Theatre sponsoring - Saving in four acts

Theatre sponsoring - Saving in four acts

In this leaflet, we present two of the tax savings opportunities of theatre sponsoring from the four possible tax planning methods relating to theatre sponsorship.

Do you have any question?

Don't hesitate to contact us!

Sándor Hegedüs

Partner, Head of Tax Services

Phone+36 1 886 3700; +36 1 886 3701

Why do we as a tax consulting firm recommend theatre sponsoring?

Since the beginning of 2009, the sponsoring of Hungarian theatres has not only been a generous means of promoting underfinanced Hungarian cultural life but with the conscious planning of a new corporate tax allowance it may generate considerable savings.

Who is our offer for?

Our offer is for the organizations, which will probably have considerable corporate tax payment obligation towards the central budget on their 2014 operation as this form of saving may be realized as a tax allowance.

How much saving can be achieved on theatre sponsoring?

The saving relates to the 10 percent corporate tax rate applicable in 2014 on a tax base of up to HUF 500 million and the 19 percent corporate tax rate applicable in excess of this amount and is calculated on the basis of the sponsor’s profit.

On the one hand, the amount of the theatre support decreases the profit of the sponsor as an expenditure, which also reduces the sponsor’s corporate tax liability; on the other hand, the amount of the support is also deductable form the reduced corporate tax amount. A company may apply tax allowance up to 70 percent of the corporate tax payable in the given tax year. This does not mean that the taxpayer may not provide support in a higher amount. It only means that the rate of application is connected to the tax payable in the current tax year. The taxpayer may apply the tax allowance in the 6 years following the year of granting.

If the support is provided after 1 January 2014, supplementary support shall be paid in the tax year of granting to the eligible ministry or to the supported performing arts institution. The rate of the supplementary support is at least 75 percent of 10 percent of the tax allowance or, if the tax base exceeds HUF 500 million, 19 percent of the tax allowance, which may be applied based on the support granted.

Deducting the amount of the supplementary support and the administration service fee, a saving of approximately 2.5 percent of the granted support amount can be realized in the case of a tax base of up to HUF 500 million, a saving gradually increasing to 11.5 percent above HUF 500 million up to HUF 535 million and a saving of 4.75 percent in the case of corporate tax base exceeding HUF 535 million. The saving manifests in the company’s profit after tax and may therefore even be paid to the shareholders in the form of dividend.

How is the saving structured?

Let us suppose that the organization’s corporate tax liability for 2014 is as follows:

DescriptionAmount
tax base based on profit:

HUF 550 000 000

expected corporate tax liability:

HUF 59 500 000

If the taxpayer supports an eligible performing arts institution with an amount of HUF 36 760 000, its corporate tax liability will change as follows:

DescriptionAmount
tax base without support:

HUF 550 000 000

maximum support applicable:

HUF -36 760 000

new tax base:

HUF 513 240 000

calculated corporate tax base:

HUF 52 515 600

tax allowance:

HUF -36 760 000

new corporate tax liability:

HUF 15 756 000

The supporter would also have to pay supplementary support in the tax year of granting to the eligible ministry or the supported performing arts institution. This amount may not be considered as an expenditure in the calculation of corporate tax:

DescriptionAmount
support:

HUF 36 760 000

supplementary support:

HUF 5 238 300

The saving achieved as a result of the granted support is as follows:

DescriptionAmount
tax reduction:

HUF 43 744 400

expenditure due to support:

HUF -36 760 000

supplementary support

HUF -5 238 300

saving realized:

HUF 1 745 700

rate of saving:

 4.75 percent

Let us now see the saving that can be achieved if the corporate tax base does not exceed HUF 500 million.

DescriptionAmount
tax base based on profit:

HUF 60 000 000

expected corporate tax liability:

HUF 6 000 000

If the taxpayer supports an eligible performing arts institution with an amount of HUF 3 925 000, its corporate tax liability will change as follows:

DescriptionAmount
tax base without support:

HUF 60 000 000

support applied:

HUF -3 925 000

new tax base:

HUF 56 075 000

calculated corporate tax base:

HUF 5 608 000

tax allowance:

HUF -3 925 000

new corporate tax liability:

HUF 1 683 000

The supporter would also have to pay supplementary support in the tax year of granting to the eligible ministry or the supported performing arts institution. This amount may not be considered as an expenditure in the calculation of corporate tax:

DescriptionAmount
support:

HUF 3 925 000

supplementary support:

HUF 294 375

The saving achieved as a result of the granted support is as follows:

DescriptionAmount
tax reduction:

HUF 4 317 000

expenditure due to support:

HUF -3 925 000

supplementary support

HUF -294 375

saving realized:

HUF 97 625

rate of saving:

2.5 percent 

The saving of hardly HUF 97 000 that may be realized based on our example may seem little but we must not forget the other tax saving opportunity that lies in theatre sponsoring, namely the fact that the lower corporate tax liability also reduces the amount of the corporate tax advance payable in the following one year period. In the case of our example, corporate tax advance of only HUF 421 000 would be payable quarterly instead of the monthly tax advance of HUF 500 000 payable originally.

If the tax base of the taxpayer without the support is between HUF 50 million and HUF 178 million, quarterly instead of monthly corporate tax advance payment obligation can be achieved through theatre sponsoring.

What do you need for saving?

  1. choosing a theatre, which meets the prescribed criteria;
  2. conclusion of a sponsorship agreement containing the required content elements;
  3. payment of the support within a year and
  4. obtaining of an official certificate of sponsorship.

Why should you engage us with the administration of your theatre sponsorship? 

  • Our experienced experts help you in the assessment of your expected corporate tax liability and determine the support amount that is optimal for you.
  • A tax allowance may only be applied on the basis of a certificate of sponsorship but these certificates are only issued for an amount calculated based on certain revenues of the supported theatre in the order of receipt of the certificate requests. Our company is able to check the data qualifying for total deduction for a large number of theatres on the basis of which we can determine the amount for which certificates may be issued based on the current revenues of theatres. This way we can guarantee that our clients will be able to apply tax allowance on 100 percent of the support they grant to theatres.
  • We draft the sponsorship agreement incorporating the prescribed content elements and, if necessary, we also coordinate the conclusion of the agreement.
  • We administer the issuing of certificate of sponsorship for our client during the year also.
  • If requested, we obtain the consent of the theatre our client intends to support to an independent expert’s review of the theatre’s actual revenues so that our clients can ascertain the authenticity of the data presented.
  • We take care of the entire administration relating to the tax allowance so our clients do not have to struggle with the obstacles to the application of the tax allowance.

If you have any question, please don't hesitate to contact our experts!

Contact our expert directly or send us an offer request!

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