CSR – corporate social responsibility
Before going on to explain how CSR relief actually works, we need to explain – in a few words – what CSR is. The acronym comes from Corporate Social Responsibility and stands for corporate social responsibility.
According to the definition, it is such a way of managing a company that takes into account the impact of the company’s activities on the environment or various social interests. Companies guided by CSR principles in their day-to-day operations not only take care of their relations with employees, but also invest in environmental protection or conduct transparent communication about their activities.
Sponsorship relief – conditions and assumptions
The CSR allowance was introduced to encourage entrepreneurs to develop corporate social responsibility as part of their operations. One way to implement CSR principles in a company is to be willing to provide financial support to various organizations and entities – for example, cultural institutions.
Who can benefit from the sponsorship tax credit?
Any entrepreneur in Poland paying personal income tax (PIT) or corporate income tax (CIT) is eligible for the CSR relief.
What types of support does the CSR relief cover?
The sponsorship tax credit applies primarily to direct financial support, but also to other indirect forms of support provided through sponsorship agreements with entities.
Entrepreneurs can become sponsors (and take advantage of the relief) by, for example, purchasing equipment for a sports club or funding a sports scholarship. Expenses incurred, for example, for organizing an event in cooperation with a cultural institution will also qualify for the relief.
What purposes qualify for the sponsorship tax credit?
Of course, it is not enough to spend a bit of company money and declare it as a sponsorship activity to qualify for the relief in question. Currently, the regulations provide for three categories of purposes (types of activities) that entrepreneurs can support while still being eligible for CSR relief:
- Sports activities (for example, costs incurred in organizing sports events);
- activities supporting higher education and science (for example, student salary costs, academic scholarships, etc.);
- cultural activities (for example, funding cultural activities carried out by art colleges).
EXAMPLE
Mr. Klemens – the owner of a window manufacturing company in Kalisz – is privately a devoted fencing fan. Knowing that it is a niche sport and insufficiently funded, he decides to financially support a local sports club so that it can send promising fencing players to the European Championships.
Mr. Klemens enters into a sponsorship agreement with the club, under which he agrees to pay 35,000. PLN to the club’s account. With a deal in place, and in exchange for the money the club will put Mr. Clement’s company logo on promotional materials, the financial support qualifies for a sponsorship tax credit.
Can a donation be considered a form of sponsorship?
In the context of CSR relief, the answer is only one: no. A donation by itself cannot be deductible for tax purposes because it does not serve to increase revenue. Sponsorship, on the other hand, maintains the principle of reciprocity and involves an exchange of goods: the sponsor contributes a specific amount, in return for which he or she receives advertising space, for example.
Although it is difficult to calculate unequivocally how much a company gains from exposure, there are conversion factors used in the industry, such as advertising equivalents, which allow – for example – to estimate the value of placing a sponsor’s logo on players’ suits or a sports club’s website.
What does an entrepreneur gain from sponsorship?
An incentive to encourage businesses to become more involved in and support sports, culture and higher education is an unprecedented tax break in Polish law.
An entrepreneur who supports one of the covered activities as a sponsor will be able to deduct as much as 150% of the costs incurred from the tax base!
How does it work? In addition to the standard deduction of the entire cost, an entrepreneur under the CSR relief is entitled to an additional tax preference of 50 percent on the cost in question. This undoubtedly increases the attractiveness of the solution – with larger payments, the differences in the amount of tax to be paid can pleasantly surprise entrepreneurs. So let’s go back to Mr. Klemens and his sponsorship adventure:
EXAMPLE
Mr. Klemens – the protagonist of our previous example – accounts for a flat tax of 19%. Prior to the introduction of the sponsorship tax credit, for a donation of 35,000. It would reduce the tax payable by the amount of PLN 6,650.
Thanks to the additional preference, the tax to be paid will decrease by another PLN 3,325, giving Mr. Klemens’ company a total of PLN 9,975 less in income tax.
How is the CSR allowance accounted for?
The method of accounting for the CSR allowance is standard – a taxpayer who wishes to take advantage of the facility submits an annual tax return, and with it information containing a detailed list of costs incurred that qualify for deduction under the said allowance.
When accounting for the sponsorship deduction, it’s also worth remembering that there are currently no limits on the amount associated with the use of the deduction – the only restriction is that the amount of the deduction cannot exceed the amount of income received by the taxpayer in a given tax year from non-agricultural business activity (PIT) and income other than income from capital gains (CIT).
