Refreshments for customers and VAT deduction

Service-Tax

Both large and small companies often provide snacks for customers. An issue that raises doubts among entrepreneurs is the possibility of including such expenses as costs and deducting VAT from them.

Tax deductible costs - what do we include?

Recognition of a given expense as a tax deductible cost is possible only when correctly and reliably documented events show beyond any doubt that it is a purposeful and rationally justified expense. Therefore, it is the taxpayer who is obliged to prove not only the fact of incurring a given expense, but also its purposefulness and rationality. When determining tax deductible costs, expenses of the nature of which raise doubts cannot be considered as costs.

Importantly, pursuant to Art. 23 sec. 1 point 23 of the PIT Act shall not be considered as tax deductible costs of representation costs, in particular costs incurred for catering services, purchase of food and beverages, including alcoholic beverages.

The term "representation" has not been defined in the Personal Income Tax Act and in the provisions of other acts. The Ministry of Finance recommends using a linguistic interpretation based on dictionary terms.

According to the definition contained in the PWN Dictionary of the Polish Language, representation means grandeur, refinement in someone's way of life related to the position or social position. On the other hand, according to the definition established in jurisprudence - representation is all activities consisting in creating and consolidating a good image of the company.

Refreshments for customers and the tax cost

Therefore, when accounting for expenses for refreshments for customers, great care should be taken to ensure that authorities do not question the expenses for it as representation.

Very often, during business meetings, the client is served coffee, tea and snacks. In such a situation, in our opinion, there are no obstacles to include such expenses as costs. Giving the contractor coffee or tea does not prove the entrepreneur's lavishness or grandeur. Also, their impact on shaping a positive image of the company is negligible. This is the basic standard for business meetings.

A position favorable for taxpayers was presented by the Director of the Tax Chamber in Warsaw, in the letter No.IPPB1 / 415-630 / 10-2 / RS, dated August 30, 2010, in which we read:

(...) expenses for drinks, sweets, sandwiches, etc. served during business meetings at the Company's headquarters, if they do not bear the hallmarks of grandeur, lavishness, do not constitute representative costs within the meaning of art. 23 sec. 1 point 23 and P. Company may include these expenses as tax deductible costs pursuant to art. 22 sec. 1 of the Personal Income Tax Act (...).

A similar position was taken by the Director of the Tax Chamber in Warsaw in a letter of March 4, 2010, no. ILPB1 / 415-1370 / 09-2 / IM, which reads:

The second group of expenses referred to in the application are expenses incurred during meetings at the Company's office for the so-called coffee, tea, sugar, coffee cream, small sweets, sandwiches. Undoubtedly, in such a situation it cannot be said that the aim of the activities undertaken is representation understood as creating a positive image outside, associated with grandeur and sumptuousness. in connection with the above, expenses related to small snacks in the Company's office are not representative, and therefore are not subject to limitations in terms of including them as costs, resulting from Art. 23 sec. 1 point 23 of the Personal Income Tax Act. These expenses may constitute tax deductible costs, as long as they are related to the income and are properly documented. (...).

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VAT deduction from the costs of refreshments for customers

As a rule, taxpayers are entitled to deduct VAT on expenses for the contractor, as the provisions allow for the possibility of deducting the tax to the extent that goods and services are used to perform taxable activities. Therefore, you should be a VAT payer and conduct taxable activity.

The right to deduct also applies if the relationship is indirect. The indirect connection of purchases with the taxpayer's activity can be considered when the purchase of goods and services does not directly contribute to the taxpayer's income, e.g. by reselling them, but by influencing the overall functioning of the enterprise as a whole, it contributes to generating turnover by the taxpayer.

Also, the tax authorities confirm that in such a situation there is a right to deduct VAT, an example of which is the individual interpretation of the Director of the Tax Chamber in Warsaw of July 1, 2015, file ref. IPPP1 / 4512-532 / 15-2 / KR, where we can read that:

The applicant may reduce the amount of tax due by the amount of input tax in connection with the purchase of catering services, food products, non-alcoholic and alcoholic beverages, intended for consumption during meetings with clients and contractors, held at the company's premises, including outside the premises, however, excluding restaurants, due to the fact that the expenses incurred are used by the interested party to perform activities subject to tax on goods and services (...).

Food delivery and VAT

The snack provided by the taxpayer during a business meeting with the contractor does not result in taxation of the goods consumed as part of this snack pursuant to Art. 7 sec. 2 of the VAT Act. The consumption (consumption) of ready meals or food products at business meetings or made available in the company is related to the taxpayer's business activity.

Besides, the consumption of these goods is not consumption for the benefit of the entities mentioned in art. 7 sec. 2 point 1 of the VAT Act, among which the legislator did not mention contractors.

The position excluding taxation of snacks for customers served during a business meeting is also recognized by the tax authorities, an example of which is the individual interpretation of the Director of the Tax Chamber in Katowice of January 13, 2016, file ref. IBPP1 / 4512-891 / 15 / AR, from which it follows that:

(...) consumption of the above-mentioned food products, i.e. coffee, tea, milk, cooling drinks (water, fruit juices, drinks), sugar, sweets, ready sandwiches, made available to contractors (customers and guests - representatives of customers and suppliers) during and for the use of business meetings during work in the company's seat, should also be considered as consumption related to the enterprise run by the Applicant, therefore it does not constitute consumption, transfer or donation, which would be subject to taxation pursuant to Art. 7 sec. 2 of the VAT Act (...).