According to the letter of the law (art. 53, 8° of the Income Tax Code (WIB), reception costs incurred during a business related event are only 50% deductible. For some time already, there have been ongoing discussions concerning the question whether or not this limited deductibility likewise applies when the reception costs are incurred within the context of a publicity event. And do these costs retain the character of reception costs even when they are made for publicity purposes? Or do they qualify for a 100% tax deductibility because of their publicity character?
District Courts and Courts of Appeal
With regard to VAT, the Court of Cassation rules that the non-deductibility of the VAT charge on the costs of hospitality and food and drink, as follows from Art. 45, §3, 3° and 4° VAT Code (WBTW), ceases to apply when these costs serve a publicity purpose. Hence, the VAT on such costs is 100% deductible. Concerning the question whether, by analogy with said ruling, such reasoning might equally be applicable to the Income Tax (e.g. that costs, as soon as they have a publicity character, might likewise be considered as publicity costs that are 100% deductible), the district courts and courts of appeal have for a long time remained notably divided in their opinions. Some courts have held that publicity costs incurred within the context of receptions ought, like pure publicity costs, to be regarded as publicity costs (100% deductible), while other courts have denied the taxpayer the right to full deductibility for the reason that it is the ‘underlying character of the costs’ that should be regarded rather than the ‘purpose’.
Minister of Finance
Before the Court of Cassation finally resolved the question, the then Minister of Finance Van Overtveldt found in favour of the taxpayers. “Catering costs” and “costs for food and drink” incurred within the context of an Open House of other publicity events were, in his opinion, fully deductible and, hence, should not be limited as reception costs when they are made for the purpose of promoting the sale of products or services, this irrespective of whether or not the receptions are organised for existing or potential clients. As a result of the minister’s standpoint, the Court of Cassation in Antwerp, amongst others, changed its former ruling in 2018 and accepted that catering costs, as likewise all other costs incurred within the context of a publicity event, may be regarded as fully deductible publicity costs. Also the Ruling Commission, with reference to the new ministerial position, ruled likewise in similar situations.
Court of Cassation
In two recent decisions, the Court of Cassation has ruled against the minister’s pronouncement. In the first decision of 22 February 2019, the Court rejected a cassation appeal lodged by a taxpayer against the decision of the Brussels Court of Cassation on 21 December 2016. That decision rejected full deductibility of catering costs made in the course of a publicity event. The Court of Cassation ruled that catering costs incurred during publicity events and that are primarily meant to promote sales and inform buyers are, nonetheless, not to be considered publicity costs. The character of the costs, not the purpose, is the deciding factor. The cassation appeal was therefore rejected and only a limited deductibility of the costs accepted.
The most recent Cassation ruling of 22 March 2019 pertains to a concessionaire of a certain car brand who had incurred catering expenses, costs for organising musical entertainment and decorating his premises to promote opening weekends and Open House Day events for the introduction of new car models. The full deduction of these costs had been accepted by the Ghent Appeals Court. This Court found that it pertained to costs that were incurred directly in order to promote the sale of certain specific car models, and not merely served the purpose of fostering and developing customer relations. The Court of Appeal held a different opinion and rejected the previous appeals decision. According to the Court of Appeal, the above-mentioned costs remain reception costs, irrespective of whether or not they primarily or secondarily serve a publicity purpose.
These decisions by the Court of Cassation indicate that a clear position has been taken with respect to income tax, namely that the reception costs are being assessed by their character rather than by their purpose (publicity) and, consequently, remain subject to the 50% deduction limitation applicable to reception costs. It is clear that this kind of legal uncertainty, whereby the Court of Cassation pronounces itself diametrically opposed to a ministerial decision, can only lead to further confusion in current dossiers. It is, therefore, imperative that a legislative initiative be initiated in order to create full and unambiguous clarity in what is now a muddled situation.