Business meals are not all the same in tax terms

Analysis in light of current case law

Representative expenses are not deductible expenses under § 20, paragraph 1, item 3 of the EStG. If it is proven that the catering is largely arranged on a business-related basis, half of the expenses can be deducted. The corresponding provision in § 1, paragraph 1, item 2, letter c of the UStG standardizes the sales tax liability in the form of self-consumption for the non-deductible #50 percent share. In practice, for simplicity #'s sake, this is met in the form of tax reductions.
However, recent case law has brought about some movement in this area of law. On the one hand, the European Court of Justice is concerned with the aforementioned excise tax on self-consumption, and on the other hand, the VwGH is fluidly expanding the limits of the deductibility and non-deductibility of catering expenses in casuistic terms. The current case law is now being increasingly incorporated into the Income Tax Guidelines 2000.

Definition of business-friendly hospitality

Business friends are persons with whom the taxpayer is in business relations or seeks to establish them. This includes the employees of these persons, but not the employees of the taxpayer themselves.
Beverage expenses Refers to business meals in the workplace or outside (restaurant), as well as the costs of accommodation (hotel, guest house, etc.), which include both food and accommodation costs.

Tax qualification of catering costs

Income tax guidelines 2000, p. 4814ff
The guidelines generally distinguish between non-deductible, fully deductible, and half-deductible catering costs.
Jurisprudence
As mentioned at the beginning, the European Court of Justice is likely to declare the self-consumption tax under § 1, paragraph 1, item 2, letter c of the Value Added Tax Act (VAT Act) as EU-unconstitutional (note for clients: September 2001).
In various recent VWGH decisions, the income tax qualification of catering expenses is at the center of the discussion. The casuistic jurisprudence makes it difficult to apply the tax qualification in practice.

Examples of the different qualifications of the catering staff

Not entirely deductible representation expenses
These include, among others: serving drinks in the household, at entertainment venues, at balls, after concerts and theaters, on opening days outside of work, after business hours, for personal occasions, and the usual gifts (flowers, cigars, spirits, books, etc.).

Fully deductible catering costs
These include hospitality services with a performance component (e.g., during a training session, when another company presents its products to a company for promotion purposes, etc.) with a payment component (e.g., incentive trips), where the value received by the recipient is taxable, as well as those without a representative component (e.g., company visits, training of employees of a business friend, or training events for business friends, advertising tastings of own products, etc.). For the hospitality provided, these contributions do not constitute taxable income and only result in a reduction of travel allowances if the hospitality consists of a complete meal and does not involve mere gestures of courtesy (bread rolls, drinks, etc.).
Recent rulings in Rz 4818 EStR 2000 have included the following expenses in the catalog of fully deductible hospitality costs: expenses for the confidants of a drug addiction investigator and the informants of a journalist. In the underlying VwGH E. 16.02.2000, 95/15/0050, it is clarified in Rz 4818 EStR that the expenses for one’s own consumption are not deductible among the fully deductible expenses for the hospitality of confidants.

The cuts under the 50%s include:
The catering must demonstrably have a clear advertising purpose and the operational reason must far outweigh it. A demonstration of compliance with these criteria is not sufficient.
These include, among others: serving drinks at information events, in company premises during business meetings and company openings, in company canteens, and in advance of specific contracts that have been specifically agreed upon. The employer’s reimbursement of expenses for business hospitality by the employee is subject to a 50%% reduction by the employer, and represents a reimbursement of expenses by the employee.
In the VwGH E. 22.06.2001/2001/13/0012, hospitality expenses that serve merely to maintain contact are classified as advertising-like costs that are exempt from the withholding requirement of § 20 Abs. 1 ZI. 3 EStG. On the other hand, expenses incurred in connection with hospitality where a service information related to one’s professional activity is provided constitute (50%) deductible expenses. Another variant is brought up by the VwGH in E. v. 27.11.2001 Zl. 2000/14/0202-7. From the quote: „However, insofar as the complainant’s expenses are incurred for his own consumption, as the authority has correctly stated, there are no advertising costs involved.“ From this it can be concluded that the taxpayer would have to calculate their own share of the costs of business hospitality first and could only deduct half of the remaining amount for tax purposes.
Since this finding has not yet been incorporated into the EStR 2000, it will probably remain a matter of ongoing administrative practice for the time being.

Summary
The classification of hospitality costs in #a tax sense is becoming #increasingly complicated. For practical purposes, it is recommended, for evidentiary purposes, to note in the expense documents the reason for the hospitality in writing and to identify the persons who were hosted.
For those catering expenses that are entirely deductible, the taxpayer will have to reduce their own share (Rz. 4814 EStR 2000). In the case of the catering expenses that are deductible at 50%, the current administrative practice will be retained (contrary to the legal ruling – still –).

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