Are you self-employed? You can deduct the cost of lunches and dinners with clients, gifts and promotions

Supreme Court ruling contradicts Tax Office criteria

2 min
Restaurants in Barceloneta

MadridKnowing what a self-employed worker can or cannot deduct in corporate tax, ie expenses related to gifts to employees or customers or dinners with customers and suppliers, has always been a subject of debate. The Treasury argues that this type of expense cannot be deducted. Now the Supreme Court contradicts its criteria and determines that it can. According to a ruling issued by the high court, all expenses related to public relations with customers and suppliers, such as lunches and dinners in restaurants, as well as gifts to both customers and business and promotional expenses, are deductible.

According to the law, expenses that are made free of charge and do not determine the fiscal or taxable result of the year are not deductible for corporate income tax purposes. In other words, only those expenses that are directly related to the company's income and, therefore, have an influence on the accounting result, are deductible. In this sense, the Treasury considers that gifts and invitations to lunch or dinner do not directly make a business earn more money - nor do gifts to workers.

The Supreme Court, however, argues that the costs of customer service, promotional or gifts to staff of the company that have to do with the business activity contribute to improving the business result and stresses that they are "correlated" with income. In the sentence, to which Europa Press has had access, the Court states that "there is no precise regulation on what has to be understood by correlation between income and expenses", but argues that one and the other are part of the set of actions aimed at obtaining a better business result. This "justifies that the relationship between expenses and income can be both direct and indirect", the sentence states.

Future result

The Court also adds that work lunches, gifts to customers or promotional expenses do not directly and immediately seek to improve accounting results but clearly pursue "an indirect and forward-looking result" in income. The ruling points out that attention to customers and suppliers seeks to build customer and supplier loyalty, while attention to the employees of the business is an employment incentive. As for the promotion of products or the business, it seeks to improve sales and business positioning.