The Supreme Court has confirmed that the cost of food and drinks by an entrepreneur during business stays away from home qualify as business expenses.
Digest
The case concerns a consultant who works for two extended periods at a location at a greater distance from his residence. He rents accommodation near these locations and eats all meals (breakfast, lunch and dinner) off-site during the periods of stay there. He deducts the cost of these from his business profits. Of course, he takes into account the statutory deduction limitation under which these costs are deductible for 73.5%.
The Inland Revenue corrects the deduction of these digestion costs. This correction is supported by the claim that the costs are purely in the personal sphere of the entrepreneur.
3 Test questions
To determine the extent to which an entrepreneur's expenses are deductible costs, the following questions need to be answered.
- Has the expenditure been made in pursuit of the company's business interests?
- Was the expenditure incurred partly to satisfy the entrepreneur's personal needs?
- Would a reasonable-thinking entrepreneur have incurred the expenditure to the same extent, keeping in mind the business interests of the company?
In the case preceding the proceedings in the Supreme Court, the Court found that there was no dispute between the entrepreneur and the tax authorities that the costs of accommodation near the locations where work is carried out were business expenses. This factual finding is the starting point for the Supreme Court and thus question 1 answered yes.
The Supreme Court considered that, in principle, a finding that the stay took place with a view to the business interests of the company implies that the digestion costs incurred during the stay were incurred with a view to the business interests of the company. This would be different only if the costs were exclusively in the entrepreneur's private sphere. Similarly, the mere circumstance that the cost of meals out of doors is higher than meals prepared and consumed at home does not mean that the costs are exclusively in the private sphere. Finally, the Supreme Court rejects the Court's consideration that the digestion costs are of a predominantly private nature because of the need to eat and drink.
Next, the Supreme Court decides that question 2 for these expenses is not an issue. This is because the deduction of food and beverage expenses is already subject to the deduction limitation mentioned above. There is then no need to also assess whether these expenses result in private savings for the entrepreneur.
In our article Costs of (tax) advice not deductible we describe a case in which question 2 does arise.
Question 3 does not arise in the proceedings. It is likely that the entrepreneur did not incur any conspicuously high expenses, which meant that the tax authorities could not bring this into contention.