The Hamburg Fiscal Court has ruled that the sponsorship expenses incurred by a GmbH to a non-profit association are to be recognized as fully deductible business expenses and not as donations.
The court based its decision on the fact that the club provided a consideration in the form of public relations work and permission to use the sponsorship for advertising purposes. This ruling underlines that these expenses were aimed at business benefits such as image enhancement and market positioning and were not an end in themselves.
Furthermore, the tax court came to the conclusion that the agreed payment terms and interest rates did not constitute a „hidden profit distribution“. The simplified payment structure was in line with the charitable and constructive objectives of the association. The tax authorities' objections to the structure of the sponsorship agreement were therefore rejected. Finally, it was determined that the input tax deduction from the sponsorship expenses was also lawful because the association had provided economically relevant consideration.