The Director of KIS confirms that certain expenses for dinner, dinner or coffee with a contractor may be expenses for obtaining income, but under certain conditions.
The question of the possibility of recognising expenses for meals, the broad understanding of catering services and catering services is a subject that has for many years raised doubts and difficulties of interpretation.
In view of the large number of adverse decisions, many taxpayers are afraid to account for any such expenditure in the cost of obtaining income. However, at their economic cost, they give up the possibility of reducing the tax base.
In the individual interpretation of the date 4 March 2019 The Director of KIS referred positively to the facts presented by the taxpayer, who bears significant expenses on catering services during meetings with counterparties.
This interpretation provides some guidance on how such expenditure can be treated safely as revenue costs, although far-reaching caution is still needed in this regard.
This interpretation may provide a valuable response to the question of how to recognise which expenditure for lunch, dinner, coffee with a contractor can be considered as revenue costs, but at the same time it means that particular care should be taken when documenting such expenditure
The question of the taxpayer
The taxpayer deals with the sale of IT, via the sale of products and services of partner companies in commission settlement. Due to this profile, the company organises meetings with current and potential customers, which often involve refreshments in restaurants. The cost of catering products/services is covered by the company.
The company clearly indicated that the meetings financed by it serve to conclude contracts and establish conditions of cooperation. They do not serve to create the image of the company, i.e. the so-called representative purposes.
It was precisely in the context of the possibility of recognising the expenses incurred for catering as representative costs that the taxpayer feared that they would be regarded as expenses not constituting revenue costs. The provisions of the Corporate Income Tax Act do not include a general exclusion of catering expenditure.
In the catalogue of expenditure not constituting the cost of obtaining revenue in Article 16(1) There is no such exemption, but it is pointed out that they do not constitute the cost of obtaining revenue for the so-called "representation".
With regard to the concept of representation in recent years, there have been a lot of interpretational doubts on the part of taxpayers, authorities and courts, as it is difficult to clearly define the framework for actions of a representative nature.
The previous case law has indicated some guidelines on how to determine whether a given activity represents representation, while stressing that in any case this requires an individual assessment, taking into account the nature of the activity (e.g.
the practice and customs developed in the industry), as well as the fact that what has been considered as a representation so far does not necessarily have to be seen in this way today or in the near future. In view of the uncertainty about the legal assessment of its proceedings, the company asked the Director of KIS.
Settlement of the interpretation body
The Director of KIS indicated that, in the present situation, expenditure incurred by the company does not represent representation and can be eligible for revenue costs within the meaning of Article 15(1) Updop.
In assessing this situation, the interpretative body referred primarily to the question of the relationship between meetings organised by the company in restaurants and cafes with its business activities.
In this case, it was crucial that the meetings organised by the company serve strictly the conclusion of commercial contracts and the discussion of conditions of cooperation with counterparties, but they do not have to do with creating a proper image of the company or having a positive impression on customers.
The wording of the interpretation underlines that the adopted jurisprudence line for the assessment of the representative character of a given activity is considered as the objective of representing costs to create a certain image of the taxpayer, to create a good picture of his company, of his business, as well as of positive relations with counterparties.
Importantly, an indication as an example of the cost of representing expenditure on catering services, the purchase of food and beverages, including alcoholic beverages, does not mean that such expenditure must always be excluded from revenue costs.
In the assessment of the tax authority, since the company organises business meetings to conclude contracts and discuss terms of cooperation rather than to build its image, the expenses incurred to pay for meals, catering products served at such a meeting may constitute the cost of obtaining income.
Summary – tips for taxpayers
In conclusion, according to the general principle, any expenditure which has not been explicitly excluded from the catalogue specified in Article 16(1) the update is directly or indirectly revenue-related, provided that it is actually incurred and documented and that the taxpayer has assessed it for purpose and for economic activity.
However, in view of the need for that assessment by the taxpayer, the taxpayer is at risk of misrecognition of the expenditure in question for the cost of obtaining income.
This interpretation may provide a valuable response to the question of how to recognise which expenditure for lunch, dinner, coffee with a counterparty can be regarded as revenue costs, but at the same time it means that particular care should be taken when documenting such expenditure and assessing their relationship with economic activity.
It may be necessary to provide appropriate arguments supported by appropriate evidence in the case of verification activities carried out by tax authorities.
Individual interpretation of the Director of KIS on 4 March 2019
The number... 0111-KDIB2-3.4010.46.2019.1.AD
Author
Leszek Dutkiewicz
Partner at Russell Bedford. From 2011 related to Russell Bedford Poland. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services. He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices.
Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.