Companies cannot deduct VAT from certain customer service even if they show a business relationship

– Tickets for football or golf lessons for clients or employees are not expenses directly related to the business, and therefore, companies cannot deduct the VAT supported on their purchase. This is the criterion followed by the Central Economic-Administrative Court (TEAC) in a recent resolution of July 15 (Rec. 9251/2015). In it, it rejects the appeal of a company that was inspected and fined for having included as deductible expenses recreational activities for clients or workers.
The company claimed that they were expenses “fully related to business activity”, since those attending these events were customers (in portfolio or potential). Likewise, he stated that the exclusions to deductibility provided for in Spanish law are incompatible with Community legislation.
However, the TEAC affirms that the directive of reference itself protects the exceptions contemplated in our system and, taking into account the clarity of the Spanish norm, endorses the actions of the Treasury.

Deductibility Exclusions

In accordance with the provisions of the 4th and 5th ordinals of article 96. 1 of the VAT tax law, expenses on “recreational shows and services” are excluded from the general rule of deductibility of VAT fees, and of the “goods or services intended for customer service, employees or third parties”.
They are, therefore, expenses whose VAT is not deductible according to Spanish regulations, stresses the TEAC.
On the possible incompatibility with the community order, the TEAC analyzes article 176 of the directive on the common system of the tax (Directive 2006/112 / CE). As he explains, the article itself includes a stand-still clause “that enables national legislators to maintain certain exclusion regimes from the right to deduction.” The court understands, precisely, that this clause “protects and justifies” the exclusions of the right to deduction that are contained in the 4th and 5th ordinals of article 96. 1 of the tax law.
The Court of Justice of the European Union itself, notes the TEAC, has endorsed in its resolutions the application of this clause expressly with regard to gifts to clients. A profuse jurisprudence, explains the court, which eliminates any reproach to the Spanish norm.

Proof of linkage with the business

The TEAC examines in its resolution the evidence presented by the company to prove that the expenses in customer service are part of its business activity.
The company attached contracts that prohibited the total or partial transfer of the use of VIP seats to third parties, for example, and presented documentation with amounts billed by the group to customers with whom they had a business relationship.
However, the economic court affirms in its resolution that it cannot be deduced from these tests that these expenses can be considered as an exception to the provisions of articles 4 and 5 of article 96. 1 of the tax law. Nor does it consider “their need for the exercise of economic activity”. Therefore, it cannot be admitted that customer service or salaried employees in the form of tickets for football or golf lessons “serve immediately for the purposes of the company, or to advertise or promote their business purpose.”
As TEAC recalls, it has already established doctrine regarding the deductibility of the fees borne by the expenses corresponding to the payments of a financial club. According to the criteria established by the economic court, if the company does not prove to have used the facilities for business meetings and events, it is actually the use of a social club, with restaurants, gyms, etc., with a recreational nature.
For all these reasons, and taking into account “both the clarity of the norm and its proven anchorage in the European one”, the TEAC concludes that the administrative body’s performance was correct.