In my consultancy practice, I came across the problem of an organisation that received a "donation" (inverted commas on purpose, because, as it turned out after analysing the documentation, it was a donation in name only) from a private company for the organisation of a festival, and after spending it as planned, received a request from the accounting department of this company to issue an invoice for the amount that was donated. The organisation was not in business, so it could not issue an invoice, especially for income that it had itself booked as a donation. The donation agreement with the company itself, at first glance, gave the impression of a donation; it used the correct terminology for such agreements - 'donation', 'donor' and 'recipient'. The problem, however, was that something was added to the correct donation agreement which, in the author's intention, was intended to be a mere command, but in the opinion of the company's accountant (to which I concur) completely changed the nature of the agreement. For the company imposed an obligation on the organisation to advertise it during the festivities on a special banner, on all promotional materials, and to give it the title of 'Gold Sponsor'. Such a long and detailed list of specific services provided by the organisation to the company meant that the contract, in name as a donation, was in practice a contract for the purchase of specific promotional and advertising services in the equivalent of the PLN 1,500 donated to the organisation. And this makes a huge difference. In order to determine what type of agreement we are dealing with, it is not important what terms we use in it, but what its actual nature is.
Indeed, the concept of advertising services should be understood broadly. This is confirmed by the explanations of the tax authorities, from which it follows that advertising services also include the provision of advertising space. This position was taken, for example, by the Director of the Tax Chamber in Warsaw in an individual interpretation of 6 October 2014. (ref. IPPP1/443-756/14-4/AP). "(...) the service of providing advertising space, e.g. on banners, billboards, hoardings, bus shelters, the walls of buildings inside and outside, the doors of various rooms, vehicles, etc., cannot be equated with classic rental or lease. The essence of this service is to enable the other party, i.e. the customer, to provide specific information about the goods or services in order to persuade the recipients of the advertisement to purchase them. There is no classic provision of goods for use. Therefore, in the absence of the prerequisites characteristic of lease or rental services, the services of providing promotional space should be considered advertising services in the case described.". According to this interpretation (as well as to the logic derived from the comparison of the value of the benefits of the two parties), in the case presented, there was therefore a contract for the sale of an advertising service, misclassified as a donation.
Companies, especially pharmaceutical companies, are donors and sponsors of many patient organisations. Well, donors or sponsors? Organisations often use the two terms interchangeably, considering the term 'sponsor' to be synonymous with 'donor', but when it comes to contracts and reciprocal relationships, the nature of our relationship with the company should be carefully analysed.
Donation
A donation contract is a so-called named contract, i.e. a contract with a specific statutory regulation. A named contract is referred to by a group of legal provisions, where the mutual rights and obligations of the parties specific to a legal relationship of a given type are defined. The regulation of a named contract is usually devoted to a separate chapter of the law. The vast majority of named contracts are described in the special part of Book Three of the Civil Code, and the regulations on donation are to be found there.
A donation is a gratuitous - that is, without any counterpart in the form of a consideration - benefit of the donor to the donee, at the expense of the donor's assets. Put simply, a donation is, by definition, a gratuitous benefit; the donor does not expect any reciprocal benefit from the donee, except for the use of the object of the donation in accordance with his or her will. Thus, the donor may impose a so-called instruction - i.e. an obligation to perform a specific act or omission - on the donee, but may not himself derive any benefit from the performance of this instruction. In practice, a command may be an obligation to use the donation for a specific purpose, or a specific way of reporting to the donor on how it was spent. However, it cannot be a command to perform promotional, advertising or any other services for the donor.
From a tax point of view, a donation made by a company for public benefit purposes (also realised by organisations without the status of PBO) can be deducted by it from the tax base up to the amount of 10% of its income, and in the CIT-8 tax return of both the company and the organisation, it must be included in the section on donations. If a single donation exceeds PLN 15,000 in a given tax year, or the sum of all donations received from the same company exceeds PLN 35,000, the organisation is obliged not only to provide the company's data in the CIT, but also to make it public, for example by publishing it on its website or by making such information available on request, which can be submitted by anyone. Therefore, it is not possible to conclude a donation agreement exceeding these amounts and stipulate in it the anonymity of the donor if the donor is a legal entity.
Sponsorship
Unlike a donation agreement, a sponsorship agreement is a so-called unnamed agreement, i.e. an agreement that is not a named agreement - I know, it sounds like butter, but that is exactly what it is - an unnamed agreement is an agreement that does not have its own legal definition. Due to the principle of freedom of contract, legal relations governed by an unnamed contract are created by the parties in a manner that suits them (contrary to named contracts, regulated in the special part of the Civil Code). The content of an unnamed contract should not be contrary to the law, i.e. its purpose, provisions and effects must not violate any provisions of the law.
Sponsorship is a marketing activity that promotes a brand, service or product by funding the activities of a non-governmental organisation (and not only, as the main tool of sponsorship is sport or culture) to build image or prestige, bringing specific benefits to the sponsor, not always in the short term. Sponsorship is therefore - unlike donations - a reciprocal benefit, and the sponsor does not act disinterestedly. On the contrary, it counts on a very tangible effect of its support and expects very specific promotional and/or advertising activities in return. This can be a more subtle creation of an image of a socially responsible company, or more direct advertising of a specific company's product.
From a tax point of view, sponsorship differs in all respects from a donation, starting with the fact that it is tax deductible and is not entitled to an allowance like a donation. Also unlike a donation, regardless of the amount of the sponsorship, the organisation is not obliged to make it public, keeping the details of the agreement to itself.
Why it matters
There is nothing wrong with using an organisation's advertising potential to raise funds in the form of the sale of advertising services; for many organisations this may be the best way of guaranteeing their financial independence. When entering into a financial relationship with a company, it must be done carefully and with an awareness of the difference between a donation and sponsorship, as it is unacceptable for one party to show such a benefit as a donation and for the other party to treat it as a sale - this can lead to communication problems such as the organisation I mentioned at the beginning. It can also lead to much more serious problems, in the event that the nature of the contracts is questioned by a tax inspection. After all, if we provide promotional and advertising services, formally qualifying them as donations, we may face charges of running a business without registering it. What is worse, if the received 'donations', which are actually sales of advertising services, exceed the limit above which sales are subject to VAT (PLN 200,000 per year), it may turn out that from the tax point of view, we unknowingly and in good faith cheat the tax authorities by not charging VAT. And VAT mistakes - whether intentional or not - are what the tax authorities dislike most.
Correctly categorising the agreements that bind us to companies is also important for our transparency and credibility, the public has a right to know whether the company we report about on our website as a 'benefactor' of our organisation is a selfless donor we want to thank or a sponsor paying us to mention it. Neither of these relationships is wrong; each can be a means to achieve the organisation's goals. When money is involved, it is important to be very precise.
Material for the Institute for Patients' Rights and Health Education was prepared by Katarzyna Sadło (Projectionist), as part of the 'Network for Health' project.
The Network for Health project is implemented with a grant from the Active Citizens Programme - National Fund financed by Iceland, Liechtenstein and Norway through the EEA Funds..