Entertainment expenses: alcohol will help negotiate

Well-established partnerships are important for any company. They will not become like this on their own; working on them is an important part of the enterprise’s management strategy. During the negotiations, meetings of representatives, meetings, and receptions take place. The costs of these activities constitute a serious expense item.

Tax authorities are very attentive to checking this type of expense, so it is worth carefully monitoring their accounting and documenting it correctly.

Let's figure out which expenses can be attributed to this type of expense and which cannot be written off to this account, what documents can serve as confirmation and how to correctly reflect this item in accounting and tax accounting. Let’s also consider current legislative changes regarding hospitality expenses and trends for the near future.

Entertainment expenses: what the law says

Representation expenses (PR) is a term from the Tax Code. Their standards are given in paragraphs. 22 clause 1 and clause 2 art. 264 Tax Code of the Russian Federation. The definition of entertainment expenses is given based on these standards. Representative expenses will be considered expenses for official reception, support and services for authorized persons of other companies, as well as those who intend to attend a meeting of the board of directors, board or other governing bodies.

Are entertainment expenses considered expenses related to production and sales ?

Factors not relevant for determining OL

1. Location. It does not matter where exactly the reception is organized: on the premises of the company or in a bar or restaurant. Exceptions are entertainment establishments of other formats - PR does not apply to them.
2. Time spending. Whether business hours, evenings, or a weekend are chosen for the date of the event, the expenses still remain representative.
3. Participants status. Counterparty participants include both individuals and officials; they can be not only representatives of the management of other companies, but also clients.
4. Result of the meeting. The outcome of the entertainment event does not matter either. Whether a positive decision on cooperation was made, contracts were concluded, or the participants left with nothing, the funds for the event were spent and can be recognized.
5. The number of participants also does not determine hospitality expenses. This factor can only affect the amount of spending, but if it does not exceed the established norm, this indicator does not matter.

Expenses that can and cannot be considered representative

The Tax Code of the Russian Federation identifies special categories of expenses that, from a taxation point of view, can be legitimately considered representative expenses. These include the following expenses:

1. Payment for organizing an official event to receive guests from other companies. Such an event could be:
   breakfast;
2. dinner;
3. off-site meeting.

NOTE! Food and alcohol costs are also included in this cost group.

4. Buffet service accompanying said reception event.
5. Transfer of participants to the reception site and back.
6. Remuneration for the work of a freelance translator, if he was invited to attend the event.

ATTENTION! If the organization has its own translator, the tax authorities may not consider the costs of an invited specialist to be representative. A company can try to prove its case in court by convincing it that the qualifications or specifications of in-house translators do not meet the objectives of the entertainment event.

According to the Federal Tax Service, the list of entertainment expenses is closed and cannot be expanded.

It is unlawful to count as entertainment expenses:

• provision of rest and food in sanatoriums, boarding houses, and other entertainment establishments (except for restaurants and bars);
• funds for an entertainment program for participants;
• cost of excursions;
• money for flowers for guests, memorable souvenirs, etc.;
• finances for decorating the hall for the event;
• medical expenses, if required;
• travel and accommodation of guests;
• payment for visa services for participants;
• spending on corporate events (New Year, March 8, anniversaries, etc.);
• any financial interaction with the management of structural divisions and branches of your own company (representation expenses - by default only for “outsiders”).

Criteria for classifying expenses as entertainment expenses

The concept of “official reception and service”, through which the Tax Code defines entertainment expenses, in turn, does not have an unambiguous interpretation in legislative documents. Therefore, they can be interpreted with an expansive meaning. Because of this, situations often arise when, formally and in fact, expenses may turn out to be representative expenses, but in the legislative sense, the tax authorities think otherwise.

To avoid disputes with tax authorities, which can only be resolved in arbitration court, it is recommended when determining expenses to use the criteria outlined in the Tax Code and regulations of the Ministry of Finance of the Russian Federation (in particular, Order of the Ministry of Finance of the Russian Federation dated March 15, 2000 No. 26n):

1. Reception and service must be arranged for the purpose of establishing or maintaining cooperation for the mutual benefit of the parties.
2. Events must be strictly official (for example, a banquet in a restaurant, even if it is held with partners, will not be considered official, unlike a business breakfast or lunch). The formality of the event can be confirmed by the program of issues to be discussed during the event.
3. Costs must be justified, that is, justified from an economic point of view.
4. Each expense item must have documentary evidence.

In controversial cases, you should turn to arbitration practice. In court, expenses that meet one of two conditions will be considered representative:

• directly named as such in the relevant paragraph of the Tax Code of the Russian Federation;
• they are allowed to be included in representative ones by separate regulations of the tax service or the Ministry of Finance of the Russian Federation.

Ministry of Taxes and Taxes warns: alcohol does not affect profits

Entertainment expenses give a businessman many opportunities. Almost all unnecessary expenses can be written off under them. The question is open only with the costs of alcohol and cigarettes. Let's close it “Would you like some coffee? ...Well then, maybe something stronger?” Often good relationships with people are established this way. Therefore, expensive cognac in the CEO’s safe and Cuban cigars on the table have long become the norm. The costs, and sometimes considerable ones, as they say, are obvious. It would be nice to write them off. Entertainment expenses are suitable for this. True, you won’t be able to go too far: such expenses cannot exceed 4 percent of the amount of labor costs since the beginning of the year (clause 2 of Article 264 of the Tax Code of the Russian Federation). So the article will be primarily of interest to accountants; the salary fund is rich.

A dispute arose: whether to include alcoholic beverages and cigarettes as entertainment expenses. And although the “battle for alcohol” has been going on for a long time, lately the advantage is clearly on your side... First things first.

The inspectorate fights for a healthy lifestyle...

In some regions, tax authorities prohibit taking alcoholic beverages into account when calculating income taxes. For example, they adhere to this position in the Moscow region (letter from the Department of Tax Administration for the Moscow Region dated March 10, 2003 No. 04-27/03000). The inspectors give only one argument. They believe that the list of entertainment expenses given in paragraph 2 of Article 264 of the Tax Code is closed. Alcoholic products are not named in it. The Department of Tax Administration for St. Petersburg defends this opinion in letter dated March 7, 2003 No. 02-05/4803.

Let's find out how wealthy it is. Let's turn to the same document that the tax office refers to - the Tax Code. This is what he classifies as expenses for entertainment purposes: “... expenses for an official reception (breakfast, lunch or other similar event) ..., buffet service during negotiations...” (Clause 2 of Article 264 of the Tax Code of the Russian Federation).

As we have already noted, for some reason the inspectors believe that alcoholic beverages are not included in this list. By the way, dishes served at official receptions are also not listed in it. Why can’t alcohol be classified as “buffet service” or “expenses for a dinner or other similar event”? Not quite clear. So, this was the position of the regional inspectors.

...and we don’t give in

The Federal Tax Office is more loyal. It was voiced at one of the seminars by Oleg Khoroshiy, Deputy Head of the Profit Taxation Department. He referred to the letter of the Ministry of Taxes and Taxes of Russia dated December 15, 2003 No. 02-5-10/127.

Officials acknowledged that alcoholic beverages and tobacco products may be included in “...entertainment expenses that are taken into account when taxing profits...”.

I am glad that the amount of MHC you drink is not rationed. True, there is one interesting phrase in the letter. Thus, they are allowed to be consumed only in the amounts provided for by “business customs during business negotiations.” It's funny, isn't it? Let us only note that there is no such restriction (if you can call it that) in the code.

Let's summarize. In addition to the above statement by the official, there are two arguments in your favor. Firstly, the main tax document does not prohibit including the cost of alcohol and cigarettes in entertainment expenses. Secondly, you can attribute this cost to the buffet service during the meeting. After all, how exactly to decorate the negotiating table is up to you. If this does not convince the inspectors, please note that the judges also agree with you (see, for example, the decision of the Federal Arbitration Court of the Volga District of August 28, 2003 in case No. A55-2139/03-6).

No bureaucracy

In order to write off expenses as entertainment expenses with a clear conscience, you must have several documents. Firstly, the manager’s order on entertainment expenses. In it, the manager approves the maximum amounts (standards) for each type of expense. Note that these restrictions are of a formal nature. Secondly, cash receipts. They will confirm the expenses. And thirdly, there must be a report on the event. It indicates the date and location of the reception (negotiations, meetings), the program of the event, participants and the amount of entertainment expenses.

Let us remind you that the Tax Code does not contain a direct requirement for positive results of the meeting. The purpose of negotiations may simply be to establish good relations with partners.

It will be difficult for inspectors to challenge the right of a company to include the cost of alcoholic beverages in entertainment expenses. However, you do not have to enter into disputes with inspectors. It is enough to only take into account only those bills in which alcohol is not mentioned. To do this, ask the restaurant where you are meeting with partners not to include alcoholic drinks as a separate line on the bill. They just need to be included in the total cost of lunch. Then the reason for complaints against you will disappear.

No license required to buy

There have been cases when problems arose with the purchase of alcohol for the company. Thus, in its official letter dated March 27, 2000 No. 29-09/11278, the capital's Department of Taxation and Taxation noted that for such a purchase the merchant must have a license. Moreover, it should be regardless of the purpose for which these alcoholic beverages are purchased. The inspectors refer to the law on regulating the circulation of alcoholic products (Law of November 22, 1995 No. 171-FZ). It prohibits “the supply of alcoholic and alcohol-containing food products to organizations that do not have licenses provided for by law” (clause 3 of Article 20). Otherwise, tax officials say, the supplier’s license to produce and distribute alcohol-containing products may be revoked.

But don't pay attention to these demands. They are unfounded. The inspector himself will understand this if you reveal to him Article 1 of the above law. It says that this document applies only to those who are engaged in “...retail sales of alcohol and alcohol-containing products.”

Y. Perebeinos, PB expert

Source of material:
“Practical Accounting”

Documents to confirm hospitality expenses

IMPORTANT! A sample estimate of entertainment expenses from ConsultantPlus is available here

Despite the legal requirement for documentary evidence of entertainment expenses, no single standard or list of such documents has been developed. We can say that the presence of official papers is mandatory, but their form is not unified. This issue is resolved by the accounting policies of the organization itself.

Such acts may include:

• the director's order to hold a representation event - be sure to indicate the purpose, date, time and place of organizing the reception, list the counterparties taking part, and also provide the names of responsible and controlling persons;
• the program of the future event will not be valid without an order; in it, the main stages of the representative meeting must be tied to specific dates and times;
• estimate of the event - a list of expenses for specific items (transport, catering, etc.), it is better to create it for each stage separately, be sure to approve it with management;
• report on the event - compiled by the responsible person specified in the order, it reflects all the same positions as in the order, plus the specific result achieved at each stage (especially if during the event any official agreements were concluded or documents were signed);
• an act for writing off this type of expense - contains information about the exact amount for all types of entertainment expenses (this document must be certified not only by the manager, but also by the chief accountant);
• payment documents that confirm expenses : checks, invoices, certificates of work performed, etc.

FOR INFORMATION! In the event of a dispute being considered in an arbitration court, priority will be given to organizations that have taken care of both preliminary supporting documents (order, estimate, program) and final ones (report, act).

Rationing of entertainment expenses

The law does not allow spending uncontrolled amounts for entertainment purposes, then writing them off, thereby reducing the income tax base. A strict limit has been established for this type of expense. It is prohibited to spend more than 4% of the wage fund for a given reporting period as representative funds (clause 2 of Article 264 of the Tax Code of the Russian Federation).

As labor costs increase over time, the ceiling on hospitality expenses also increases. If, for example, in the 1st quarter there were no entertainment events or the money spent on them was less than normal, then in the remaining quarters it will be possible to “freeze” and take into account more funds for this item. Naturally, we are talking only about the results of the current year.

How to prepare an advance report for entertainment expenses ?

You can calculate the required amount of restrictions on entertainment expenses in one of 3 ways.

Method 1 – quarterly. When filling out an income tax return at the end of each quarter, entertainment expenses are taken into account, taking into account the wage fund for that quarter. This method is more convenient for companies with a cash method of determining income and expenses. If entertainment expenses exceed a quarter, a deferred tax liability is formed, which can be reversed at the end of the year.

Method 2 – annual. Firms' annual budgets are usually not very different. This allows you, when planning the next year, to immediately allocate approximately 4% of last year’s wage fund to entertainment expenses, and then divide this amount into quarters. There will be no non-standard costs with this method, but you will have to constantly adjust the planned and actual indicators.

Method 3 – official. The company establishes which officials can be responsible for entertainment events and what maximum amounts they can spend on this. It is important that expenses are made exclusively for the stated purposes. A check will be required to ensure compliance with the 4% limit.

The role of entertainment expenses in the income tax base

Entertainment expenses are deducted from the amounts that make up the net profit of the enterprise, thereby reducing the tax base. In this case, input VAT is also deducted. If in subsequent reporting periods expenses fall within the 4 percent limit, VAT on them can also be deducted.

It is for this reason that “spears are broken” regarding the recognition or non-recognition of various expenses as entertainment expenses. Even if the organization of the event actually required costs that are not included in entertainment expenses by the Tax Code, they cannot be included in these costs to reduce the tax base.

Is it possible to take into account for income tax purposes the costs of purchasing alcoholic beverages for organizing an official reception? View answer

FOR EXAMPLE. Kassandra LLC organized a meeting with representatives of other organizations to discuss the terms of cooperation. 140 thousand rubles were spent on this event. Of these funds, 70 thousand rubles were spent on the reception and lunch, 25 thousand rubles on buffet service, 20 thousand rubles on transportation of participants to the lunch place and back to the company, 10 thousand rubles on attending a performance in the theater. . rub., for a tour of memorable places of the city - 15 thousand rubles, for flowers and souvenirs for participants - 45 thousand rubles.

In this case, only 115 thousand rubles can be written off for hospitality expenses, that is, the amount of expenses for reception, catering and transport. The remaining funds are in the amount of 25 thousand rubles. must be paid from net profit after calculating the tax amount.

NOTE! Entertainment expenses are deductible only for taxpayers using the general taxation system. In Art. 346.16 of the Tax Code of the Russian Federation provides a list of expenses by which a payer working under the simplified tax system can reduce the base - entertainment expenses are not included in this list. Entrepreneurs who rely on preferential tax systems can use only funds from net profit (the difference between income and expenses) for entertainment expenses.

Why is it necessary?

Companies and individual entrepreneurs, when conducting business, enter into business relationships with each other. This activity is based on the mutual benefit of the parties. Negotiations often take place in an informal setting: in a cafe or restaurant. It is clear that you are not allowed into a restaurant without money, so such gatherings involve expenses. Can alcohol be written off as entertainment expenses? Let's figure it out.

There is no list with a specific list of entertainment expenses. Instead, the current tax legislation provides for areas of spending funds that can be classified as entertainment expenses (clause 2 of Article 264 of the Tax Code of the Russian Federation):

• costs for the official reception of counterparties with the participation of officials of the inviting company;
• costs of transporting business partners and company representatives to the meeting location and back;
• buffet service for meeting participants during negotiations.

At first glance at this list, it is not clear whether alcohol is included in hospitality expenses in 2021.

Representation expenses are not included in the calculation of the single tax for the simplified tax system. This is explained as follows. Firms that pay income tax cannot take expenses into account when calculating the tax base.

In turn, entertainment expenses are not included in the calculation of the single tax, because this type of expense is not included in the closed list of expenses for the simplified taxation system (clause 1 of Article 246.15 of the Tax Code of the Russian Federation, letter of the Ministry of Finance dated October 11, 2004 No. 03-03-02 -04/1/22).

To answer the question whether alcohol can be written off as entertainment expenses in 2021, you need to take a closer look at the first area of ​​spending money on receiving representatives of counterparties - the official reception.