Tax deductibility of the costs of company events for employees

One of the ways how to contribute to improvement of cooperation is to get to know each other outside of the everyday work environment. Corporate events and so-called team buildings have recently become a regular part of the life of organizations. However, in addition to strengthening the interpersonal relationships, the companies must also deal with the issue of tax deductibility of related costs.

The case law in this area is quite consistent and in line with the general definition of tax-deductible costs, which stipulates that tax-deductible are those costs, which serve to achieve, secure and maintain taxable income.

Decision of the Supreme Court No. 21 Cdo 5060/2007 as of 12 February 2009 stipulates that if it is proven that "the meaning and purpose of so-called teambuilding is to deepen the mutual interpersonal ties of employees, their ability to cooperate with each other and the ability to cooperate with other employees, than from the point of view of the organizing employer, as well as of view of the individual employee, it can be considered as participation in training to deepen the qualification, which the employer is entitled to impose on the employee, and therefore an activity in direct connection with the performance of work tasks".

On the other hand, the decision of the Supreme Court No. 21 Cdo 997/2011 as of 13 October 2011 clarifies that the activity, which was not part of the planned activities of the teambuilding event and was in nature clearly similar to a "joint aimless stay having the nature of entertainment paid for by the employer", is not in direct connection with the performance of work tasks.

One of the last rulings in this area is the decision of the Regional Court in Brno No. 29 Af 53/2016-88 as of 29 May 2018, which emphasizes the need to prove the purpose of the corporate action as well as the obligation of the tax administrator to enable the tax subject to provide such proof, including through the examination of witnesses. At the same time, it stipulates that the connection of any corporate event with achieving, securing and maintaining taxable income needs to be assessed depending on the specific circumstances of the individual case, whereas "teambuilding does not have to consist only of targeted lectures or strictly controlled employee activities, but can also be more loosely focused on "bonding" within the group, on the creation of a functional employee unit, which - through strengthened interpersonal ties with simultaneous increase in qualification and information - can better hold up in the competitive market environment, while the long term nature of the employees’ group can also contribute to this, and can be also achieved by increasing loyalty to the employer and increasing the feeling of overall the meaningfulness of the work performed for the employer".

The above-mentioned court decisions serve as guidelines when assessing the tax deductibility of costs on teambuilding or other corporate event, and the following conclusions can be drawn from them:

• with regard to the costs of the event program itself (facilitation, sports activities, etc.), it is necessary to distinguish the employees’ activities within the program organized by the employer and outside of this framework, including their purpose, even if they occurred during the event as a whole;
• the costs of accommodation and travel within the framework of such event can generally be considered tax-deductible if the event as a whole aims to fulfill the above-mentioned goal of improvement of the communication and cooperation between employees;
• the refreshment costs (food and drink) generally cannot be considered tax-deductible, as these costs are expressly excluded by law as not tax-deductible;
• since the burden of proof is borne by the company, it is necessary to ensure the evidence (e.g. internal documents of the HR department containing relevant and convincing justification for the request to organize the event in question with regard to its goal, detailed event program, list of event participants, video or audio recording form the course of the event etc.); and
• it is recommendable to thoroughly distinguish between individual types of costs on the suppliers’ invoices related to the event in question.

As can be seen from the above, this is not a black and white situation. On the contrary, argumentation and evidence are key elements in assessing the tax deductibility. Our experts have a wide range of experience in this area and will be happy to help you as well, so do not hesitate to contact us.