Tax relief to encourage sport: the Brazilian wayNilo Effori
In 2006, the Brazilian government, after several discussions inside the Parliament, enacted the Federal Statute number 11.438 regarding sports incentives (the “Statute”). The Statute could be an example for countries that have interest in promoting amateur sports and academies with the aim to develop professional competitive sport while increasing the social inclusion of its citizens.
Brazil, through this sports incentive law, provides mechanisms to motivate private companies and corporations to bring investment into sports and accordingly to stimulate the social area.
There are two kinds of beneficiaries in this legislation. First, there are the sports players, children and adults. Second are the companies that receive tax income deduction and have their names linked to social corporate responsibility work through sponsorship or donation.
The founders of an project have to submit a project plan with particular standards and rules that must be adhered to. As an example, for each item described in a project related to football, ball or t-shirts (necessary items for the project), three budgets are required and the average price should be used to prevent overcharging. Once the project is approved by the Ministry of Sport, they are able to start looking for private companies and corporations interested in investing and associating their name in the social project.
Individuals or private companies and corporations may allocate part of their income tax in sports projects or para-sports projects up to a limit of 6% for individuals and 1% for corporations.
The Statute provides a mechanism to motivate companies to continue investing in sports. These investments may be made in two ways, through donation or through sponsorship.
The first way, through donation, may be given as:
- Donation in cash - by depositing money in a specific account opened for this purpose in Brazil. The donor should provide a copy of the receipt to the applicant and send this to the Ministry of Sports.
- Donation in assets- the donor transferring the asset(s) necessary to implement the project. To benefit from the 1% tax reduction, the monetary value of the asset must be:
a.If part of the permanent assets, the value of bookkeeping, recorded in the company accounts; or
b.If not part of the permanent assets, the value of the acquisition cost or production.
If the donation is made at an amount higher than these two possibilities, the excess must be taxed.
- Donation in services - the donor provides its own company services as an expense to the sports project. The services shall be made at market price for purposes of the income tax deduction. This is formalised by contract between the parties and sent to the Ministry of Sports.
- Donation in tickets - there is a possibility to donate tickets. The price is at most the same determined by the event promoter.
The second way, through sponsorship, may be given as:
- Sponsorship in cash – by depositing money in a specific account opened for this purpose in Brazil. It should provide a copy of this receipt to the applicant and send to the Ministry of Sports.
- Sponsorship to cover expenses - such expenses are given as services or delivery of supplies necessary to implement the project, based on the market price.
- Sponsorship using movable or immovable goods - the sponsor provides goods without transferring the property to be used in the project. To obtain the tax benefit the goods will be considered at the cost of use based on market `value of the income that the owner does not receive during the transfer of the property.
The principal difference between the investment through donation and sponsorship is that with latter the company wants publicity and its name linked to the project, which cannot happen via donation.
The beneficiaries of the tax value waived by the government in favour of the companies have to follow some conditions:
- It must be a company not a natural person;
- In the company’s article of association its purpose has to be contemplated for sports, not for other things such as commercial or financial purposes; and,
- It has to be a non-profit organization.
Notwithstanding, the project must provide six different objectives to be chosen by the beneficiary, which are:
- Research: to investigate facts and scientific principles relating to the sports field e.g. analysis of information on the development of rugby in Brazil.
- Development: to expand sports programs and its capacity of development e.g. to increase jobs in a learning center in certain community.
- Implementation: to implement a work program to achieve the specific purpose of developing sports facility e.g. reconstruction of a school gym.
- Practice: to identify the beneficiaries to be assisted and start the project e.g. to pay costs of trainings (not for professional sport).
- Teaching: to develop actions aiming the practice of sports in a high level e.g. tennis training center
- Studying: literary and scientific work related to the sports area e.g. books about violence in sport.
In additional to these objectives, the sport project must address three purposes of sports: educational, participation and performance1.
Educational sport is for students enrolled in any school system. It is the sport practiced in educational systems, avoiding selectivity and hyper competitiveness in order to achieve the integral and holistic development of children and young people. It is intended to implement, practice, teach, study, research, and/or development of sport in favor of the students. As an example we can use the reconstruction of a school gym.
Participative sport has a voluntary basis, including sports practiced with the aim of contributing to the integration of players in the fullness of social life, in the production of health and education and preservation of the environment. It has the purpose of recreation to contribute to the integration of practitioners, promoting health and education, as sports clinics.
Finally, projects based on sports performance are practiced according to the general rules of law and rules of sport to obtain results and integrate people and communities in this country and with other nations. The incentive is designed for amateur and professional athletes who compete in tournaments conducted by confederations and federations, but the investment may not be provided in favour of a sports professional practice (football) according to the “Pele Statute”2. An example being amateur football teams and the academies of professional clubs, since the players are considered amateurs3.
The investment of companies through tax deduction has been an effective way for the evolution of national sport in Brazil. The Statute can help athletes of the entire country to bring national sport to a new standard of quality as well as contribute to the social and moral education of the Brazilian youth.
Written by Nilo Effori, Biazzo Simon Avogados.
1 Article 2 of the Statute
2 According to this statute only football may be considered professional sport with specific rules regarding the contract, register, training compensation, etc. Other sports, despite considered professional according to the correspondent international federations, they are not subject to the strict rules applied to football.
3 According to “Pele Statute”, from the 16th birthday is allowed to sign a Professional contract in Brazil.
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