(2023)
Costs for birthday celebration with colleagues tax deductible
Entertainment expenses are deductible as business expenses if they are work-related. However, entertainment for personal events, such as birthdays, weddings, etc., has not been recognised for tax purposes, as these serve personal representation and are therefore privately motivated. These are "expenses for lifestyle that arise from one's economic or social status, even if they promote the profession or activity" (§ 12 No. 1 EStG).
The Rhineland-Palatinate tax court has recently caused a sensation: Contrary to the prevailing legal opinion, the court ruled that the costs of a birthday party to which only colleagues are invited can be deducted as business expenses (FG Rheinland-Pfalz of 12.11.2015, 6 K 1868/13, the appeal was dismissed, BFH 10.11.2016, VI R 7/16 BStBl 2017 II p. 409).
The case: The managing director of a GmbH invited around 70 people to a birthday party on the occasion of his 60th birthday. These were exclusively colleagues or employees, some retirees, and the chairman of the supervisory board. The party took place on company premises. The costs of 2.470 Euro were not recognised as business expenses by the tax office, but the tax court did.
The court stated that the entertainment costs could be deducted as business expenses because the birthday party was professionally motivated. Although a birthday is a private event, the managing director had not invited any private friends or relatives, only people from the professional environment. The event took place on the employer's premises (workshop hall) and – at least partially – during working hours.
Some guests were even still wearing their work clothes. The cost per person (35 Euro) was also significantly lower than the amount the managing director spent on parties with private friends and family members. Therefore, a comprehensive assessment indicated that the expenses were professionally motivated.
Expenses for employee entertainment are not limited to 70%, as is the case with employer entertainment, but are fully deductible as business expenses. This involves entertaining internal company personnel, i.e., entertainment for a "professional" occasion (R 4.10 paras. 6 and 7 EStR). This also means that the strict proof requirements with formal entertainment receipts do not apply. The catering service invoice or corresponding purchase receipts are sufficient.
