If an event is to be tax-deductible, a strict distinction must be made between private and professional guests.
A tax consultant invited guests to a party for his admission as tax consultant while at the same time celebrating his birthday. He invited colleagues, relatives, and acquaintances to celebrate both events. He divided the cost of leasing the location and entertainment expenses by capita and deducted the amount for business guests as expenses from the independent work income.
The procedure led to a legal dispute between the responsible tax office and the tax consultant. In contrast to the lower court, the Federal Tax Court affirmed that the cost of the event could be divided. The court specified its case law on allocating what is referred to as mixed cost.
Admission as tax consultant is a professional event
The court held that the predominantly professional character of the admission as tax consultant as a requirement for the plaintiff’s work as a tax consultant could not be denied. As a consequence, the cost of the mixed event can be divided per capita.
Claiming cost as expenses
Costs for professional guests may only be claimed as expenses if the invitation is (almost) exclusively a professional one. This may particularly be presumed in cases where not only select professional guests are invited, but invitations were extended by abstract professional criteria (for example, to all employees of a certain department).
In case of expenses for mixed events, advice should be obtained as to whether and to what extent they can be claimed as advertising expenses. In terms of taxation, this may be well worth it.