No input tax deduction for staff outing costs

The Supreme Tax Court has held that the input tax on staff outing costs ranking as an employee benefit cannot be deducted.

Employee staff outing costs rank as benefits in kind if they exceed €110 for each participant. Exceptions to this rule have to be based on special circumstances justifying a contention that the outing was more or less solely in the direct interests of the employer. References to improving employee relationships and similar considerations are insufficient as a demonstration that the employees’ own interests were completely “overshadowed” by those of the employer. However, the Supreme Tax Court has previously accepted that this strict income tax approach does not necessarily have to be followed for VAT, and has allowed an input tax deduction for staff outing costs ranked as employee benefits on the grounds that employee morale boosting justifies treating the expense as part of the general admin costs of the business.

The Supreme Tax Court has now changed its view. It has disallowed the input tax deduction on the costs of a staff outing of some €200-250 per participant because costs of this order must be seen as carrying at least an element of employee reward. The ECJ has recently held that employee benefits in kind substitute costs that an employee would otherwise have borne out of his own pocket, and so cannot lead to an input tax deduction for the employer without a taxable output (recharge to the employee or output tax on the benefit transferred). The Supreme Tax Court has followed suit, drawing the distinction between staff outings seen as employee benefits and those ranking as mere amenities on the income tax yardstick of €110 per participant. The input tax on costs ranking as amenities continues to be generally deductible, as does that for employee meetings and seminars held for an overriding business reason.

Supreme Tax Court judgment V R 17/10 of December 9, 2010 published on March 9, 2011

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