Lunch with a contractor and tax-deductible costs

November 27, 2023

Many entrepreneurs gladly meet with their contractors outside of the company’s grounds. This creates a more relaxed atmosphere, giving a better ground for negotiations. Acquiring new clients or colleagues also often happens outside of formal office spaces. The most common places for these kinds of meetings are restaurants or cafés. Then entrepreneurs incur certain expenses, mainly regarding the purchase of food services. As a result the question arises, can these types of expenses be treated as tax-deductible costs?

Lunch with a contractor cannot be tax-deductible?

For many years tax authorities held the position that expenses for food services, which entrepreneurs incurred for meetings with contractors, could not be treated as tax-deductible costs. Such costs were recognised by the tax office as representation costs. Interestingly, coffee served to a contractor in the office was not treated as representation, but the purchase of coffee in a restaurant couldn’t be included in tax-deductible costs.

You can include the bill for dinner with a contractor in your expenses, but…

Let’s start with a reminder of the legal status. Under applicable regulations (contained in Art. 16 section 1 point 28 of UoCIT and Art. 23 section 1 point 23 UoPIT), representation costs are not considered tax-deductible costs, in particular, expenses incurred for food services, purchase of food and beverages, including alcohol. As you can see, the key to settling these types of expenses is the way of understanding the concept of “representation”, it should be noted that it is not defined in any tax act. 2013 turned out to be a breakthrough in resolving this issue when the finance minister issued a general tax interpretation in which he indicated how the costs of meetings with the contractor should be settled.

The place of meeting is not important

The first key conclusion that follows from this interpretation is that for the qualification of given expenses as “representation”- excluded from being tax-deductible costs – the place of the meeting is not important i.e. it is not taken into account whether the refreshments were consumed in the office (company headquarters) or outside of it. This means that tax authorities no longer have a basis for the tax classification of expenses incurred on meetings with contractors, based only on the place where such meetings are held.

The nature of the business matters

Another conclusion from this interpretation is that there is no single objective measure of representation which can be applied to all business entities. When assessing expenses for meetings with contractors, the nature of the taxpayer’s business should always be taken into account. Tax authorities cannot arbitrarily determine that a given expense should always be treated as representation costs. It must be assessed through the prism of the activity conducted by a specified taxpayer.

The purpose of the business meeting is crucial

The third key conclusion is that only expenses for the purchase of food services whose sole or dominant purpose is to create a good image or image of the entrepreneur or his business, cannot be included in tax-deductible costs. Consequently, if we meet with said contractor to discuss current cooperation or plan new projects, then these food expenses can be settled as tax-deductible costs.

For a possible audit by the tax office, it is worth ensuring proper records of these types of costs. It is reasonable to include an annotation (e.g. on the invoice) with which contractor the meeting was and what it was about.

Tags lunch with a contractor and tax costs, tax-deductible costs in Poland