How to organize a contest in Social Media according to the law?
Marek Dabrowski, Tigers: To begin with, what exactly is a competition?
Magdalena Korol, Creativia Legal: We commonly understand a competition as an event in which participants compete for prizes based on certain criteria.
A contest is not defined in Polish law. So, when organizing a competition, depending on its rules and how the winner is selected, we may fall into two different legal regimes.
What do you mean by that?
MK: A competition can take the form of a public promise or a lottery. Both of these terms are already defined in the law. The difference between the two, to put it simply, comes down to whether the winner is chosen at random or according to specific criteria. In the case of a public pledge, the selection of the winner depends on criteria set by the organizer. In contrast, we are dealing with a lottery when the outcome depends, if only in part, at any stage - on chance.
Public pledge or lottery - so which is better?
MK: It is definitely easier to organize a contest that meets the definition of a public promise than a lottery. When organizing a lottery, we have to meet a number of obligations already at the start, as defined in the Gambling Act. Among other things, it is necessary to obtain a permit issued by the competent director of the tax administration chamber. The permit is granted upon application, which the authority has two months to consider from the date of its submission. The application must be accompanied by regulations, which the authority will have to approve. We must also pay for the permit. The fee is 10% of the value of the prize pool, not less than 50% of the base amount, so in 2023 it is a minimum of PLN 3,282.72.
Importantly, it is better not to risk holding a lottery without a permit.
A fine of 5 times the permit fee can be imposed for holding a lottery without proper notification. Unfortunately, a severe fine is not the only sanction. Acting in violation of the Gambling Act is a fiscal offence and can also expose us to a fine.
So, if the selection of the winner does not have to be done by chance, it is better to lean towards a competition in the form of a public promise. Is this a good proposal?
MK: Yes, exactly. The competition as a public pledge doesn't require permission, it doesn't have to be reported anywhere. It can be conducted by basically anyone.
It must be remembered that the public promise must be fulfilled. To be able to cancel a competition, such a possibility must be provided for by the organizer in the rules of the competition. In doing so, it is necessary to specify the circumstances on which the possibility of withdrawing from a given public promise depends. Reservation of the right to cancel a competition at any time without stating a reason is not permitted, and will therefore be ineffective.
It is also unacceptable to evade the release of the promised prize to the winner. In such a case, the winner will be able to claim the prize in court.
What about the rules and regulations of the contest? Do we have to have rules and regulations when running a social media contest?
MK: Yes. Such a contest, regardless of whether it is a public pledge or a lottery, will be a service provided electronically, within the meaning of the Law on Provision of Electronic Services, and the provisions of this law impose certain obligations on the service provider, which will be the organizer of the contest. These include the creation and publication of regulations.
The rules of service, the types and scope of services provided by this means, the terms and conditions for the provision of services by electronic means, the method of conclusion and termination, the mode of complaint procedure, should be the main thing to emerge from the regulations.
In addition, a specific contest will most often require the preparation of separate rules and regulations. It is in it that we will describe the purpose of the contest, the conditions for participation, define the prizes and how they will be awarded, the deadlines, the rules for determining the winner, the means of settling any disputes if they arise in connection with the contest.
Will the rules of the contest be different if the contest is treated as a public promise and another as a lottery?
MK: And yes, and no. For both the sweepstakes and the contest, you will need the terms and conditions of the service provided electronically, which I mentioned earlier.
In addition, in the case of a contest that meets the criteria of a lottery, the elements that the rules and regulations must contain in order to be legal and approved by the competent authority, as we discussed a moment earlier, are explicitly defined by the Gambling Act. Necessary elements include the indication of the authority issuing the license, the area where the lottery will be held, the rules for conducting the lottery, its duration, the place and date of the prize drawing, the method of announcing the results and issuing prizes, or even the value of the prize pool.
In contrast, in the case of a contest that meets the criteria of a public promise, such rules and regulations as in the case of a lottery are not required by law. However, this does not mean that the regulations with the rules of a given contest can be ignored by us, having only the regulations for the provision of electronic services. In the regulations for the provision of electronic services will be written issues related to "technical" access to the contest, and not information about the relationship between the organizer of the contest and its participants. The regulations of the contest itself should include such information as: who can be a participant; what the contest task is and the rules that apply to its execution; the criteria for settling the contest; how the winner will be selected, and much more. Such rules and regulations are not only a carrier of information about the rules and course of the organized competition. Taking care of good rules and regulations protects the interests of the organizer itself, in case of possible misunderstandings or disputes with the contest participant.
Is it necessary to include information regarding the protection of participants' personal data in the competition regulations?
MK: Yes, and let's not forget about it. The organizer of the contest will process personal data of the participants, such as name, surname, email address, or address for delivery of the prize. The organizer must inform participants about such data processing rules. At the same time, this obligation can be fulfilled in various ways. However, it is important that the information is written in simple language and contains all the data that the competition organizer is obliged to provide as a personal data controller under the RODO. So, the information clause should indicate the legal basis, purposes of personal data processing. The contest participant should also find out who the controller is, how long their personal data will be kept, but not only that. All the elements that must be included in the information clause are described in Article 13 of the RODO.
What other clauses need to or should be included in the contest rules?
MK: It depends on the specific case. The content of the regulations will come from the rules of the competition.
For example, if we hold a contest for the best photo, we need to make sure that there is a proper copyright clause so that contestants know that they cannot submit works that are not their own.
Often in such creative contests, the organizer will be interested in using the contest entries, such as wanting to organize a screening of the videos submitted by the participants or using the submitted photos for advertising purposes. Just because the contest entries are received does not yet mean that it can do so. The organizer of the contest in the regulations can provide a non-exclusive license to use the works of the contest participants, but if he would like to receive an exclusive opportunity to use the work (whether in the form of an exclusive license or in the form of a transfer of copyright) it will be necessary to sign an additional agreement with the winner of the contest, in writing.
Are there specific guidelines for holding contests on social media, such as Facebook, Instagram or TikTok?
MK: Each social network may regulate the issue of contests differently. And this is indeed what happens.
Take Meta Platforms. These rules apply both on Instagram and Facebook. From Meta's terms and conditions, we learn that the promoter of a promotion, such as a contest or sweepstakes, is responsible for the legitimate execution of the promotion itself. Meta requires that each promotional action has its own terms and conditions and contains additional provisions that indicate that Facebook or Instagram (depending on where you run the contest) is exempt from liability in connection with the organization of the promotion. In addition, it must be indicated to participants that the promotion is not sponsored, endorsed or associated with the service in any way.
When organizing a Facebook contest, private timelines and friend connections cannot be used for promotion.
Therefore, it will be incompatible to use solutions such as "share on your timeline to participate in the promotion", "tag your friends in this post to participate in the promotion". Similarly, it will be incompatible to ask people to give a "like." The "Like" function, as Facebook's regulations say, is supposed to be a reflection of fans' likes, not an activity forced, as it were, by the desire to receive a benefit - a contest prize.
A similar ban operates on Instagram. There, it is also forbidden to encourage users to tag themselves or others if they are not in the photo.
TikTok, on the other hand, for the moment does not indicate how to conduct a legitimate competition, which of course may change.
And how about YouTube or LinkedIn, also popular sites to attract new audiences? For example, you don't see promotional campaigns on LinkedIn....
MK: Yes, we don't see that kind of activity from LinkedIna users, and that's because LinkedIn prohibits any promotional activities, including contests.
Contests on YouTube, on the other hand, may be conducted appropriately under similar rules as with other social networking sites, including not implying in any way that the owner of the site sponsors, supports or conducts the contest.
What sets YouTube apart is that the contest organizer cannot require participants to transfer the rights to the submitted videos.
Thus, if a contest organizer wants to hold a contest in which, in exchange for a prize, the winner is to transfer to the organizer the copyright to the submitted work, it cannot do so via YouTube.
As we can see, if we want to be sure that we are conducting our contest legally, we should - before we even organize the contest - check in the terms and conditions of the service in question what it says on the subject.
Are there tax obligations associated with holding a contest?
MK: A flat-rate income tax of 10% of the prize or winnings is levied on contest winnings. The obligation to withhold it lies with the organizer of the contest, who acts as a payer in this regard - i.e. calculates, collects and pays the tax on behalf of the taxpayer - the winner of the contest. Collection of the tax should take place even before the prize is handed over.
Are there perhaps any exceptions so that we will not have to pay tax?
MK: Yes, there are exceptions and exemption thresholds, but when it comes to online contests, it will not always be possible to take advantage of the exemption.
As for the contest as a promotional lottery, the issue of tax exemption is simple and clear.
According to the Law on Personal Income Tax, if the one-time value of the winnings in a promotional lottery does not exceed PLN 2,280.00, the winnings are tax exempt.
The situation becomes more complicated in the case of a contest that is a public promise. The Law on Personal Income Tax provides an exemption for prizes in contests up to the value of PLN 2,000. Many organizers, when organizing a contest with prizes worth up to PLN 2,000, already consider them subject to the exemption. Meanwhile, tax regulations provide additional requirements, and their interpretation by tax authorities is not uniform.
The problem is rooted in the understanding of the premise of winning contests and games organized and broadcast (announced) by mass media in the context of the contests we are discussing today, that is, those conducted on social media.
How is it? Will a contest held on Facebook or another social network be a mass media contest subject to exemption?
MK: Given the inconsistent positions of tax authorities, it is difficult to give a concrete answer. Undoubtedly, nowadays it is impossible to question the Internet as a mass medium. It seems that the tax authorities are beginning to understand this in unison. It is more difficult to get uniform interpretations from the tax authorities when it comes to the rationale for organizing and broadcasting a contest. Tax authorities often understand them narrowly and require them to be met together for the exemption to apply. That is, in order to benefit from the tax exemption, a contest would have to be organized not only on the Facebook platform, but also by Facebook (Meta Platforms Inc.).
On the other hand, some authorities consider such reasoning erroneous and claim that for the exemption to apply, it is sufficient for the contest to be announced in the mass media. It does not have to be organized by them at the same time. This approach then creates an opportunity for social media contest organizers to benefit from exemptions. When nowadays many contests are announced on the Internet, on websites and precisely on social networks, this is the expected direction.
At the same time, I would be cautious in following the latter view. It is not consistent with the literal wording of the provision, which talks about broadcasting and organizing by mass media. So, for safety's sake, it is better to meet these tax obligations. However, hopefully in the near future there will be an amendment to the provision that will eliminate the troublesome premise of "organizing" by mass media.
Would you have any more closing advice on how to legally run a social media contest?
MK: The way to legally conduct a contest on social media is to prepare good contest regulations, taking into account legal regulations and guidelines of the portal through which you want to conduct the contest. If you have doubts that your regulations meet all these requirements, I invite you to contact us. We will be happy to help you prepare the appropriate documents.
Want to know more about legal aspects in marketing?
- Read our joint article on How to legally use artificial intelligence
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