Contests or giveaways carried out through the internet or social media are a widely used mechanism by companies to promote and advertise a brand, product, or specific service. They also serve as a tool to attract identifying data or contact details from participants for later use in other campaigns, such as updating company databases.
Another advantage of running these types of promotions online or via social media is that they are highly attractive to users, who often participate due to the motivation of potentially winning a prize, which is publicized to a large audience.
To carry out these actions, a series of questions must be considered that affect both the organizer and the participant. These questions may include, for example, the method of determining the winner (contest or giveaway), applicable taxes, how participants’ data will be handled, and the fiscal treatment of the prizes.
However, organizing a contest or giveaway does not require any prior authorization.
What regulations apply to contests and giveaways?
The applicable legal framework for these types of activities includes several laws:
- Law 34/2002, on Information Society Services and Electronic Commerce (LSSI), regarding how information must be provided online.
- Royal Decree 439/2007, of March 30, which approves the Regulation of the Personal Income Tax, concerning the tax treatment of prizes.
- Organic Law 3/2018, of December 5, on Data Protection and Guarantee of Digital Rights.
- Royal Legislative Decree 1/1996, of April 12, which approves the consolidated text of the Intellectual Property Law, depending on the purpose of the promotion.
- Organic Law 1/1982, of May 5, on the civil protection of the right to honor, personal and family privacy, and one’s own image.
Is there a difference between a giveaway and a contest?
The main difference between these types of promotions lies in how the winner is chosen.
- Giveaway: is a type of promotion where chance plays a role in determining the winner. The participant is selected randomly, without the outcome depending on any merit or specific activity.
- Contest: is a type of promotion in which the winner must perform a specific activity that is later judged, so that the winner is selected by a jury or through a vote, based on the participant’s skills and/or abilities.
Both types of models (contest and giveaway) involve a series of obligations that affect organizers and participants differently. These obligations may vary depending on whether it is a giveaway or a contest. The tax obligations and procedures are as follows:
- Giveaway: the organizer must comply with a prior requirement by paying a fee to the Spanish National Lottery and Gambling Agency or the corresponding regional body, equivalent to 20% of the value of the prizes. This is established in Law 13/2011 on Gambling Regulation.
- Contest: this obligation does not apply.
However, in both cases, when the prize value exceeds 300 euros, sincome tax (IRPF) must be withheld at 19% of the prize’s value at the time of delivery (i.e., once there is a winner).
Furthermore, although the organizer is required to withhold taxes, this does not necessarily mean they must pay for it themselves. It is possible to reflect in the contest or giveaway terms that the winner will bear this cost, as long as this condition is clearly stated in the rules before selecting the winner.
The legal terms
These must be available, easily accessible, and clearly written for users before participating and throughout the duration of the promotion. The rules must include enough information about:
- The organizer;
- The prizes;
- The deadlines;
- The method for determining the winner;
- The methodology;
- Any limitations or exclusions to participation, among others.
The acceptance of the legal terms by the user must be explicit, for example, by checkbox. A privacy policy must also be included. This privacy policy can be very basic if the only purpose of collecting user data is to inform participants of the results or similar matters. However, if the goal is to collect user data for future campaigns or promotions, the privacy policy must be more specific.
In this regard, it is also often important to include conditions related to image rights and intellectual property.
It is worth noting that registering the terms and conditions before a notary is not mandatory, although it is recommended when the prizes are numerous, of high value, etc.
In conclusion, it is generally preferable to organize a contest, rather than a giveaway. This is due to the following reasons:
- Lower administrative burden and costs;
- The organizer can better control the promotion, as the winner is chosen based on the participants’ skills or merits.
