March 5, 2012

International Sweepstakes and Contests (second in a series): Local Language and Taxation Issues

Seller Beware: Consumer Protection Insights for Industry

This is part two of our series on Challenges in Running International Sweepstakes and Contests. Our prior post focused on how some countries prohibit certain types of promotions. In this post, we discuss local language requirements that may be legally imposed on such promotions, as well as taxation issues that can arise when conducting such promotions.

Issue #2: Many Countries Require Promotions To Be In A Local Language

Countries that otherwise permit sweepstakes and contests often require that they be conducted in a local language. This is true, for example, in Argentina, France, Mexico, and Poland. It may be true even for promotions conducted entirely online from the US. The need to translate not only a promotion's Official Rules but also all related advertisements, websites, and other collateral materials, can be cost-prohibitive and time-consuming. It essentially defeats one of the main purposes of opening a promotion to other countries: to eliminate a need for country-specific messaging.

Issue #3: Prizes Are Often Highly Taxed In Foreign Countries

Those countries that permit sweepstakes and contests seem to have done so as a way to generate revenue through taxation. Some countries, such as India and Norway, impose taxes on the winner of a prize (as does the United States, of course). Although the marketer may not be legally required to pay those taxes, if the marketer doesn't pay them on behalf of the winner, the winner may end up being one unhappy customer. Other countries, including Brazil, Mexico, and Spain, impose taxes directly on the marketer and may even require pre-registration with local tax authorities. Paying these taxes drives up the cost of promotions and inadvertently could cause other tax problems for the marketer in any country in which the taxes are paid.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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