The VAT charged on catering services is not deductible. In most cases, not even when you incur these costs in view of your VAT-taxed services.
Horeca VAT
You can find this deduction prohibition in Article 15(5) of the Turnover Tax Act 1968. Not deductible is the VAT you pay in respect of:
- providing food and beverages;
- for on-site use;
- in the context of the hotel, café, restaurant, boarding house and related business;
- to persons staying there for a short period only.
Common examples are dinner with a client in a restaurant and staff drinks in a café. But even if you get a caterer to cater a reception or party on location, you will run into this deduction ban.
Business seats
At the Zeeland-West Brabant District Court a professional football organisation (BVO) comes forward. It offers business seats for a fee, of course. There, home matches can be attended and catering can be enjoyed. The cost of catering is not charged separately.
The BVO is of the opinion that it may deduct the VAT charged on the purchase of catering. After all, the catering is used for providing, taxed with VAT, the business seat. The Inland Revenue corrected the deduction by invoking the aforementioned Article 15.
The BVO argues that the term “providing” refers only to persons, who purchase the food and beverages as end-consumers. However, the Supreme Court ruled back in 1993 that the deduction limitation does not preclude the provision of food and beverages to sponsors and invited guests.
The Court also does not accept the BVO's contention that the catering service merges into the provision of the business seat. The BVO has not made it plausible that attending the match is the primary purpose of that service.
The BVO is also appealing to a position taken by a knowledge group of the Inland Revenue. This position concerns event agencies. These are allowed to deduct VAT on catering services provided they explicitly state the provision of food and beverages separately on invoices to their customers. Those customers are then not allowed to deduct this part of the VAT charged by the event agency. The BVO does not list catering separately on the invoice for the business seat and therefore cannot invoke the knowledge group's position.
Fine
The Inland Revenue has also imposed an offence penalty on the BVO. This amounted to 10% of the wrongly deducted VAT. The court ruled that the BVO should have known that it was not acting in accordance with the approval. Therefore, the BVO was guilty of “negligence bordering on intent in culpability“. Staff changes and problems with administrative software do not detract from this.
The fine of (only) 10% the court finds appropriate and necessary, given the seriousness of the conduct, the cooperative spirit of the BVO and the fact that measures were taken to prevent future problems with the administration.
The court does reduce the fine for undue delay. The reasonable period for assessing a fine is 2 years from the announcement of the fine. The fine was announced in the Tax Court's draft report in late 2015. The court rules at the end of 2018, therefore well outside the 2-year period. This results in a reduction of the fines from 10% to 8.5% of wrongly deducted VAT.