Tax credit for sports, culture and education

Starting from 1 January 2022, there a new deduction for the support of sports, culture and higher education and science, commonly referred to as a CSR (corporate social responsibility) tax relief. This is intended to support cultural, sporting and scientific activities more extensively by ensuring that the financial dimension of this support can be included in a tax return.

This relif comes down to the possibility of deducting 50% of tax-deductible costs incurred for sporting, cultural activities and higher education and science from the tax base. However, the amount of the deduction cannot exceed the amount of income earned by the taxpayer in a tax year.

Costs are deductible unless they are reimbursed to the taxpayer in any form or are deducted from the income tax base.

The deduction is made in the return for the tax year in which the deductible costs are incurred.

Who can take advantage of the tax credit?
Virtually any entrepreneur can apply the new tax credit. Both natural persons running business and bodies corporate. In the latter case, however, the Act requires that the taxpayer earns income other than income from capital gains.

In the case of deductible expenses incurred for activities supporting higher education and science, the deduction will not be available to a taxpayer who is the founder of a non-public university or college.

What expenses can be deducted?
Deductible expenses incurred for sporting, cultural activities or supporting higher education and science are deductible from the tax base. However, it should be noted that these will not be any expenses incurred for the above-mentioned purposes that meet the prerequisites of tax-deductible costs.

The Tax Act seems to introduce a specific catalogue of expenses which are defined as tax-deductible, and which may be included in the settlement of the tax credit. In other words, certain categories of expenses (costs) are tax-deductible costs because the Act so stipulates. Yet this approach has been challenged by the tax authorities recently.

The costs must be incurred – although the Act does not use the notion of “actual incurrence” here, which suggests that the moment at which a given cost will be deemed to have been incurred should be assessed in accordance with general principles.

Importantly, all expenses related to the support of sporting, cultural activities or the development of higher education and science should be limited to financing. It would thus appear that benefits in kind (e.g. the purchase of sports equipment and its donation to a sports club) may not fall within the tax credit in question. It would be a pity if a brick manufacturer could not deduct the value of donated bricks for the construction of a university, so we hope for a broader interpretation of this provision.

Sporting activities
Under the Act, tax-deductible costs incurred for sporting activities are deemed to be costs incurred in financing:

1. the sports club referred to in Article 28(1) of the Sports Act of 25 June 2010 for the implementation of the objectives indicated in Article 28(2) of that Act;
2. an athletic scholarship;
3. a sporting event which is not a mass sporting event.

In the case of a sports club, only a non-profit club can be funded. Does this mean that the club cannot carry out business activities at all? The answer is not clear. On the one hand, a situation where a club is not engaged in business activities at all obviously raises no doubts. Nevertheless, it would also seem acceptable if a club is considered not-for-profit if it does carry out business activities, but these activities are not the major or one of the major purposes of the club, but only a means to enable it to carry out its major activities.

The funding of a sports club must be for specific purposes:

1. the implementation of sports training programmes,
2. the purchase of sports equipment,
3. covering the costs of holding or participating in sports competitions,
4. covering the costs of using sports facilities for sports training purposes,
5. funding of athletic scholarships and remuneration of training staff.

It is not clear whether these objectives should result from a resolution of the given local government authority indicating a public objective in the field of sport or – going even further – whether the club should be supported by a grant from the local government authority. It appears, however, that the reference to Article 27(2) of the Sports Act applies only to the objectives listed there.

And it’s here that another doubt arises. Article 27(2) of the Sports Act indicates what tasks “”in particular” may be included in the implementation of a public objective in the field of sport. Since this is an open-ended catalogue, will it be possible to include expenses incurred for other services under the tax credit?

Expenses incurred in financing a sports event are also included in the tax-deductible costs. However, it cannot be a mass sports event, i.e. one aimed at sports competition or popularisation of physical culture, organised at:

1. a stadium or any other facility which is not a building where the number of seats for spectators provided by the organiser, as determined in accordance with the provisions of the building law and fire protection regulations, is not fewer than 1,000, and in the case of a sports hall or other building making it possible to hold a mass event – not fewer than 300,
2. grounds making it possible to hold a mass event in which the number of seats for spectators provided by the organiser is not fewer than 1000.

It seems reasonable to always confirm with the organiser the nature of the event the taxpayer intends to support while at the same time intending to apply the tax credit.

The third category of costs incurred for sports activities is athletic scholarships. Under the Act, this will be a taxpayer-financed, unilateral, non-refundable cash payment that is granted by local government units, the minister responsible for physical culture, public benefit organisations or sports clubs for achieving a specific athletic result or enabling preparation for a sporting event.

Although the Act does not provide for such a requirement, it is worth documenting every form of cooperation related to the support of sports. What is significant is that it does not have to be a sponsorship agreement – the tax credit detaches support for sports activities from the concept of sponsorship. However, it is important to clearly identify who will receive specific funding from the taxpayer and what it is aimed for.

Cultural activities
Tax-deductible costs incurred for cultural activities are deemed to be costs incurred in financing:

1. cultural institutions entered in the register kept pursuant to Article 14(3) of the Act of 25 October 1991 on the organisation and conduct of cultural activities;
2. cultural activities carried out by art academies and public art schools.

Cultural institutions are established by competent ministers or heads of central offices (state cultural institutions) or local government authorities (local government cultural institutions).

The primary statutory objective of these organisations is to carry out cultural activities, i.e. to create, disseminate and protect culture.

Cultural institutions acquire legal personality and may commence their activities upon entry in the register kept by the organiser. The entry takes place by virtue of law.

In addition to cultural institutions, it is also possible to finance cultural activities carried out by art academies and public art schools.

Therefore, an entrepreneur cooperating with a museum, theatre or art gallery must first verify whether the entity is a cultural institution entered in the relevant register. As the scope of activities of such an institution is strictly defined, in fact, all expenses incurred to support a cultural institution will be eligible for the tax credit, regardless of their final purpose.

Support for higher education and science
Tax-deductible costs incurred for activities supporting higher education and science are deemed to be costs incurred in financing:

1. research scholarships for doctoral students, student scholarships for academic or athletic performance,
2. financing of fees for postgraduate education, specialist education or education in other forms, as specified in the agreement concluded between the entity providing the education and the person undertaking the education, to an employee employed by the taxpayer;
3. financing the remuneration, including derivatives thereof, of students undertaking internships and placements provided for in the study programme at the taxpayer;
4. financing of dual studies conducted with the participation of an employer in a specific field of study, including costs of internships;
5. remuneration paid within six months of the date of employment by a taxpayer organising work placements for students of a particular university to an employee who is a graduate of a study programme at that university employed through an academic career office run by that university.

The legislation seems to partially implement the previous practice resulting from the case law of the tax authorities, allowing to treat e.g. scholarships paid to future employees of the taxpayer as tax-deductible costs.

In the case of financing the remuneration of an employee studying in a dual manner, a student doing an internship, or an employee hired through an academic career office, it is necessary to conclude an appropriate agreement between the taxpayer and the university which will constitute the basis for incurring these costs.