Sponsorship and VAT: Terms and Concepts

Cornerstone of the financing of an event such as a congress, a conference or a corporate meeting, sponsorship is very important in financing the annual budget of a not-for-profit organisation.

24th Jan, 2023

Since there is no legal text, sponsorship can be defined as a financial contribution to a cultural, artistic, sporting, scientific, educational, entertainment or similar event in exchange for a certain acknowledgement that will increase its notoriety and possibly improve its image. Sponsorship gives significant exposure to the sponsors’ targets, visitors and exhibitors, often professionals in the same field and therefore potential clients.

Cornerstone of the financing of an event such as a congress, a conference or a corporate meeting, sponsorship is thus very important in financing the annual budget of a not-for- profit organisation (NPO). While annual memberships secure some income to keep NPOs alive, event revenue is of significant importance in helping them achieve their goals.

Author: Oumar Counta, Director of Tax Department at BC&A 

What about VAT?

For Value-Added Tax (VAT) purposes, a ‘supply of services’ shall mean any transaction which does not constitute a supply of goods (EU Directive). Sponsorship is a commercial operation, more specifically, it is a supply of advertising services provided by the organiser of an event to the company contributing to the organisation of the event. Then, the question is: where should sponsorship be taxable?

For sponsors with a business status (B2B)

Under current European regulations, the general rule for services applies whether or not the company sponsoring an event is based in the European Union. This means that the place of provision of sponsorship will be where the sponsor has established its fixed business receiving the said supply of services.

However, if those services are provided to a fixed establishment of the sponsor located in a country other than the country where it has its headquarters, the place of supply of those services will be the country where that fixed establishment is located. For the sake of simplicity, sponsorship is most often subject to VAT in the country where the sponsor is established.

When the sponsor is not established in the country of the organiser, no VAT is charged and the sponsor self-accounts for VAT in its country of establishment. This is called the Reverse Charge Mechanism. This means that there is no amount of VAT applied on the sponsorship invoices issued by the organiser. For instance, the organiser is established in Belgium and the sponsor is VAT-registered in Germany. The German company has only one establishment in Germany and nowhere else. The organiser issues an invoice without VAT and the sponsor self-accounts for VAT in Germany. No Belgian VAT is due on this supply.

On the other hand, when both the organiser and the sponsor are established in the same country, local VAT should be charged on the supply of the sponsorship and paid to the tax administration of their country of establishment.

For sponsors without commercial status (B2C)

If a European sponsor does not have an intra-EU VAT number, he will be considered as a non-taxable person and the reverse charge cannot be applied. According to the special rule for event-related services supplied to non-taxable persons, the sponsorship will be subject to the VAT of the country where the event takes place.

An intra-EU VAT number is a number that individually identifies companies subject to VAT in each EU Member State, whether or not they are established in that country. This allows the company to do business abroad from its country of establishment. For example, Spain or Italy provide the intra-EU number only on request, it is not automatically assigned, with the difference being an internal VAT number. The internal VAT number is not registered in VIES which is a European system that allows operators to check the validity of the VAT number.

If a non-European sponsor cannot prove its commercial status, the place of delivery of the sponsorship will remain the place where it is established. This is due to the special rule on advertising services provided to non-taxable persons established outside the European Union. This rule shall be applied to a USA- based sponsor.

The specificity of Sponsorship Packages

Often, organisers not only provide advertising on screen, bags, in the catalogue... but a complete package including admissions on site, and/or meeting rooms. Since admissions and meeting rooms are subject to VAT in the country where the event is held, no reverse charge can be applied on the whole sponsorship package.

For VAT paid on services subject to local VAT, sponsors with business status may submit a VAT reimbursement request. Non-Europeans may have to appoint a Tax Representative in this regard.

What is the difference between Sponsorship and Donation?

Donations are made by entities that contribute financially to non-profit organisations without any consideration and are used to help the organisations achieve their goals and objectives. Donations can be made to charities that operate exclusively for religious, charitable, scientific, educational, or other specified purposes.

Since there is no service in return, these transactions are not considered commercial operations and are outside the scope of VAT. As a consequence, no invoice shall be issued for these transactions.

ABOUT THE BC&A: Founded in 2004, BC&A is a VAT consultancy firm specialised in VAT management and recovery for association events. BC&A has been involved in hundreds of events, some with as many as 25,000 participants. Its expert guidance allows for several advantages: maximum recovery for the organiser and the participant; no local VAT registration required; and expedited reimbursement in Europe.

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