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VAT Authorities accept catering costs as business promotion expenses
 
On 13 March 2015, the VAT authorities issued a decision in which they agreed to follow the case law of the Supreme Court in respect of the deduction of VAT on catering costs[1].

Under Belgian law, a VAT payer cannot deduct and recover the VAT on business entertainment expenses (article 45 §3, 4° VAT Code). This is an exception on the general principle that a VAT payer can recover all of the VAT on all business expenditure.  A grey area is the distinction between business entertainment expenses and business promotion expenses.

The distinction relates to the distinction in Article 17 (6) of the Sixth VAT Directive[2]  between 'strictly business expenditure' and 'luxuries, amusements or entertainment'.

In its decision of 8 April 2005, the Supreme Court had settled the controversy on the distinction by deciding that “business entertainment expenses” are all expenses for welcoming and receiving visitors from outside the company to confirm and reinforce the business relationship ; this may be combined with amusement or entertainment.   “Business promotion expenses”, on the contrary, are expenses which are mainly and directly aimed at informing the final purchaser of the existence and qualities of a product or service in order to promote the sale.  The deduction of the VAT on such expenses cannot be refused. The Supreme Court had added that Article 45 §3 is an exception to the rule that all expenses entail a right to deduct the VAT and, therefore that it must be construed restrictively. Only expenses that strictly comply with the criteria of Article 45 §3 must be excluded from the VAT deduction.  For prior coverage see Doc 2005-10851.

The VAT Authorities had acknowledged this case law in their decision nr. E.T.109.632 dated 24 July 2005. However, the VAT Authorities had tried to resist this case law in respect of the deduction of accommodation and catering (food and drinks) as article 45 §3, 3° VAT Code disallows the deduction of VAT on food and drinks in bars and restaurants.

The Supreme Court had decided in its decision of 15 June 2012 (nr. F.11.0095.F  in re Belgian State vs Etablissements Genet SA), confirming an earlier decision of 15 11 March 2010 (Nr F.09.0019.N (Belgian State vs Cache Cache SA) that the same distinction had to be made for catering costs. Food and drinks were offered by the VAT payer, a BMW distributor to present his vehicles and the advertise them, rather than make the customers more comfortable. These expenses are mainly aimed at informing potential purchasers of the existence and qualities of the vehicles in order to promote the sale.  Therefore, they are business promotion expenses.

The VAT Authorities have now confirmed that they will follow this case law. Nevertheless, they add that it is still the VAT payer who must evidence that the expenses are made for existing and potential customers and that they have, mainly and directly, a publicity purpose to promote the sale of his products or services.

VAT payers who were not able to recover the VAT in respect of catering expenses can claim back the VAT incurred in or since 2012.

[1] VAT Decision nr. E.T.124.247 of 13 March 2015
[2] Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value-added tax: uniform basis of assessment.


1 April 2015
Marc Quaghebeur
De Broeck Van Laere & Partners




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