Sponsorship and donations are two different forms of support that are often confused in practice. Sponsorship is a relationship with consideration – the sponsor provides money or a benefit and receives in return advertising, visibility or other agreed consideration, so from a tax perspective it is a commercial relationship. A donation is a gratuitous benefit given without consideration, and its tax treatment is different, as for the donor it is not usually a tax expense to the same extent as advertising. The difference has practical consequences for both sides: with sponsorship, the scope of the consideration must be documented and verifiable, otherwise an audit will reclassify it. For projects financed from grants, care must additionally be taken to ensure the same expenditure is not funded twice. Discuss the specific treatment with a tax advisor.
See also: Tax deductibility of advertising costs, Foundation grant programmes, Barter in marketing.
