Gadgets with the company's name as a tax expense
Among the marketing tools, you can often find the use of promotional campaigns consisting in giving away free gadgets containing the company's name, e.g. pens, calendars, mugs or notebooks. Can the entrepreneur consider the expenses incurred on these gifts as a tax expense? This will happen if a certain condition is met.
Marketing gadgets usually contain the company's contact details, as well as the names of the products offered. The entrepreneur may consider these gifts as advertising activities, and the expenses incurred for them may be recognized as tax deductible costs, if they are of low value. In the event that they already represent a much higher value, e.g. an expensive pen, the tax authorities will certainly recognize them as representing the company. And according to the applicable regulations, representation costs cannot be considered as tax costs.
Advertising expenses are considered tax expenses if they are business-related and contribute to current or future revenue. Correct classification of these expenses has consequences in the calculation of income tax. On the other hand, the costs of representation, due to their lavish and ceremonial nature, do not constitute tax costs. In particular, they include: expenses for catering services, purchase of food and beverages, including alcoholic drinks.
The proper definition of "advertising" and the concept of "representation" is certainly not facilitated by the regulations, as they do not regulate them directly. However, court judgments and interpretations of tax authorities can certainly be helpful in this. An advertisement consists of activities consisting in presenting products or services in a way that encourages potential customers to buy them. Representation, on the other hand, is a kind of representation on behalf of the company, associated with lavishness and splendor, in order to evoke the best opinion in the circle of potential contractors in the company's image.
Accordingly, expenses incurred on the purchase of company gadgets can be considered tax costs, if they are not associated with prestige and lavishness, and their value is low. Assessment of the value of a given expense in terms of representation or advertising may be carried out according to the entirety of the conducted activity and the amount of incurred expenses. It will also be beneficial to define the circle of the recipients, as well as the circumstances in which such a gift took place.