Entrepreneurs are allowed to deduct input VAT if business events do not serve purely private needs but are related to business activities. Input VAT deduction for attentions depends on the overall activity.
The input VAT deduction requires a direct and immediate connection between input and output turnover. If the connection exists with taxable output transactions, the deduction is possible. If the connection is to a gratuitous withdrawal (pursuant to § 3 (9a) German VAT Code), no input VAT deduction is possible.
For the input VATeduction from company events (e.g. Christmas parties), it must be checked whether the services serve exclusively the private needs of the employees or are caused by special circumstances of the business activity. If an event improves the working atmosphere, there is no input VAT deduction. In the case of withdrawal taxation, the deduction is possible if it is an “attention” within the meaning of the law. The deduction of input VAT can also be decided on the basis of the overall economic activity of the company (BFH, judgment of December 9, 2010, V R 17/10, BStBl II 2012, 53, paragraphs 35 to 39).
Even if an entrepreneur is entitled to an input tax deduction in accordance with his overall economic activity, this right is not affected by the use of the input service for a service withdrawal within the meaning of § 3 para. 9a No. 2 German VAT Code excluded. This is because the contributions made on the occasion of the Christmas party were not made in the context of an overriding company interest to the detriment of the employees’ interest in the party. The benefits on the occasion of the Christmas party also do not constitute “attentions” within the meaning of Section 3 (3) of the German Income Tax Act. 9a No. 2 German VAT Code because the exemption limit of EUR 110 per employee has been exceeded.
The new income tax regulation for company events (EUR 110 allowance instead of EUR 100) does not apply to VAT. The BFH (German Federal Fiscsal Court) does not see a transfer to “attentions”.
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