Costs for birthday celebration with colleagues tax deductible
Hospitality expenses can be deducted as business expenses if they are work-related. However, private occasions such as birthdays, weddings or similar celebrations are not deductible as they are considered part of private life (§ 12 No. 1 EStG).
Exception: Birthday celebration with colleagues only
The Rhineland-Palatinate Tax Court has made a groundbreaking decision: The costs of a birthday party to which only colleagues are invited can be deductible as business expenses (FG Rheinland-Pfalz of 12.11.2015, 6 K 1868/13; BFH, 10.11.2016, VI R 7/16, BStBl 2017 II p. 409).
The case: A managing director of a GmbH invited only colleagues and employees to his 60th birthday. The celebration took place on the company's premises, and the costs amounted to 2.470 Euro. The tax office refused the deduction as business expenses, but the tax court ruled in favour of the managing director.
Reasoning: The celebration was work-related as only people from the work environment were invited. Moreover, the celebration took place on the employer's premises and partly during working hours. The low cost of 35 Euro per person and the absence of private friends and family among the guests confirmed the work-related nature.
Full deduction of hospitality expenses
In contrast to employer hospitality, the costs for employee hospitality are fully deductible as business expenses. This involves the hospitality of internal company personnel, which is considered a "work-related occasion" (R 4.10 paras. 6 and 7 EStR). The strict proof requirements for hospitality receipts do not apply. Caterer invoices or purchase receipts are sufficient.
Current ruling on farewell party
The Lower Saxony Tax Court ruled in 2024 that a reception on the occasion of an employee's farewell can be an employer event and therefore does not lead to taxable wages. This applies in particular if the employer determines the guest list and the reception takes place on the business premises (ruling of 14.5.2024, 8 K 66/22). However, an appeal has been lodged against this ruling (Ref. VI R 18/24), so the final judgment is still pending.
