To maintain business relations and mutually beneficial partnerships with other enterprises, organizations have to allocate funds from their own budget for hospitality expenses. What applies to them? In the tax legislation of the Russian Federation, this type of cost is attributed to the costs associated with the production and sales process. The article gives examples of hospitality expenses. What applies to them and how to draw up correctly these costs in accounting?
What is the feature of hospitality
It is no coincidence that this item of expenditure is considered one of the most controversial. The thing is that taxpayers, that is, business owners, are trying to spend various costs by any means (sometimes not entirely legal), passing them off as hospitality expenses. What applies to them?
First of all, it is worth noting that such funds do not belong to the category of expenses normalized for profit tax purposes. This is the money spent from the enterprise budget on the organization of official events. However, under the guise of hospitality expenses, finances for entertainment, sports, recreation, medical services, etc. are sometimes illegally sent. In this case, the tax inspectorate, suspecting the concealment of profits, will appoint a thorough check of the composition of all embezzlement of a legal entity.
To date, judicial practice has already been supplemented by a significant number of disputes between tax inspectorates and taxpayers. The court decision put more than one point in the cases related to the clarification of the cost items of the enterprise. So, what expenses are not representative? Let's try to figure out in which cases the entrepreneur will have to defend his position in front of the inspector, proving the opposite.
What the law says
The Tax Code contains a definition of this term and indicates the content of hospitality expenses. What applies to them? Article 264 of the Tax Code of the Russian Federation states that the category of these costs includes any financial resources from the budget of the institution spent on organizing an official reception, as well as servicing:
- persons representing other organizations, if negotiations are held with them with the aim of approving a plan of cooperation or developing existing partnerships that are mutually beneficial;
- members of the taxpayer enterprise who arrived at the meeting of the governing body.
The Ministry of Finance of the Russian Federation clarified this. The Office determines the costs of negotiations with individuals who are potential customers. But what about hospitality expenses and how to arrange them correctly? An important condition: negotiations should be official in nature and pursue the goal of developing mutually beneficial cooperation. At the same time, the Ministry of Finance does not consider it appropriate to include in the hospitality expenses the funds spent on negotiations with employees of its own branches and departments. The court does not support this position, based on existing precedents.
Also, we must not forget that the funds spent on organizing corporate events for subordinates are not representative. An exception is a collective event, to which customers, business partners, representatives of other companies are invited, and only if this event is not entertaining in nature.
Do I have to pay income tax
The issue of hospitality is a hot issue because these financial costs must be included in the calculation of income taxes. The principal feature of this waste article is that the allocated funds can theoretically be used by an enterprise working on a common taxation system in order to reduce the tax burden. Moreover, Art. 264 of the Tax Code of the Russian Federation establishes restrictions regarding their application for the indicated purposes: representation expenses may not exceed 4% of the amount of expenses allocated for labor remuneration in the same tax period.
The list of costs that are considered the costs of the production process is exhaustive, however, as are the options for accounting for hospitality expenses. For accurate calculation of taxable profits, all expenses must be economically justified, documented and comply with the parameters prescribed in Art. 252 of the Tax Code of the Russian Federation.
Assignment of the amounts spent on the organization of official events to the tax base of the enterprise before VAT deduction requires compliance with a number of conditions. First of all, there should be a sign of economic feasibility of hospitality expenses. What applies to him? Accounts, checks, receipts, as confirmation of target embezzlement, are taken into account when determining VAT. In addition, this provision means that hospitality costs are incurred to enter into new business relationships or to maintain partnerships between the taxpayer company and its partners.
The cost of formal receptions
Representative expenses include expenses for organizing meetings of representatives of different companies. This also includes the costs of providing breakfast, lunch or dinner for business persons and an intermediary participating in negotiations from a taxpayer company.
Tax legislation does not establish fundamental restrictions on the choice of place and time for an official meeting. Consequently, the law does not prohibit an event on a weekday, weekend or holiday, in the morning or evening. Reception can be organized both in the office and in the business center, restaurant. The most important thing is the observance of all formalities and officialdom of the meeting, which must be documented.
What expenses do not relate to hospitality expenses? This category does not include funds allocated for the organization of leisure of guests, entertainment concerts, celebrations, prevention or treatment of diseases. That is why it is advisable to refuse receptions in such entertaining places as a theater, a club of billiards and bowling, a sauna, pubs, and medical and preventive sanatoriums, especially if they do not provide for restaurant service.
Despite everything, many were able to prove the validity of the money spent and designate them as hospitality. What applies to them? An exception to the rule may be considered finances allocated for the organization of an official event, even if the reception was held in a place that is clearly not conducive to business negotiations. Then the main justification of the taxpayer should be supporting documents that can prove the formal nature of the event and the economic feasibility of the finances spent.
A striking example is one of the decisions of the FAS MO dated September 3, 2013, in which the costs of organizing a technical meeting on a ship with the participation of foreign delegates were considered reasonable and the accounting of hospitality expenses was considered legitimate. What concerns them is difficult to answer unequivocally. But at the same time, you can easily name the costs that can not be included in this category of waste:
- decor and festive decoration of the hall;
- purchase of prizes and diplomas for presentation to participants of competitive events, including representatives of other organizations, clients;
- souvenirs and presents that are presented to partners in the framework of official negotiations;
- organization of leisure, entertainment, not related to the official part of the business meeting, negotiations, visit.
Other expenses for important receptions
In this case, we mean ensuring the delivery of participants in an official event to the venue and back. Given the position of the Ministry of Finance, this category does not include the costs of buying tickets for railway transport and air connections from other regions or countries, as well as the finances that were required to transport guests to the place of temporary stay from the airport, railway station, placing them in a hotel, issuing visas . The specified articles of waste of the organization are not considered official.
Entertainment expenses (which also applies to them, was noted above) can be considered waste for the purchase of food intended for preparing dishes for breakfast, lunch or dinner. For official meetings, it is also allowed to purchase alcoholic beverages, as evidenced by an explanatory letter from the RF Ministry of Finance on 03.25.2010. The Office included alcohol in the list of hospitality expenses. What else applies to them, besides alcohol? Many people think that money spent on an official reception can include the purchase of tea, coffee, sugar, sweets, which can be offered to clients or partners outside of an important official event, and, for example, while waiting at the reception. However, the Ministry does not consider such costs reasonable.
Representative expenses include expenses at the invitation of translators who are not part of the state of the taxpayer company. The need for specialist services for the period of the official event is justified when important foreign guests are present at the reception.
What documents are needed to confirm
The Tax Code of the Russian Federation has not established a specific list of securities that are required for expenses through the tax return as representative, but the Ministry of Finance of the Russian Federation in a letter dated 04/10/2014 clarifies what can be recognized as such. Documents for registration of hospitality expenses include:
- primary documentation indicating the fact of the purchase of goods, payment for services (acts of work performed, waybills, checks, receipts, etc.);
- a report on a formal event or any other document that reflects the relationship between costs and admission.
To prepare a report, taxpayers are allowed to independently develop a form. However, a document cannot be submitted in any form. In the Federal Law No. 402 “On Accounting”, the basic requirements for the preparation of primary documentation and its designation are indicated. What applies to them? Representation expenses must be confirmed by detailed information about the event, including information on:
- time and place of reception;
- the composition of participants, including invited persons from other organizations and employees of the taxpayer company);
- The total amount of money spent on organizing the event;
- the final part of the official event (drafting resolutions, treaties and cooperation agreements, building mutually beneficial partnerships and planning the next events, etc.).
In addition to the report, it is also recommended to attach additional papers to justify the goals of the spent funds. Documents for registration of hospitality expenses include:
- the order of the head of the taxpayer organization to hold an official reception, a gala meeting in which the purpose should be indicated and the persons responsible for organizing the event are identified;
- detailed estimates of planned and total costs, which indicate the list of purchases, their estimated price range and final costs.
DOS tax accounting
Taxpayers have the right to use for tax accounting all costs that have economic feasibility, that is, indicate in the declaration those expenses that are aimed solely at making profit and have documentary evidence. As for the rules for calculating taxes and the procedure for tax accounting, much depends on the taxation system used. Next, we consider how tax fees are calculated in the presence of hospitality expenses, which applies to them in a budget institution and a commercial enterprise.
It should be said right away that the form of ownership of the taxpayer organization does not play any role in calculating the tax. Of great importance is the tax system (general or simplified). To find out the exact amount of income tax for DOS, the costs of official events are standardized according to the following principle: they are included in other expenditure items, and the amount should not exceed 4% of all expenses directed to wages for employees for the reporting period, in which was the representation expenses.
At the same time, it is important to take into account that the organization’s costs associated with labor remuneration include not only the amounts spent on salaries and bonuses to employees, but also contributions to the FIU, the Social Insurance Fund, the costs of additional insurance for employees, etc. If costs increase, the total with wages during the tax period, the marginal indicator of the norm for official expenses increases. Thus, if part of the representation expenses was incurred in the first quarter and exceeded the statutory 4%, but was not taken into account when calculating taxes, it is allowed to take it into account in subsequent tax periods for calculating the annual tax base.
In addition, hospitality expenses are deductible to the extent of taxable income. In this case, the so-called “input” VAT is taken into account, and the deduction of funds spent on official events is taken solely from the amount of expenses used in calculating income tax taking into account the standards. If the remaining part of the costs fits into the standards of the subsequent quarters of the reporting year, then VAT from it is also allowed to be deductible.
An example of tax accounting of expenses for official meetings
In the company "Leader", which uses a common taxation system, a representative event was held in the first quarter. The costs of its organization and implementation amounted to 22,500 rubles. (including VAT 3,550 rubles). In the next quarterly period, no receptions and meetings at the official level were held. Moreover, the total cost of labor in the first quarter amounted to 320 thousand rubles, and in the second - 370 thousand rubles. The procedure for tax accounting of this category of costs for a budget or commercial organization will look as follows:
- In the first quarter, the standard for accounting for representative expenses amounted to 12,800 rubles, that is 4% of 320 thousand rubles.
- Since the standard is less than the full amount of expenses for official events, only 12,800 rubles can be accepted for tax accounting.
- Next, VAT is calculated that is allowed for deduction - 12,800 x 18% = 2304 rubles.
Now we will calculate two quarters, that is, the first half of the year:
- the standard for accounting for expenses for official meetings and receptions will be 27,600 rubles, since the calculation takes into account the amount of the cost of labor for two quarters (320 thousand rubles + 370 thousand rubles) x 4%;
- since the standard exceeds the full amount of hospitality expenses, the balance of 6150 rubles is taken into account. (22,500 - 3,550 - 12,800);
- the amount of refunded VAT in the second quarter will be 1107 rubles. (6150 x 18%).
Features of accounting with a simplified tax system
By allocating funds to cover hospitality expenses under the simplified “income minus expenses” regime, the institution will not be able to include them in the tax base for tax calculation. The impossibility of obtaining a deduction is approved by article 346.16 of the Tax Code of the Russian Federation, containing a list of costs for which an entrepreneur under the simplified tax system “income minus expenses” could reduce his income. There is no mention of hospitality expenses. What applies to them in the simplified tax system? Absolutely nothing, therefore, the taxpayer will have to bear the costs of official receptions at his own expense, that is, to make use of the profit remaining after paying all taxes and contributions.
How to spend such expenses in accounting
Unlike tax, accounting does not consider representative waste as some special category of expenses. The funds spent on the organization and holding of official events are of fundamental importance only to the tax authorities. In accounting, these costs are not qualified in any way. In most cases, accounting for hospitality expenses is carried out using the Accounting Regulation “Organization Costs” 10/99. According to its norms, the costs of an enterprise according to standard types of activity are divided into:
- material (acquisition of raw materials, equipment, etc.);
- related to wages and insurance premiums;
- depreciation costs
- other items of expenditure.
The costs of official events are not subject to rationing when conducting accounting. What applies to them? Representation expenses are accepted in full, that is, as part of production or sale-related costs. Bookkeeping does not take into account any division into hospitality and general expenses. In some cases, depending on the specifics of entrepreneurial activity, this type of cost may be present in the correspondence of accounts in the column of accounting for material values.
For economic purposes, hospitality expenses are close to the category of other expenses of the organization. At the same time, it is assumed that the company will be able to determine them independently, making a list of costs in accounting.
Another issue that accountants are interested in is the relationship between hospitality costs and accounting account assignments. In practice, such transactions are most often recorded using account 26, which is usually used by industrial enterprises, and 44 (for trading companies). In budgetary institutions, account 86 is mainly used. It is equally important when accounting for hospitality expenses to correctly indicate the sequence of account assignments, reflecting the stages of cash flow.