Court of Appeal of The Hague decided last month that the entertainment expenses incurred by a business owner may not be deducted from the company’s profits.
Digest
The dispute concerns the costs incurred by the entrepreneur for food and drink during business stays in a hotel and in studios rented by him. The stay is for business purposes as it relates to consultancy assignments carried out by the entrepreneur on site. The entrepreneur therefore charges these expenses to his business profits. Naturally, he does take into account the limited deductibility of these costs as provided for by law. This relates exclusively to the costs of meals consumed by the entrepreneur himself.
A sense of privacy prevails
The Tax and Customs Administration refused to allow this deduction and the Court of Appeal ruled in its favour. The Court of Appeal held that the subsistence expenses were predominantly of a private nature. The fact that the costs of staying elsewhere were business-related does not mean that the subsistence expenses were also business-related. The accommodation costs arise from carrying out work elsewhere, but the need to eat and drink also exists when the entrepreneur is not staying elsewhere. The fact that the entrepreneur chooses, for (business) economic reasons, not to do the shopping, cook or wash up themselves does not alter this predominantly private nature.
Employee
The entrepreneur draws a comparison with an employee. An employee may receive reimbursement or provision from their employer for the cost of meals during business trips, exempt from income tax. However, the Court considers that the entrepreneur’s situation is not identical to that of the employer. This is because, by virtue of the contractual relationship with the employee, the employer is obliged to reimburse the costs of meals when the employee has to stay elsewhere in connection with their work.