Sponsorships in favour of Amateur Sports Associations: the Italian Supreme Court rules on the deductibility of costs.

In its judgment No. 3479/2024, the Italian Supreme Court recently ruled on the tax regime to be applied to the advertising expenses incurred by a commercial company in favour of two Amateur Sports Associations.

These are the facts. The Agenzia delle Entrate (Inland Revenue Agency), Provincial Directorate of Bologna, had issued, to the company Edigit International S.r.l, a notice of assessment in relation to Italian corporate taxes “IRES” and “IRAP” and to VAT for the 2007 tax year. The company had paid sums to two amateur sports associations by way of sponsorship deals, deducting the entire cost from their tax liability. According to the Agency, these sums were only deductible to the extent of 20% of the achievable profit as they actually consisted, in part, of entertainment expenses and so were not used solely for advertising purposes; therefore, the Agency argued that the sums were only partially deductible. However, art. 90, par. 8, L. 289/2002 states that fees paid to amateur sports associations, up to € 200,000 per year, are presumed to be fully deductible advertising expenses.

Edigit International S.r.l. appealed against the notice of assessment to the Provincial Tax Court of Bologna, which, based on the aforementioned provision, ruled in favour of the appellant, considering the reduction of the deduction to be unjustified.

At second instance, however, the sentence was overturned by the Regional Tax Court of Emilia Romagna, which ruled that the Agenzia delle Entrate could disallow the nature of the costs on the basis of assessments of their appropriateness and inherent nature. The Court based its decision on considerations such as the lack of geographical-territorial correspondence between the company's catchment area and the local area of the public reached by the advertising message and the difference in the profile of the company’s consumers to the persons reached by the advertising activity.

The company thus decided to appeal to the Italian Supreme Court specifically on the basis of the incorrect application of Article 90, paragraph 8 of Law 289 of 2002, which, according to the appellant, provided for an absolute legal presumption of the inherent nature and appropriateness of the expenses in favour of the ASDs, precluding any review by the Agenzia delle Entrate on these points. This interpretation was in fact upheld by the Court of Cassation.

The judges have in fact clarified, as they have done several times in the past, that “on the subject of tax deductions, the sponsorship expenses referred to in Article 90, paragraph 8. of Law No. 289 of 2002, are irrefutably presumed to have an advertising – and not entertainment – nature, provided that: a) the sponsored entity is an amateur sports association; b) the quantitative limit of expenditure is respected; c) the sponsorship aims to promote the image and products of the sponsor; d) the sponsored entity has actually carried out a specific promotional activity."

In summary, there is an irrebuttable presumption of inherence and appropriateness of the sponsorship’s costs paid in favour of amateur sports associations where the criteria clarified by the Italian Supreme Court are met, with the consequent full deductibility of all expenses incurred by the sponsor.

For these reasons, the Italian Supreme Court upheld the appeal and set aside the judgment under appeal, returning the case to the Regional Tax Court of Emilia-Romagna, which will again have to rule in a different composition and in light of the Supreme Court's decision.