Are the costs for introductory and farewell meetings deductible?
With a larger or smaller reception, drinks, or snacks, significant personal events are often celebrated, such as work anniversaries, promotions, birthdays - but also welcome and farewell gatherings. The tax offices believe that in such cases, the catering costs serve personal representation and therefore refuse to recognise the costs for tax purposes.
However, the Federal Fiscal Court and several tax courts have now clarified that catering costs for welcome and farewell gatherings are work-related and can therefore be deducted as business expenses. Welcome and farewell gatherings are - unlike birthdays or other private life events - not highly personal private events. Retirement is - despite the personal event - the last act of active service and is therefore still part of employment (BFH ruling of 11.1.2007, VI R 52/03).
For example, the Hessian Fiscal Court recognised the costs of a farewell party for a tax official on the occasion of his departure from office and civil service as business expenses. (Hessian FG of 23.4.2013, 3 K 11/10). The piquant aspect of the matter is that the tax official did not retire but "switched sides" and became a tax advisor. However, this does not matter, as the case is no different from the termination of employment due to reaching retirement age.
The costs for catering for colleagues and employees are not only 70% deductible, as with catering for business partners, but in the actual amount incurred. This involves catering for internal company personnel, i.e., catering for a "professional" occasion (R 4.10 paras. 6 and 7 EStR).
This also means that the strict evidence requirements using formal catering receipts do not apply. The invoice from the catering service or corresponding purchase receipts are sufficient.
Are the costs for introductory and farewell meetings deductible?
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.
Costs for birthday celebration with colleagues tax deductible
Are the costs for the postdoctoral qualification celebration tax-deductible as business expenses?
Expenses for hospitality on the occasion of personal events, such as work anniversaries, promotions, birthdays, or the awarding of an honorary doctorate, are generally not tax-deductible. Such costs are considered to be of a private nature and serve personal representation. Therefore, according to § 12 No. 1 EStG, they are not deductible as business expenses, even if they appear to be professionally beneficial.
Habilitation celebration: Professional or private?
A ruling by the Saxony Finance Court on 15 April 2015 (Ref: 2 K 542/11) rejected the deduction of a doctor's hospitality expenses on the occasion of his habilitation as business expenses, as the celebration did not take place in a business environment and was privately organised. However, this ruling was overturned by the Federal Finance Court (BFH) on 18 August 2016 (Ref: VI R 52/15). The BFH clarified that a habilitation is to be regarded as a professional event. The habilitation is a university examination that proves the ability to teach and research, and is therefore predominantly professionally motivated.
Criteria for the deductibility of hospitality expenses
Whether hospitality expenses are deductible as business expenses depends on various criteria:
- Occasion of the celebration: Professional events are more likely to be deductible. However, a personal event may also have professional connections.
- Guest list: If colleagues or people from the professional environment are invited, this is a strong indication of professional motivation. If selected private guests are invited, there is often a private co-motivation.
- Venue: A celebration in a business environment strengthens the professional motivation, while a celebration in a private setting is more likely to indicate a private event.
Mixed motivation
If both private and professional guests attend, the costs can be apportioned accordingly. The expenses for each guest are allocated to either the professional or private sphere.
Proof of hospitality expenses
Unlike self-employed individuals, who can only deduct 70% of hospitality expenses, employees can deduct the expenses in full as business expenses. There are no strict proof requirements: invoices from the caterer or purchase receipts are sufficient, a formal hospitality receipt is not required (BFH ruling of 20.1.2016, Ref: VI R 24/15).
Are the costs for the postdoctoral qualification celebration tax-deductible as business expenses?
