Business collaboration agreements with the tax benefits of patronage
Law 49/2002 of December 27, 2002 on the tax regime for foundations and tax incentives for patronage, includes collaboration agreements among the forms of business patronage envisaged. Specifically, article 25 provides that “for the purposes of this Law, a business collaboration agreement in relation to activities of general interest shall be understood to refer to an agreement in which the entities referred to in article 16, in exchange for financial assistance for the performance of the activities forming their object or specific aim, undertake in writing to make known, by whatever means, the collaborator’s contribution to such activities”.
The Directorate General of Taxes (DGT) has recently issued several rulings in which it clarifies the requirements to be met by business collaboration agreements in relation to activities of general interest for the tax benefits for patronage to be applicable. These are as follows:
- Financial assistance—whether in cash or in kind—must be given by the collaborating entity. The only obligation on the part of the foundation must be its commitment to make this contribution known.
The agreement entered into must stipulate both the amount of the financial assistance paid either in cash or in kind (the supply of goods or services free of charge) and the specific project in which it is to be used.
Particularly noteworthy are the conditions relating to the financial assistance contributing to the performance of the activities carried out by the not-for-profit entities in the pursuit of their aims.
- The requirement that the beneficiary use the financial assistance in the performance of activities carried out in the fulfilment of its specific purpose or aim. If this is not the case, the arrangement cannot be regarded as a business collaboration agreement within the meaning of article 25 of Law 49/2001 and the tax benefits envisaged do not apply.
- The commitment to make known, by whatever means, the collaborator’s contribution to the activities in question. It is this broadcasting of the collaborator’s role which marks the difference between arrangements of this kind and donations, since as donations are theoretically made anonymously, they merit a different tax treatment.
This obligation or undertaking to make known the collaborator’s contribution constitutes the consideration for the financial assistance received, irrespective of whether such assistance is in cash or in kind. This broadcasting “by any means” generally consists of the use of the collaborating company’s logo or the making available of space at activities carried on by the not-for-profit entity.
If the consideration consists of anything more than merely making the collaborator’s contribution known, then the arrangement can no longer be classed as a collaboration agreement and becomes an advertising sponsorship agreement or some other kind of contract, in which case the tax benefits associated with collaboration agreements are no longer available.
Garrigues Tax Department