Corporate philanthropy is an increasingly common practice in the business world, involving the provision of financial support to associations and foundations, without expecting anything in return. In addition to contributing to philanthropic causes, corporate philanthropy also offers attractive tax benefits for companies. However, it is important to distinguish patronage from sponsorship, which is more of a commercial activity with direct rewards. In this article, we’ll explore the tax difference between philanthropy and sponsorship, the criteria for qualifying for a tax reduction, the types of donation that are possible and the supporting documents and declarations required to benefit from the tax reduction. We’ll also look at how to secure your donation for tax purposes and take full advantage of the benefits of sponsorship.
Corporate philanthropy can be defined as the financial support provided by companies to associations and foundations, without any form of compensation, to ensure the continuity of their activities in the public interest. Corporate philanthropy is not just for large groups. In France, patronage is estimated at 3.6 billion euros(https://tinyurl.com/2hwycoft).
However, sponsorship should not be confused with patronage, also known as sponsorship for tax purposes.
The tax between sponsorship and patronage
It is important to distinguish between patronage from sponsorship (sponsoring). The latter is more of a commercial activity, where the company expects direct compensation. In contrast, sponsorship is a donation, or material support, the general principle of which is the absence of any consideration for the donor.
This is still an interesting mechanism, since the company will benefit from a tax credit.
The donation can take one of 3 forms :
- Cash donations: the company makes a cash donation, which may be a one-off or a recurring donation.
- The gift of competence : the company makes human resources available to the organization or provides a service to the beneficiary. To find out more, visit the practical guide to skills sponsorship.
- In-kind donationsThe company makes a donation of one of its movable or immovable assets (e.g. food, computers).
Article 238 bis of the CGI stipulates that the company may associate its name with the donation without advertising it, in which case the patronage may be requalified as sponsorship.
Corporate philanthropy: how can a company benefit from a tax reduction?
To qualify for a tax reduction, the sponsoring company’s payment must be made to the charity (seeArt 238 bis of the CGI for an exhaustive list):
- works or organizations of general interest of a philanthropic, educational, scientific, social, humanitarian, sporting, family or cultural nature, or contributing to the enhancement of the artistic heritage, the protection of the natural environment or the dissemination of French culture, language and scientific knowledge, etc.
- Foundations or associations recognized as being of public utility or museums of France, as well as religious or charitable associations and public establishments of religious denominations recognized in Alsace-Moselle.
- Public or private bodies, including joint stock companies whose shareholders are the State or one or more of the followingthe State or one or morenational public bodies.
It is important to remember that for the organization in question to be recognized as being in the public interest, it must meet several cumulative criteria:
- The organization’s management must be disinterested;
- No profit-making activities (or a predominantly non-profit-making activity);
- Do not benefit a restricted circle of people;
Corporate philanthropy: what are the tax advantages for companies?
As sponsorship expenses give entitlement to a tax reduction, the law stipulates that they are not deductible in determining taxable profit. This amount must be added back to taxable profit.
Unlike corporate sponsorship, sponsorship expenses are tax-deductible, as they are treated as overheads (advertising).
However, as we have already seen, payments made by companies subject to income tax (IR) or corporation tax (IS) to works or organizations of general interest listed in article 238 bis of the French General Tax Code can give rise to a tax reduction.
With regard to corporate sponsorshipThe tax reduction is equal to 60% of the payments made (or 40% for the fraction of donations exceeding €2 million), up to a limit of €20,000 (for financial years ending on or after January 31, 2020) or €5 (for financial years ending on or after January 31, 2020).‰ of the company’s pre-tax sales, whichever is higher. In the event of a cap, the tax reduction can be applied in the years following the donation.
Summary table tax benefits of corporate sponsorship (for companies)
| Don to a work of general interest (art 238 bis of the CGI). | Purchase of cultural goods with the status of national treasures. | Donation for the public purchase of cultural goods having the national treasures. | |
| Company tax status | Income tax or corporation tax | Corporation tax based on actual profit | |
| Tax reduction rate | *60% of donation amount |
40% of the purchase price |
90% of the donation amount |
| Reduction reduction | Limite20,000 or 5 per thousand of sales | See the global ceiling on tax benefits | Up to 50% of tax |
*Donations made by individuals (art. 200 of the CGI): 66% up to 20% of taxable income and 75% if free provision of care, food or accommodation). Donations made by companies (art. 238 bis of the CGI): 60% up to 5‰ of sales for companies.
| For individuals liable real estate wealth tax (IFI)donations made to a public-interest organization that provides providing meals free of charge to people in difficultyhousing or providing medical care (art 200 CGI) entitles the donor to a tax reduction equal to 75% of the amount of the donationup to a maximum of €50,000/year. |
Tax reduction: justificates and declarations
To qualify for the reduction, the company must be able to present the tax authorities with a tax receipt (form n°2041-MEC-SD), attesting to the reality of the donations and payments.
Issuing a tax receipt is the responsibility of the beneficiary organization, but valuing a donation in kind is the responsibility of the corporate donor.
Sponsorship: securing your donation for tax purposes
It is important to secure your tax advantage or the nature of the donation by requesting a rescrit from the tax authorities. Any organization issuing tax receipts without prior authorization from the tax authorities is liable to prosecution. 25% fine of the sums collected. If the directors are found to be acting in bad faith, they are jointly and severally liable for payment of the fine pursuant to article 1740 A of the CGI.