“The Polish Deal” introduced an additional relief in income taxes (PIT and CIT), called “sponsorship” or “CSR” relief (Article 18ee of the Polish CIT Act and Article 26ha of the Polish CIT Act).
It consists in the possibility of an additional deduction from the tax base of, among other things, 50% of tax-deductible expenses incurred for sports activities.
Importantly, it operates “in addition to” and not “instead of” the inclusion of such expenses as tax-deductible costs. Thus, a given expense gives us 100% tax cost credit and 50% additional deduction as a relief.
The relief is addressed to taxpayers who conduct business activity in PIT and receive income from an “operating” source (income other than capital gains income) in CIT.
This solution is an attractive proposition and serves to promote the involvement of entrepreneurs in the development of sports. However, it is important to note that for safe accounting of the relief, one must be careful about several important aspects.
The relief only covers costs incurred for financing:
- a sports club, as referred to in Article 28 sec. 1 of the Polish Law on Sports, for the purposes indicated in Article 28 sec. 2 of the Act;
- a sports scholarship;
- a sports event that is not a mass sports event, as defined in Article 3 sec. 3 of the Polish Act on Security of Mass Events.
It is important to remember that under the relief we will account for expenses that are deductible under the general rules. Therefore, the right to the relief is not given by donations – as they are essentially tax-non deductible expenses.
Therefore, it is worth ensuring that the benefit is an element of sponsorship, i.e. a bilateral activity (benefit for promotion). This approach is accepted by tax authorities (e.g., individual interpretation by the Director of National Tax Information dated 21st October 2022, file reference number 0111-KDIB2-1.4010.453.2022.3.BJ).
Whether the benefits should be equivalent is debatable. While sponsorship assumes such equivalence, CSR support inherently accepts that the supporter gives “more,” so to speak – in terms of accounting for CSR costs in “ordinary” tax expenses. This approach was accepted, among others, in the individual interpretation of the Director of National Tax Information dated 1st July 2020, file reference number 0111-KDIB1-2.4010.186.2020.1.BD). Similar voices have been presented in press publications, such as that of A. Pokojska in the “Dziennik Gazeta Prawna”. The author fully agrees with them.
When financing a sports club, a doubt may arise with regard to clubs operating as companies. Such a legal form is often required in professional sports (league games).
According to the Polish tax authorities’ approach, the status of the club itself – whether it operates as an incorporated company – is not determinative here. What matters to the tax authorities is that, according to the Polish Law on Sports, the club should not operate for profit.
How to prove the fulfillment of this premise in practice?
For example, an individual interpretation by the Director of National Tax Information dated 2nd March 2023, file reference number 0111-KDIB1-1.4010.12.2023.2.SG, recognized the right to account for the relief, where the club had a provision in its charter that it does not operate to make a profit and allocates all of its income to the realization of its statutory purposes.
Unfortunately, in an individual interpretation by the Director of National Tax Information dated 8th November 2022, file reference number 0114-KDIP2-1.4010.92.2022.1.JF, the right to relief was denied, because the club (in the form of a company), according to its charter, could allocate profit to, among other things, dividend distribution – although, according to the applicant, in practice the funds were reinvested for statutory purposes. However, such an approach is, in the author’s opinion, incorrect and unduly narrows the scope of application of the relief. What should be assessed is the actual purpose of the funds.
In the absence of provisions in the statute, it is worth taking care of the club’s corresponding statement.
It is also worth pointing out that the right to relief is not given to expenses based on a contract with individual athletes – as such an expense does not fall within the above-mentioned catalog (so also the Director of National Tax Information in an individual interpretation dated 8th December 2022, file reference number 0114-KDIP2-2.4010.49.2022.5.RK).
Finally, it is likely that after the relief has been deducted, the tax authorities may ask us to provide explanations and documentation related to the relief as part of verification activities. Therefore, it is advisable to gather the materials already when filing the annual return.