Can dinner at a restaurant be considered a deductible expense for income tax purposes?

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The Personal Income Tax Act (Article 23) excludes representation expenses from the list of deductible costs for income tax purposes, without specifying (in this or any other legal act) what exactly is covered by this enigmatic term. Case law comes to our aid, including the judgment of the Supreme Administrative Court dated June 17, 2013 (file ref. II FSK 702/11), the essence of which is that it is not the extravagance or luxury of the expense, but its PURPOSE, that allows the inclusion or exclusion of a particular expense as representation costs (and thus to include or exclude it from income-generating costs).

Only expenses for the purchase of these gastronomic services constituting income-generating costs under Article 15 (1) of the Act of February 15, 1992 on Corporate Income Tax, whose sole (main) purpose is to create or improve the company's image externally, are excluded from income-generating costs under the rules specified in Article 16 (1) point 28 of this Act in the version effective from January 1, 2007.

There is no defined catalog allowing the prequalification of a business dinner as an income-generating cost or representation costs, which would not be included in income-generating costs.

However, this does not mean that it is not possible to include a business dinner with a contractor, refreshments for potential clients, or even gifting a good bottle of wine as income-generating costs.

The possibility of booking the cost of a meeting with a contractor as tax costs depends on the reason for which it was incurred. Certainly, the purpose of such a meeting should be matters related to the conducted business activity. If the entrepreneur decides to include such a cost in the records, in case of its questioning by the tax office, he/she is responsible for rational justification of incurring such an expense and its connection with the business activity.

The key to success (and lower taxes) is therefore to have appropriate justification, for which in our opinion such an expense - for a meal, purchase of alcohol, or other produce - actually aimed at generating income and served the real conduct of business (e.g., discussing the details of a new investment), and not just presenting the company in a better light, its advertising, or building its image.

Alright, what about VAT?

As a rule, according to Article 88 (1) point 4 of the VAT Act, the taxpayer is not entitled to deduct VAT on catering services. However, it should be remembered that according to established case law, catering services consist of the preparation and serving of meals at the place where they are prepared, for example, in a restaurant. Therefore, in the case of dinner in a restaurant, even if, according to the above guidelines, we include it in income-generating costs, we cannot deduct VAT from it (but we book it in gross!).

However, it is different for catering services - they are not subject to exclusion, and the taxpayer is entitled to deduct VAT. What does it mean? That it's more advantageous to invite a contractor for dinner to the office and order sushi with delivery 😉