In everyday business, it happens that the taxpayer funds food and accommodation for his co-workers. In our practice, we have encountered a situation in which a taxpayer hires a person working as a cook and buys food products (raw materials) for the preparation of meals.
So how to recognize such benefits for CIT and VAT purposes?
CIT
Pursuant to Article 15 sec. 1 of the Polish CIT Act, tax-deductible costs are costs incurred in order to generate income from a source of income or to maintain or secure a source of income, with the exception of the costs listed in Article 16 sec. 1 of the Polish CIT Act.
The discussed expenses incurred for accommodation and meals may meet the above conditions if the taxpayer needs the performance of a co-worker as part of his service. Without the services of co-workers (subcontractors), the taxpayer would not be able to provide its services, and thus would not be able to maximize its income.
In our client’s practice, it was also important that the activities were carried out “in the middle of nowhere”. Due to the distance from, for example, catering or accommodation services, it was objectively justified, from the point of view of its interests, to provide both food and accommodation in order to provide their services more effectively.
However, in order for a given expense to be classified as tax-deductible costs, it cannot be included in the group of expenses which, according to Article 16 sec. 1 of the Polish CIT Act, are not considered tax-deductible costs. In this case, the key is Article 16 sec. 1 point 28 of the Polish CIT Act, which indicates that representation costs, in particular those incurred for catering services, purchase of food and beverages, including alcoholic beverages, are not considered tax-deductible costs.
However, the author believes that such expenses will not fall within the definition of representation costs.
This position is confirmed, for example, in the advance tax ruling of the Director of the National Tax Information of 12 June 2020 (file reference number 0111-KDIB2-1.4010.120.2020.1.AP), the tax authorities confirmed that the provision of m.in accommodation and meals to subcontractors can be included in tax-deductible costs. This ruling states that: “Purchase of lunches/meals to such a subcontractor, both unrelated and related to the Company within the meaning of Article 11 (it should be: Article 11a) of the CIT Act, and to provide accommodation along with covering all costs related to accommodation in the form of accommodation/hotel/house rental/accommodation/apartment rental/other, at the place where the order is performed for the company, will be a tax deductible cost for the Company.”
Importantly, however, in the decision of the Director of the National Tax Information of 2 June 2017 (file reference number 0111-KDIB2-3.4010.10.2017.1.SK), it was emphasized that in order for such expenses to be included in tax-deductible costs, it is necessary to include appropriate annotations in contracts between a given entity and a specific subcontractor (analogously: the contractor): “Taking into account the above and the facts presented in the application, it should be stated that the expenses incurred by the Company related to the accommodation of subcontractors, in a situation where the obligation to provide accommodation results from the contracts concluded with the subcontractors, may be tax-deductible costs of the Company. However, it is impossible to share the view that the Applicant will be entitled to such a right in a situation where accommodation is provided to subcontractors on the basis of verbal arrangements. As indicated above, in order for a given expense to be included in tax-deductible costs, the obligation to incur it should be confirmed by concluded contracts.”
VAT
Pursuant to Article 86 sec. 1 of the Polish VAT Act, to the extent that goods and services are used to perform taxable activities, the taxpayer is entitled to reduce the amount of output tax by the amount of input tax, provided that there are no negative prerequisites specified in Article 88 of the VAT Act. This provision sets out a list of exceptions that deprive the taxpayer of the right to reduce the amount of output tax by the amount of input tax.
Pursuant to Article 88 sec. 1 point 4 of the Polish VAT Act, the reduction of the amount or refund of the difference in output tax does not apply to accommodation and catering services purchased by the taxpayer, with the exception of, m.in, accommodation services purchased for the purpose of their resale, taxed by the taxpayer on the basis of Article 8 sec. 2a of the said Act.
Therefore, in the scope of the purchase of accommodation services for subcontractors’, it will not be possible to deduct VAT.
In the case of providing food, i.e. the purchase of food products (raw materials) from which the person employed as a cook, the author believes that the exclusion of the possibility of VAT deduction applies only to catering services, and not to the purchase of food products in the strict sense.
Thus, the taxpayer would be able to deduct input VAT on the purchased food products from which meals will be prepared.
The above is confirmed, for example, by the current advance tax ruling of the Director of the Tax Chamber in Katowice of 4 September 2012 (file reference number IBPP1/443-560/12/AW).
