provided by the clubs and thus consideration for the provision of the sportswear . Whether the clubs have paid taxes on these services is, according to the court, irrelevant to the crucial question of the input tax deduction for the service provider and is not the subject of this legal dispute.
Donations are financial contributions or in-kind donations to non-profit, ecclesiastical, religious, scientific or other organizations recognized as worthy of support.
Donors receive a donation receipt, but no specific compensation. Businesses and private individuals can deduct donations as special expenses up to 20 percent of their income.
Sponsorship is a form of marketing. Unlike a donation, companies receive something in return for their money in the form of visibility: for example, the company name appears on a football team's jersey or on the ticket to a summer concert.
With sponsorship, companies combine the good with the useful. They deduct the expenditures as business expenses, which reduces their tax burden. Sponsorship is also not limited to specific organizations. Businesses can also sponsor professional athletes or commercial events.
The tax office considers it important that the business owner does not support their favorite club quietly and secretly. During the tax audit, it must be clearly demonstrated that the tradesman views the sponsorship as an advertising measure for their own business . Therefore, the sponsored party must prominently advertise the sponsor and their products on posters, event announcements, stadium announcements, newsletters, or jerseys.
Advertising through sports sponsorship is relatively straightforward if the tradesman provides the jerseys or if the club prints the company logo on the advertising boards . If the local newspaper or advertising paper then reports on the company's involvement, there should be no obstacle to deducting the costs as a business expense. The company should also mention its sponsorship in its social media activities.
Instead of a football club, the company could of course also financially support a museum , a music society , or a social project . If it wants to take advantage of the tax benefits offered by sponsorship in this case, the sponsored organization must pull out all the stops in its marketing efforts.
The museum could, for example, have the company's logo printed on the admission tickets and mention the sponsor at the exhibition opening. The important thing here is that the company is the focus , not the individual donor.
Incidentally, all of this is regulated in the sponsorship decree of the Federal Ministry of Finance.
All business owners can sponsor and deduct the sponsorship costs as a business expense for tax purposes. Provided, of course, that the financial support is of a reasonable amount . This means that the expenses should be proportionate to the expected additional revenue generated by the advertising campaign.
The Federal Fiscal Court has clarified that these requirements also apply to freelancers. In the case under consideration, freelance sports physicians with an annual turnover of approximately €900.000 had sponsored a professional athlete with €100.000.
The court ruled that the form and amount of support was appropriate and could be considered an investment to generate additional income for sports doctors because the athlete had publicly drawn attention to the sponsorship and the sponsor's services.
Companies should carefully consider which clubs or events are a good fit for their sponsorship activities. In the driving school example, it worked out well because the young players were recognized as a target group. Companies should pay attention to the appropriate level of sponsorship and stipulate the benefits in a contract . Tax advisors can help with questions about how sponsorship can reduce the tax burden.
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