Important changes to the deductibility of sponsorships

Lawmakers have radically changed the legal framework for the decrease in corporate and micro-tax sponsoring under Law 322/2021. In short, the idea is that, as of 1 January 2022, taxpayers of income tax and corporate tax cannot carry forward the amounts left after the decrease in sponsorship from business taxes to the next seven years. But, by way of exception, for sponsorship by 31 December 2021, carryovers are still possible until 2028.

As before, sponsorships made, treated as non-deductible expenses in the calculation of corporate tax, may be deducted from corporate tax payable up to the value determined as the lower of:

• 0,75% of annual turnover and
• 20% of the income tax due.

However, from 1 January 2022 (or from the date on which the amended tax year 2022 begins for taxpayers with a modified tax year), the following procedure shall apply:

• where the sponsorships made during a financial year do not exceed the above mentioned value (and there remains an unused positive value difference even after the use of possible deferred sponsorship amounts from previous years), for this positive difference, the taxpayer may order the “re-direction of corporate tax” to make sponsorship or mecenat acts, within a maximum of 6 months from the date of submission of the annual corporate tax return. Payments of the amounts redirected will be made by the competent tax body to which the redirection form has been submitted;
• where sponsorships made during a financial year exceed the above-mentioned value and cannot be deducted from the corporate tax due for that year, they shall not be carried forward in subsequent consecutive years to be recovered by deduction from corporate tax within the limits of subsequent years. According to the new law, which includes transitional measures to the new system, only sponsorship/match-giving acts or private exchanges made before it enters into force, are carried over to the next period, in line with the deadlines existing at the time of the respective contracts, without exceeding 2028.

Thus, the sponsorships made in 2021 which exceed the value for the financial and fiscal year 2021 are the last such amounts which can be carried forward and usable in the future until 2028. Similarly, taxpayers who pay taxes on the income of the micro-enterprise retain the right to reduce the tax on the income of the micro-enterprise, with the sponsorships made, within 20% of the income tax due in that quarter.

Since 1 January 2022, taxpayers who have closed the previous financial year and submitted their income tax return for the fourth quarter shall calculate the value for the reduction of the micro-enterprise income tax for the whole financial year. If the amount of sponsorship does not exceed 20% of the tax, the taxpayer may, within 6 months of the date of submission of the tax return for the fourth quarter, redirect the sponsorship difference. The rules on deferral of sponsorship beyond the value for use in the next 28 consecutive quarters are also changed, as in the case of corporate tax payers.

We therefore believe that this change will result in an increase in the amounts that non-profit organizations can benefit from. The procedure, model and content of the re-routing form will be adopted by order of the president of the ANAF.