In 2017 the European Union gave the green light for another 7 years to the Hungarian system of supporting spectator team sports, i.e. football, handball, basketball, water polo, ice hockey and volleyball. In this article we would like to draw the attention of business decision-makers to the advantages of this opportunity, and why it is important to start preparing well in advance. In addition we will be seeking an answer to how the support of spectator team sports helps promote the new generation of sportsmen and women in sports associations, and what difficulties the clubs face despite this generous support system.
Buzzword: tax benefit
This issue is all the more topical because companies are now getting over the summer lull and are slowly planning for next year, which is based on the current year’s projections. Such estimates also include planning for payable corporate tax, which is largely influenced by whether a given company decides to opt for the chance to allocate some of its corporate tax. And while you can also allocate this sum on a monthly or quarterly basis from up to 50% of corporate tax advances, most allocations still tend to come at the end of the year when topping up corporate tax advances. In terms of preparing for this, selecting the right sports association and signing the necessary agreements, the 80 days remaining this year only seems plenty at first glance.
Taxpayers can choose from two types of support: direct support and tax allocation. As the latter has spread quickly since it was introduced in 2015 – thanks to the favourable scheme – and has clearly become the preferred version (both forms may not be chosen in the same year), we will briefly try to outline its advantages here.
In this scheme a taxpayer can allocate up to 80% of its tax payment liability, which the tax authority pays to the beneficiary. In return the taxpayer receives a tax credit, which the tax authority transfers to the company’s corporate tax account in July of the following year. If making an allocation from a tax advance top up, the tax credit amounts to 7.5% of the amount allocated.
So companies which pay support end up with a higher profit after tax than they would have had without using the tax allocation scheme. Too good to be true!
Although my clients regularly doubt my intellectual capabilities as a tax consultant when I first try to explain this opportunity to them, the method has still become popular in the two and a half years since it was introduced.
Is the support of spectator team sports justified from a national economy perspective?
The question as to why the state allows companies to keep more profit through their corporate tax can be answered as follows:
In Hungarian film manufacturing, which has used this opportunity for years, we can see that there are many professions related to film-making (cameraman, dubbing expert, etc.), which are flourishing thanks to this support. Since assignments can only be won under strict requirements and with official invoices, these professions have completely stepped out of the black economy, adding additional revenues to the budget in the form of various taxes.
The introduction of the support system for sports associations (after the original system of direct support was launched in 2011) was accompanied by similar expectations. Coaches and masseurs, etc. employed at sports associations working with young talent have the opportunity to earn an official wage, paying personal income tax and social security contributions. The tops and other sports equipment bought for the players increase VAT revenues thanks to the higher spending. The construction work financed from the support (new courts, new association buildings) also generate additional tax revenues.
Why does this development not produce the expected results?
We cannot expect the system to lift the funded sports into the vanguard of top international sport in just a few years. However, the U20 handball world champion title recently won by Hungary’s women shows that the tax forints invested can have a positive impact when accompanied by thorough professional work. The number of registered players has risen sharply in these sports. And the increase in people doing sport makes long-term savings in social security spending too with people being in better health.
Nevertheless, the support system for spectator team sports could still work more effectively in several respects. Anyone who has tried to allocate tax to associations working with young sportspeople knows it is not easy to find clubs that are really carrying out professional work. One hears rumours of smaller associations “over-invoicing” to compensate for capital shortages. Instead of pushing clubs towards official channels though, this leaves them in the grey economy. Yet without transparent operations, major companies opt against taking advantage of such a tax benefit even if they cannot be held legally accountable in the new system if the beneficial uses the allocated amounts improperly.
So what is the solution?
In the film industry, the film-making activity in Hungary of multinational companies whitened the industry, boosting tax and other budgetary revenues. If a few internationally renowned clubs were to appear in the field of spectator team sports too, for whom it would be worthwhile to use Hungarian tax forints to set up another base for the new generation of sportsmen and women, we could see further improvements in this area as well. What is more, these clubs would promote professional development in bringing on new talent, and the multinational companies working with them could provide direct sponsorship too.