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Entertainment expenses – Subsequent disclosures
Entertainment expenses not business expenses if…
Expenses for the entertainment of persons for business purposes are not permitted under Sec. 4 (4) of the German Income Tax Act. 5 No. 2 EStG may not be deducted as business expenses to the extent that they exceed 70% of the expenses to be regarded as reasonable; i.e., 30% of the reasonable expenses are not deductible.
Written proof requirement
The amount and the business reason for the entertainment expenses must be proven by recording in writing the place, day, names of the participants and reason for the entertainment as well as the amount of the expenses.
The records must be kept in a timely manner; it is not sufficient to make up the information, e.g. after two years on the occasion of a tax audit.
Input tax deduction allowed in full
In contrast, the full amount of input tax deduction in connection with entertainment costs is permitted (Section 15 (1a) sentence 2 UStG). The underlying expenses must be reasonable and the usual requirements for deducting input tax must be observed (in particular, there must be a proper invoice). In a recent ruling, a tax court recognized the input tax deduction for entertainment costs, although the required information was only provided approximately four years after the entertainment and thus not in a timely manner. By making up the information, it was not possible to “save” the business expense deduction, but at least the input tax deduction.