Germany court decision clarifies input tax deduction for company event expenses.

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The German Federal Fiscal Court (BFH) has clarified the input tax deduction for expenses related to a company event through its online publication of Decision No. VR 16/21 on July 27. The case revolved around a taxpayer’s attempt to claim an input tax deduction for expenses incurred during a company Christmas party. However, the tax agency rejected the deduction, arguing that the event was primarily for private purposes and the per-employee expenses exceeded the VAT exemption limit of 110 euros for such events.

The Federal Finance Court upheld this decision, emphasizing three key points:

  1. Entrepreneurs are eligible for input tax deduction for services obtained for company events only if the services aren’t solely intended for the private needs of employees, but are linked to the distinct economic circumstances of the business activity.
  2. For the deduction to be applicable, a direct and immediate connection between input and output sales must exist.
  3. Since the donations surpassed the exemption limit, they weren’t eligible for deduction.

Disclaimer: Reproduced/Adapted with permission from Global VAT Compliance. 

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