Expenses for a sales representative - are they a tax cost?

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In order to increase the sale of goods or services, entrepreneurs often employ sales representatives. There is no doubt that the expenses for their remuneration constitute an expense. The problem may arise with additional expenses incurred on them. In the article below, we will present the legal expenses for a sales representative.

According to the general rule, only those expenses that affect the achievement of income or the preservation or protection of the source of income may be tax costs. Moreover, they cannot be included in the catalog of expenses that cannot be classified as tax deductible costs. Therefore, it should be assumed that tax deductible costs are all rationally justified expenses related to the conducted activity, the purpose of which is to achieve, secure and maintain the source of income; whereas when determining tax deductible costs, each case, except those clearly indicated in the Act, requires an individual assessment in terms of a direct relationship with revenues and rationality of actions to achieve income.

Undoubtedly, expenses for a sales representative meet the above criteria, because thanks to his work, the company obtains income. However, as practice shows, expenses on sales representatives are of particular interest to tax authorities.

Food services during the meeting with the contractor

Very often, sales representatives invite future customers to various types of meals (lunches, dinners). In our opinion, there are no obstacles to recognize the incurred expenses as tax deductible costs, however, the limitation regarding representation should be remembered, because its costs, in particular those incurred for catering services, food and beverages, including alcoholic beverages, are not considered tax deductible costs. .

Tax regulations do not contain a definition of representation. Therefore, one should use the definition contained in the "Polish Language Dictionary by PWN" (Warsaw 1981) - 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.

Such a position was confirmed by the Minister of Finance in the individual interpretation of September 12, 2016, file ref. DD6.8221.30.2016.MNX, in which we can read:

(…) For the qualification of given expenses as representation expenses excluded from tax deductible costs, the place of serving refreshments or catering services is not important. It also does not take into account whether the snacks take place at the company's premises or outside. For the assessment of such expenses, features such as lavishness, elegance, and the splendor of the meals are also not important. It is not possible to construct a measure to determine the level of lavishness, elegance, grandeur or glamor that is the same for all economic entities.

Expenses for the purchase of food products, in particular: coffee, tea, soft drinks, sweets, etc., for refreshments for contractors at the Company's headquarters and expenses for the purchase of catering services during meetings with contractors outside the Company's headquarters, unless they serve to build a favorable image of the Company, constitute the costs of obtaining revenues pursuant to art. 15 sec. 1 of the Corporate Income Tax Act (...).

It is worth adding that there is no right to deduct VAT on catering services. According to Art. 88 sec. 1 point 4 of the VAT Act, the tax on goods and services from invoices documenting gastronomic services is not deductible.

The term 'catering services' for the purposes of applying the exemption in question is understood narrowly. The catering services covered by this exemption include only the services of restaurants and other catering establishments classified in group 56.1 PKWiU.

Also, the tax authorities do not accept the deduction of VAT on the purchased catering services. This was confirmed by the Director of the Tax Chamber in Warsaw in the individual ruling of May 18, 2016, file ref. IPPP2 / 4512-241 / 16-4 / MAO, in which we can read:

(...) pursuant to Art. 88 sec. 1 point 4 lit. b above. the act of reducing the amount or refunding 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.

This rule excludes the possibility of deducting input tax on all expenses incurred in connection with the purchase of accommodation and catering services, except for the purchase of ready meals intended for passengers by taxpayers providing passenger transport services. This means that the limitation of the possibility of reducing the output tax by input tax applies only to accommodation and catering services, except for the above-mentioned except (...).

Expenses for a sales representative and accommodation services

During the performance of their tasks, sales representatives are often forced to purchase accommodation. As indicated by the tax authorities, there are no obstacles to include such expenses as costs. An example may be the letter of the Director of the Tax Chamber in Łódź, ref. IPTPB3 / 423-240 / 13-2 / GG, from September 18, 2013, in which we can read:

(...) the costs of accommodation reimbursed by the Company to the employee in connection with the performance of his official duties under the concluded employment contract may constitute tax deductible costs pursuant to Art. 15 sec. 1 of the Corporate Income Tax Act.

To sum up, the expenses incurred for the accommodation of employees in hotels constitute the Company's tax deductible costs pursuant to Art. 15 of the Corporate Income Tax Act (...).

However, as in the case of catering services, VAT cannot be deducted from hotel services as well.