The sponsorship agreement is an innominate agreement, which is not expressly regulated under the Civil Code. It is concluded under the principle of freedom of contract, meaning the contracting parties can structure the legal relationship between them as they choose, unless the substance or purpose runs counter to the nature of such relationship, statute, or principles of community rights. The principal features of the sponsorship agreement include consensuality, consideration, and mutuality.
The sponsorship agreement regulates the provision of funds to the sponsee in exchange for its rendering of specified advertising and promotional services. The origins of the sponsorship agreement are in an attempt of undertakings to find new alternative channels for promoting their businesses. A definite advantage of concluding sponsorship agreements is the ability to reach new groups of customers, frequently those which are very closely associated with the sponsee, thus making the right choice of the sponsored person essential. It appears that the best solution for an undertaking is to conclude the agreement with an individual whose activity is closely linked with the type of the undertaking’s business. However, if no such linkage is available, conclusion of the sponsorship agreement may offer the advantage of reaching new markets, and as a result of attracting new customers and under the worst-case scenario of learning how the relevant group of customers responds to the products or services offered by the undertaking. One should, however, make sure that the advertising activities target a potentially unlimited addressee. Otherwise, there is the risk of the advertising efforts being in vain, as they focus on entities which cannot become the buyers of the services or goods being promoted.
From the undertaking’s point of view, what is important is not only the acquisition of promotional services but also the ability to deduct the related advertising expenditures as revenue costs. It is commonly accepted that the purpose of expenditures of this type is to drive the demand for the relevant goods or services offered by the undertaking or for the brands being promoted by persuading the largest possible number of prospective customers to purchase goods and services from the relevant company.
In accordance with the general rule as stated under Article 22(1) of the Personal Income Tax of 26 July 1991 and Article 15(1) of the Corporate Income Tax, revenue costs comprise costs incurred in order to generate revenues or maintain or secure a source of revenues (with certain exceptions which, however, do not relate to advertising and promotion). It must be borne in mind that when deducting sponsoring expenditures, these need to be properly substantiated. To avoid such expenditures being rejected as sham, in addition to a VAT invoice it may be worthwhile to make sure that additional documentation demonstrating actual provision of the services is available. Such documentation can include for example photographic documentation, video materials, press articles on the promotional events, etc., in other words everything that can serve as evidence of the agreement being an actual one. It is also important that there is equivalence between the performances of the parties to the agreement, i.e. that the consideration in money corresponds with the extent of performance under the sponsorship agreement, as only then services are purchased against consideration and, what follows, the related expenditures can be recognised as revenue costs. In the event of non-equivalence between the consideration and the services rendered, it may happen that the part of the fee deemed to be over and above the actual value of the services rendered is recognised as a donation, and thus not deductible as a revenue cost.