Expenses for the organization of integration events for employees and VAT deduction
Organizing team-building events by employers has become more and more popular recently. The goal is to strengthen ties and unite the workforce, which is then to translate into better work efficiency. Often the participants of such events are also family members of employees. There is no doubt that the expenses for organizing team-building events indirectly contribute to generating greater profits by the company. Therefore, the question arises whether the employer can deduct input tax for the expenses incurred.
Right to deduct input tax
At the outset, it should be noted that pursuant to Art. 86 sec. 1 of the VAT Act, to the extent that goods and services are used to perform taxable activities, the taxpayer has the right to reduce the amount of tax due by the amount of input tax. The amount of the input tax is the sum of the tax amounts resulting from the invoices received by the taxpayer for the purchase of goods and services.
Bearing in mind the above provisions, it should be stated that the condition enabling the taxpayer to exercise the right to deduct input tax is the relationship between purchases and taxable activities performed. Importantly, however, the act does not specify to what extent and how goods and services must be used to perform taxable activities. As a result, it is generally accepted that it can be both a direct and an indirect relationship.
It should be assumed that the expenses for the organization of integration events are indirectly related to the conducted business activity, because they are related to the overall functioning of the enterprise and contribute to generating a profit.
Expenditure on the organization of integration events
The expenses for the organization of team-building events that the employer incurs varies. These are both costs incurred for the purchase of goods and for the purchase of services. The tax authorities assume that if the goods and services acquired in order to organize an integration event show an indirect connection with the conducted business activity and were not listed in the negative catalog of Art. 88 of the VAT Act, the taxpayer is entitled to deduct input tax.
At this point, the content of Art. 88 sec. 1 point 4 lit. b of the VAT Act, which indicates that the reduction of the amount or refund of the difference due to tax does not apply to accommodation and catering services purchased by the taxpayer, except for the purchase of ready meals intended for passengers by taxpayers providing passenger transport services.
However, it should be pointed out that there are no obstacles for VAT to be deducted from catering services. This is because catering and food services are separate items. It is emphasized that restaurant and catering services mean the provision of prepared or unfinished food or drink, or food and drink intended for human consumption, together with appropriate support services for their immediate consumption. The provision of food or drink or food and drink is only part of a larger whole in which services must prevail.Restaurant services are the supply of such services on the premises of the supplier, and catering services are the supply of such services off the premises of the supplier.
Employee families and expenses for the organization of integration events
Another interesting issue is the right to deduct input tax related to expenses related to the organization of integration events to the extent that they relate to employees' families.
Reference should be made to the wording of Art. 8 sec. 2 of the VAT Act, which states that the following are also considered as providing services against payment:
the use of goods that are part of the taxpayer's enterprise for purposes other than the taxpayer's business activities, including in particular for the personal purposes of his or her employees, including former employees, partners, shareholders, shareholders, members of cooperatives and their household members, members of legal entities, members an association, if the taxpayer was entitled, in whole or in part, to reduce the amount of tax due by the amount of input tax on the acquisition, import or manufacture of these goods or their component parts;
free provision of services for personal purposes of the taxpayer or its employees, including former employees, partners, shareholders, shareholders, members of cooperatives and their household members, members of governing bodies of legal persons, members of the association and any other provision of services free of charge for purposes other than the taxpayer's business activity.
Bearing in mind the above-mentioned provisions, it should be stated that the free transfer (consumption) of goods and free provision of services for the needs of employees' families will not be activities indirectly related to the applicant's business activity, because these persons are in no way related to it. As a result, such unpaid benefits for employees' families constitute activities subject to VAT.
However, the adoption of the above position means that, since we are dealing with taxable activities, the taxpayer is entitled to deduct input tax. This means that also to the extent that the expenses for the organization of integration events relate to family members of employees, the employer has the right to deduct VAT.
This was confirmed by the Director of the National Tax Information in the individual ruling of May 14, 2018, No. 0111-KDIB3-1.4012.65.2018.
In the light of the above circumstances, since the expenses incurred for the acquisition of goods and services related to the organization of team-building events, as well as the purchase of a comprehensive service of organizing an integration event in the part relating to the families of employees will constitute activities subject to VAT and, as already indicated, the Applicant is an active registered taxpayer VAT, the Applicant will have the right to deduct the VAT amounts shown on invoices pursuant to Art. 86 sec. 1 of the VAT Act, unless they are activities listed in Art. 88 of the VAT Act.