VAT and hospitality expenses
The discussion about the VAT deduction on restaurant and reception expenses and the deductibility for income taxes is no ‘one-on-one’ story. VAT on hospitality expenses is not deductible. One exception exists: in case the hospitality expenses were made in the context of a marketing event, the VAT is 100% deductible. The logic behind ? It is simple: hospitality expenses are deemed not to be professional expenses (and so VAT is not deductible), but when they are made during a marketing event, then it shows that they are of a professional nature and VAT is 100% deductible.
For income tax purposes the deduction limitation is not motivated by the discussion on the professional nature of the expenses. The reasoning is more that when these are professional expenses, they are after all deductible for only 50% (reception costs) or 69% (restaurant expenses).
Restaurant expenses are the expenses you make when visiting a restaurant: meals, drinks.
Reception costs are costs you make in the framework of your external relations, welcoming a.o. clients, suppliers, business relations or third parties. Let’s think about e.g. catering expenses, flowers, drinks, …
But an open door day is not something you organise only for your existing external relations, but also, and especially for external relations you currently do not have … but would like to have. So it is marketing. And marketing or publicity expenses are 100% deductible for income tax purposes.
Minister, ruling commission, courts
Almost everyone has contributed to this discussion. Case law is divided: some judges believe that comparing with VAT is not relevant and that you have to look at the nature of the expenses: flowers, drinks, caterers remain hospitality expenses, also when you make them while making publicity. Other judges look at the purposes of the expenses and believe that the qualification ‘publicity’ prevails over the qualification ‘hospitality’.
In 2018 the Minister received the question and answered directly that ‘food and drinks expenses and catering costs which a tax payer makes within the framework of an event that he or she organizes for existing or potential clients and which has its main and direct purpose to stimulate the sale of certain products or services’ are rather publicity costs which should be 100% deductible.
Following this statement courts began to take turns and also the ruling commission since then decided in favor of the tax payers: catering costs and food and drink expenses are 100% deductible since they have publicity as their purpose.
Court of Cassation is the killjoy
Recently (February and March 2019) the Court of Cassation had to judge in cases where the tax authorities still took their ‘old’ position: catering costs are reception costs, also when they are made with marketing purposes.
And the Court of Cassation fully ruled in favor of the tax authorities. Not the purpose of the expenses is importance, but the nature of it. In other words, whether you invite your suppliers to a reception to thank them for the cooperation or organise a mussel event at the door of your business in a rented tent with 2 bouncy castles with access for everybody … for the highest court these are reception costs and only 50% deductible.
Oh yes … for VAT there is no issue: this is 100% deductible.
Today we do not have a solution
What should you do?
You could expect that the Minister is the big boss of the tax authorities, but this is not quite the case. Additionally the Minister who gave the answer last year isn’t the same as the one today. The ministerial position is not really binding for the tax authorities. There is also no automatism that all tribunals and courts will copy the judgment of the Court of Cassation.
In other words, your temperament and that of your adviser will determine what you will do: ‘throw yourself’ and look what the future brings or not jeopardize your relation with the tax inspector and take a conservative position.
And by doing so, tax is again a little bit a lottery.