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Garden party with business friends.

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The deduction of business expenses for events (garden party) with business associates may be excluded in whole or in part if they are (unreasonable) representation expenses that are privately co-initiated. However, the Federal Fiscal Court has clarified that such events are only subject to the (complete) prohibition of deductions under § 4 para. 5 sentence 1 no. 4 EStG if these are expenses borne for “superfluous and inappropriate entertainment and representation”.

Garden party

At the garden party of a law firm, a tax court had not been able to establish any disproportionate representation; the hospitality had rather a rustic to middle-class character. The total expenses per participant were approximately 60 euros; the comparison with the tax-free amount of 110 euros for company events did not show any inappropriateness in terms of the amount, so that the deduction ban did not apply.

The fiscal court

However, the tax authorities considered the expenses for the event to have been incurred privately and, by way of an estimate, allowed 50% of the expenses to be deducted as business expenses, since both private and business guests took part and it was not possible to make a precise numerical breakdown. Participants were clients, potential new clients and business contacts from politics, press, economy, sports and public life. The court was also unable to rule out the possibility that the clients were privately involved, especially since they were predominantly addressed by their first names in the invitation.

The tax authorities generally permit deduction of the business or professional portion of mixed expenses if it is possible to allocate them according to objective criteria such as time, quantity, area or groups of persons.

(For further comments, information and examples, please refer to our information letter 05/2019).

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Neumann & Walczak – tax consulting company GmbH – Robert-Bosch-Strasse 1 – 59439 Holzwickede

Neumann Walczak & Partner Tax Consultant and Lawyer – Partnership –
Robert-Bosch-Strasse 1 – 59439 Holzwickede

Website: www.neumann-walczak.de – E-mail: info@neumann-walczak.de

Phone: (0049) 02301 – 91 291 0 – Fax: (0049) 02301 – 91 291 21