Entertainment expenses: accounting, PBU 18/02 and other pleasures

What applies to entertainment expenses?

The types of entertainment expenses that a company can take into account when calculating income tax are limited by law (clause 2 of Article 264 of the Tax Code of the Russian Federation).

To calculate income tax, you can use expenses that relate to official reception or service:

1. Representatives of counterparties who arrived for negotiations.
2. Participants in meetings of the board of directors and other similar governing bodies.

The Tax Code of the Russian Federation also contains a list of expenses for the reception (service) of the listed persons, which can be classified as representative:

1. Holding an official reception: breakfast, lunch, etc.
2. Delivery of negotiation participants to the venue.
3. Buffet service during receptions or negotiations.
4. Translator services, if necessary.

In addition, the Tax Code of the Russian Federation contains types of expenses that cannot be classified as representative expenses. These are expenses for recreation, entertainment, prevention and treatment of diseases.

Entertainment expenses are provided only for companies on OSNO that pay income tax. When using special tax regimes, they cannot be taken into account.

For the simplified tax system “Income minus expenses” and the unified agricultural tax, closed lists of expenses have been established that do not include representative expenses (clause 1 of article 346.16 and clause 2 of article 346.5 of the Tax Code of the Russian Federation). And for the simplified tax system “Income”, UTII and PSN, expenses do not affect the taxable base at all.

Entertainment expenses: how to properly justify, confirm and not have consequences

If food products were purchased for buffet service during negotiations or for official reception by accountable persons and were delivered to the warehouse, then their release from the warehouse should be carried out on the basis of invoices (form No. TORG-12) and invoices for the internal movement of goods (form No. TORG-12) 13). The form and content of invoices must comply with the requirements set out in Resolution of the State Statistics Committee of December 25, 1998 No. 132.

Let’s assume that during a hospitality event, the host party provided transport services for the invited persons independently, without the involvement of third-party organizations. These operations will be confirmed by documents on the purchase of fuel and lubricants by the accountable person with the necessary receipts attached, and vehicle waybills with a clear indication of the route. When paying for fuel and lubricants in non-cash form, the supporting documents will be issued invoices and invoices, as well as payment documents of the organization.

The amounts and purposes of entertainment expenses must be documented and confirmed also with primary documents, which must correspond to the unified forms contained in the albums. If the documents are not drawn up according to the standard form, then they must contain the following details: name and date of preparation of the document; name of the organization that compiled the document; the content of a business transaction and its measurement in monetary and physical terms; the name of the official responsible for the execution and execution of this operation, and his signature.

Cash receipts confirming the fact of payment must be attached to the primary shipping documents. Cash receipts must contain details such as the name and TIN of the organization; KKM serial number; serial number of the check; date and time of sale of goods/provision of services; cost of purchase/service; a sign of the fiscal regime (clause 4 of the Decree of the Government of the Russian Federation of July 30, 1993 No. 745 “Regulations on the use of cash registers when making cash settlements with the population”).

Payment for entertainment events can also be made using corporate plastic cards. An organization can use plastic cards to pay for entertainment expenses in the Russian Federation and abroad, as well as receive cash to pay for entertainment expenses (clause 2.5 of the Regulations of the Central Bank of the Russian Federation dated December 24, 2004 No. 266-P “On the issue of plastic cards and on transactions performed using payment cards"). A document confirming payment of entertainment expenses using a plastic card must contain the following mandatory details: terminal device identifier; type and date of transaction; transaction amount and currency; authorization code; payment card details; signatures of the card holder and the cashier who performed the transaction.

In order to correctly process entertainment expenses using a corporate plastic card, an organization must fulfill the following conditions:

• develop internal documents regulating the procedure for working with corporate plastic cards, as well as the circle of officials who have the right to use them for representative purposes;
• ensure the procedure for storing and recording corporate plastic cards;
• formalize the issuance of corporate plastic cards by order of the organization.

It is equally important to correctly draw up contracts with third-party organizations (for transport services, for catering and official reception, for payment of translation services).

The catering company's services for buffet service and official reception will be confirmed by:

• an agreement drawn up in accordance with the requirements of civil law;
• act of performing work (rendering services). The date and place of the entertainment event, the number of participants, the name of the counterparty company and the amount of expenses indicated in it must match the data of the contract and other documents confirming the entertainment expenses;
• an invoice and an order invoice in standard form No. OP-20 for cash payment, and in the case of dispensing food products by bank transfer - an act in form No. OP-22;
• menu certified by the catering company.

If translators were involved during the negotiations, then the supporting documents will be:

• an agreement drawn up in accordance with the requirements of civil law;
• a copy of the license allowing a specialized organization to provide translation services from a foreign language;
• certificate of provision of translation services, signed by the parties. It must indicate the date, place and time of the event, personal information of the translators, and a list of services provided by them.

Sometimes tax authorities do not recognize payments for translator services as entertainment expenses if the organization had full-time translators. But the company can refute such a decision, citing the fact that the manager independently decides in what form certain functional responsibilities will be performed. In addition, he may delegate some functions to the appropriate specialized organization. The arbiters in this matter are on the side of the taxpayers (Resolution of the Federal Antimonopoly Service of the Moscow Region dated July 21, 2005 No. KA-A41/6715-05).

Controversial situations regarding entertainment expenses

The wording of the Tax Code of the Russian Federation regarding entertainment expenses is very vague. In this regard, many controversial situations arise. Let's look at some of them.

Business lunches or dinners are usually held in cafes or restaurants. The menu of these establishments usually includes alcohol. Tax authorities, in principle, do not object to including the cost of alcoholic beverages in entertainment expenses.

In particular, the letter of the Ministry of Finance dated March 25, 2010 No. 03-03-06/1/176 states that alcohol can be included in the costs of holding a business meeting. In an earlier clarification of the Ministry of Finance dated 06/09/2004 No. 03-02-05/1/49 it was noted that expenses for alcoholic beverages can be included in entertainment expenses if they do not go beyond the scope of business customs. We are talking about the rules of behavior that have developed in the business community (Article 5 of the Civil Code of the Russian Federation).

Business partners are often given various souvenirs. Here the situation is more complicated. The above-mentioned letter No. 03-03-06/1/176 states that gifts cannot be included in entertainment expenses, since they are not mentioned in paragraph 2 of Art. 264 Tax Code of the Russian Federation.

But a businessman can try to include souvenirs with company symbols in hospitality expenses. However, in this case, disputes with tax authorities are likely. There is judicial practice in favor of taxpayers on this matter (for example, resolution of the Federal Antimonopoly Service of the Moscow Region dated January 31, 2011 No. KA-A40/17593-10).

Often, negotiators come to them from other cities or countries. Sometimes the receiving party bears all expenses: tickets, hotel accommodation, and, if necessary, visas.

All such expenses, according to tax authorities, cannot be classified as representative expenses. Also, the organization of an entertainment program for guests cannot be taken into account for income tax. The officials' arguments here are the same as for souvenirs - these expenses are not listed in clause 2 of Art. 264 of the Tax Code of the Russian Federation (letters of the Ministry of Finance dated April 16, 2007 No. 03-03-06/1/235 and dated December 1, 2011 No. 03-03-06/1/235).

True, a businessman can try to take into account the costs of tickets and hotel as part of “ordinary” other expenses that are not related to hospitality. After all, organizing accommodation for nonresident business partners is necessary for negotiations, which means it can be considered economically justified (Resolution of the Federal Antimonopoly Service of the Moscow Region dated May 23, 2011 No. KA-A40/4584-11).

Example of calculation of hospitality expenses

Norms for entertainment expenses

A standard has been established for entertainment expenses - they should not exceed 4% of the wage fund (payroll). In this case, payroll includes payments in favor of employees that are taken into account for income tax: salary, allowances, bonuses, etc. (Article 255 of the Tax Code of the Pension Fund) If the payment does not affect the calculation of income tax (for example, material assistance), then it cannot be taken into account when rationing entertainment expenses.

The calculation of both entertainment expenses themselves and labor costs must be carried out on an accrual basis from the beginning of the year (clause 7 of Article 274 of the Tax Code of the Russian Federation).

Therefore, if a businessman had significant entertainment expenses at the beginning of the year, then he may not have enough limit to take them all into account in the 1st quarter. Then, at the end of 6, 9 months and a year, the size of the payroll will increase and it will be possible to write off more entertainment expenses.

But if the limit for the year as a whole is not enough, then the balance of entertainment expenses cannot be carried over to subsequent tax periods (clause 42 of Article 270 of the Tax Code of the Russian Federation).

Example 1

In the 1st quarter of 2021, the company held negotiations with business partners and spent 100 thousand rubles on them. excluding VAT. The organization's payroll for the 1st quarter amounted to 1.5 million rubles. Therefore, in the 1st quarter the company was able to write off as expenses for income tax only part of the negotiation costs in the amount of:

Z = 1.5 million rubles. x 4% = 60 thousand rubles.

In the second quarter, the organization had no entertainment expenses. The company's payroll for the first half of the year amounted to 3.5 million rubles. The standard of 4% of this amount exceeded the costs of negotiations in the 1st quarter:

N = 3.5 million rubles. x 4% = 140 thousand rubles.

Therefore, at the end of the half year, the company was able to write off as income tax expenses all 100 thousand rubles spent on negotiations in the 1st quarter.

How to confirm entertainment expenses

The list of documents that need to be used to confirm entertainment expenses is not regulated in the Tax Code of the Russian Federation. According to the Ministry of Finance, in addition to standard primary documents (invoices, acts, advance reports), this requires a report on the event, approved by the head of the company (letter dated April 10, 2014 No. 03-03-RZ/16288).

There is no set form for this report. But to justify the costs, it is necessary to include all the basic information about the meeting: location, list of participants, purpose of the negotiations and the result achieved.

Entertainment expenses paid “by bank transfer” should be included in the tax calculation in the period when the event report was approved. If expenses were made in cash, then you need to write off the expenses on the later of the dates of drawing up two documents: a report on the event or an advance report of the employee who paid the expenses.

Confirmation of entertainment expenses with documents

Documentary justification for any accounting entry is an immutable rule that is also observed for registration of entertainment expenses. But before they are implemented, it is necessary to draw up a plan for the event, approve it by order of the manager and create a cost estimate. Upon completion of the event, real expenses should be reflected in the report on entertainment expenses with the attachment of all supporting primary documentation (letter of the Ministry of Finance of the Russian Federation No. 03-03-06/1/807 dated November 13, 2007).

For companies that regularly hold entertainment events, it is advisable to determine the procedure for their implementation in the company’s local act.

How to account for VAT on hospitality expenses

Often, hospitality expenses include VAT. For example, an organization might receive an invoice from a restaurant or shipping company. VAT can be deducted only on those entertainment expenses that are taken into account for income tax (Clause 7, Article 171 of the Tax Code of the Russian Federation).

But often entertainment expenses include both taxable and non-VAT-taxable expenses. The procedure in which it is necessary to write off entertainment expenses if the limit is not enough is not specified in the Tax Code of the Russian Federation.

Therefore, a businessman here can act with maximum benefit for himself. He has the right to believe that first of all he writes off that part of the entertainment expenses that is subject to VAT.

How to reflect entertainment expenses in accounting

In accounting, hospitality expenses are not standardized. They can be written off in full as expenses for ordinary activities, using account 26 “General business expenses” or 44 “Commercial expenses”.

DT 26 (44) – KT 60 (71) – services of third-party organizations are taken into account

DT 26 (44) – KT 10 (41, 43) – materials, goods, products were used for representation needs.

DT 19 – KT 60 – VAT allocated

DT 60 – KT 51 – expenses paid by bank transfer

DT 71 – CT 50 (51) the employee was given money on account to pay for entertainment expenses

How to take into account tax differences on hospitality expenses

All companies, except small businesses , must apply PBU 18/02 and take into account differences in income tax. These differences arise, among other things, when accounting for entertainment expenses.

If in the reporting period a businessman wrote off less entertainment expenses in tax accounting than in accounting, then he has a deferred tax asset (DTA). This means that potentially in the next reporting period the organization can further reduce income tax.

The deferred tax asset is equal to 20% of the cost variance, which corresponds to the amount of income tax. IT is accounted for in a separate account 09 in correspondence with the account for accounting for this tax:

DT 09 – CT 68.4 – deferred tax asset accrued

If in the following periods a businessman can additionally write off entertainment expenses or part of them in tax accounting, then they can be reduced by reverse posting:

DT 68.4 - KT 09

Tax accounting of entertainment expenses

As you already understand, everything related to tax accounting for entertainment expenses can be found in Art. 364 of the Tax Code of the Russian Federation. If you show representative expenses, then be prepared for the fact that the tax authorities may have doubts about whether they were necessary and therefore be sure to prepare all the documents listed above. During oral negotiations with tax authorities, be sure to mention that the negotiations brought results and the organizations that participated in the event will definitely cooperate mutually beneficially.

As a verbal justification for the need for the event and the costs, you can mention the following goals that your organization may have pursued:

• negotiations were carried out in order to discuss issues related to cooperation and further work of the counterparties;
• negotiations affected the extension of contracts and agreement on the conditions under which they will be extended;
• During the negotiations, the upcoming agreements and transactions were successfully agreed upon.

Officially, the Tax Code of the Russian Federation does not prohibit any goals that were pursued during negotiations, however, if you miss the fact that the event led to the achievement of any positive results in cooperation, the tax inspectorate has the right to challenge the appropriateness of such expenses. In this case, the organization will have to try to argue with the tax authorities in court.

Statistics show that more than half of the tax service's claims against organizations whose representative expenses seemed unreasonable to it are ended up with a win for the company, not the tax office.

According to Art. 264 of the Tax Code of the Russian Federation, an event for which the company incurred expenses may be timed to coincide with some event or holiday, and the validity of such an event, as well as the costs of it, does not decrease in any way.

Example 2

Let's use the conditions of example 1. For the 1st quarter of 2021, 60 thousand rubles were taken into account for income tax. out of the total cost 100 thousand rubles.

The deferred tax asset will be equal to 20% of the remaining 40 thousand rubles, i.e. 8 thousand rubles. On March 31, 2019, you need to make a posting for this amount:

DT 09 – CT 68.4 (8 thousand rubles) – ONA accrued

At the end of the half year, all entertainment expenses were taken into account for income tax. Therefore, there are no more deviations between the two types of accounting and you need to write off the previously accrued OTA by reverse posting to the date 06/30/2019:

DT 68.4 – KT 09 (8 thousand rubles) – ONA decommissioned

If at the end of the year the difference between the two types of accounting does not completely disappear, then a permanent tax expense (PTR) will arise. This means that the deviation between accounting and tax profit will not change.

To accrue PTR, you must first write off the balance of the tax asset from account 09:

DT 68.4 –

KT 09

Then you should assign the same amount to account 99 “Profits and losses”, in which you need to open a special sub-account for PRP:

DT 99.2 - CT 68.4

Conclusion

Entertainment expenses relate to business meetings, negotiations and meetings of the company's governing bodies. The Tax Code of the Russian Federation establishes a list of them for calculating income tax and a norm of 4% of the wage fund. When using special tax regimes, entertainment expenses cannot be written off.

Some wordings of the Tax Code of the Russian Federation in this area allow for ambiguous interpretation, which is why businessmen often have disputes with tax authorities regarding entertainment expenses.

VAT on entertainment expenses can be deducted only in the part that was accepted for calculating income tax.

In accounting, the write-off of entertainment expenses is not limited. Therefore, companies that apply PBU 18/02 may encounter differences between accounting and tax accounting.

Concept and composition of entertainment expenses

Entertainment expenses mean expenses for services and official receptions of representatives of other organizations (current and potential business partners). The purpose of such events is to conduct negotiations to establish and maintain mutual cooperation.

In accounting, expenses can be classified as representative expenses if:

• the organization held an official reception for representatives of other companies, as a result of which the organization incurred expenses;
• the company incurred travel expenses in connection with the organization of a representative meeting;
• the list of expenses for holding an event includes the cost of buffet service (buffet, outdoor banquet, etc.);
• the organization held an official meeting with representatives of a foreign company, and therefore a translator was hired.

It is important to know that when holding official meetings, the organization cannot compensate business partners for the expenses incurred by them for accommodation, visas (for representatives of non-resident companies), and also transfer products of its own production as souvenirs.