SINGAPORE has put itself on the world map after clinching the rights to host several high-profile international sporting events.
This September, Singapore will host the 2008 Formula 1 SingTel Singapore Grand Prix - the first ever night race in Formula 1's history. In December, we will host a stopover for the 2008-09 Volvo Ocean Race - the first time a South-east Asian destination has been included in the route. The series of sporting coups culminates with the republic's win to host the inaugural 2010 Youth Olympic Games (YOG).
These events showcase Singapore as a global, vibrant city, with economic spin-offs in the form of increased tourist spending benefiting various business sectors including the hotels, restaurants, bars and retailers.
Yet the wins are not without costs. Companies that stage such macro-scale events will typically require huge funding, which often comes in the form of government grants, sponsorships or donations.
Putting the buzz aside, sponsors, donors and recipients involved should remember to put the oft-forgotten Goods and Services Tax (GST) into the equation. They must be mindful of the need to account for the 7 per cent GST to the Inland Revenue Authority of Singapore (IRAS), as failing to do so can result in recipients of sponsorship funds having less available funds than anticipated.
Legislation states that the GST on any supply of goods or services 'is a liability of the person making the supply'. In other words, the supplier of any goods or services has the obligation to account for the GST to the IRAS.
If a company receives sponsorship money, it may have to account for GST. To determine if GST is applicable, the pertinent question to ask is whether he is providing any benefits to the payer in return for the moneys received. If he is, the moneys would be regarded as consideration for a supply made. He will then need to account for GST on the moneys received.
Unless he is able to collect an additional 7 per cent GST from the sponsor, the recipient will have to compute the GST payable to the IRAS by using the tax fraction at the prevailing GST rate (ie 7/107 x moneys received). This means that the recipient will end up receiving a lower amount as a result of GST.
Compounded problem
This problem is compounded if the recipient is not aware of the need to account for GST to the IRAS. He can end up being penalised by the IRAS for the late GST payment and filing of incorrect GST returns.
The sponsor, on the other hand, should request for a proper tax invoice to support the claiming of the input tax incurred if an additional 7 per cent GST is payable.
Let's now examine the GST treatment specifically for grants, sponsorships and donations that both the recipients and the payers, ie sponsors/donors, should be aware of.
Recipients of a government grant are not required to account for GST on the grant received if they do not provide or confer any benefits to the government in return for the grant.
Generally, a grant that is given for the promotion of a general good for Singapore or members of the public would not attract GST. GST is applicable only if the recipient of the grant is required to provide or confer benefits in the form of goods or services directly to the grantor, in return for the grant received. When applying for government grants, it is therefore important to examine the nature of the grant and the GST implications.
Sponsorship refers to the support that corporations or individuals offer, whether financial or in kind, for the funding of a charitable cause, project or event.
Sponsorship in kind can include giving away a business asset or making available to the recipient a business asset for his use. The IRAS has clarified that sponsorship will not attract GST if the sponsor:
Provides the financial support voluntarily without any obligations; and
Does not receive any tangible benefits in return.
Acknowledging the sponsor's contribution by naming the sponsor in the publicity materials or giving the sponsor a small token of appreciation will not cause the sponsorship money to be subject to GST.
On the other hand, if the sponsor's contribution is made subject to certain conditions, whether stipulated in a verbal or written agreement, and these conditions confer certain benefits on the sponsor, the recipient of the sponsorship would be regarded as making a supply to the sponsor. Instances where benefits are provided or conferred on the sponsor include:
Naming the event after the sponsor;
Emblazoning the sponsor's name on jerseys worn by a team;
Providing facilities to the sponsor for his use;
Providing advertising space or airtime to publicise the sponsor's name or products in a newsletter, programme booklet, newspapers, radio show or TV programme.
Market value of benefits
Where the recipient is regarded as making a supply in return for sponsorship moneys received, the recipient would have to account for GST based on the market value of the benefits.
Where the market value (inclusive of GST) of the benefits is less than the total sum sponsored, the recipient need only account for GST on the market value. The difference is regarded as outright donation and accordingly, not subject to GST. However, if the market value of the benefits cannot be determined, the recipient would have to account for GST on the total sum sponsored.
Pure outright donations, whether in cash or in kind, do not attract GST. The same applies to donations that result in negligible or no tangible benefits, eg a flag or similar emblem to the donor. The sums donated are subject to GST only if the donors are entitled to some form of benefits, eg chances to participate in a lucky draw.
The IRAS has however granted concessionary treatment to deem certain donations with benefits given in return as pure donations, where the recipient is a registered charity or institution of a public character. Donations with benefits given in return would be regarded as pure donations if the benefits are treated as having no commercial value where the following conditions are met:
The benefit is given in acknowledgement of the donation; and
The benefit has no resale value.
Examples of benefits that are covered under the concession are tickets to a charity dinner, complimentary tickets to a place such as the zoo, or rights to take part in a golf tournament.
It is equally important for a sponsor or donor to be aware of the GST implications if the sponsorship or donation is given in kind.
Where goods forming part of the assets of a business are transferred or disposed of, such that they no longer form part of the assets of the business, even without consideration, they will be regarded as supplies made by the sponsor or donor.
It will however not be regarded as a deemed supply if the asset offered by the sponsor or donor does not cost more than $200 and does not form a series of gifts, or if they were not purchased from a GST-registered trader.
Having examined the GST implications of grants, sponsorships and donations above, event organisers should place GST implications as a priority item on their checklist. If ignored, GST could affect the amount actually received. Worse, the IRAS could impose penalties on the recipients for under-reporting of GST.
This article was first published in The Business Times on Jun 4, 2008
