Why a Cheese Roll Can Be Taxed Differently Than a Roll with Cheese – and What This Means for Business Meals

POV: You are the managing director of a German GmbH and wondering how business meals can actually be deducted for tax purposes.

Business expenses reduce taxable income; private expenses do not. Food consumption is generally considered a private matter – but some meals have a clear business background. In trying to draw a precise legal distinction, the legislator has created a dense and sometimes confusing web of detailed regulations. Distinctions are made, for example, based on who dines with whom, on what occasion, how much it costs, and even what is consumed. Germany’s highest tax judges have demonstrated almost surgical precision in explaining why a cheese roll may be treated differently for tax purposes than a roll with cheese (Federal Fiscal Court, 3 July 2019 – VI R 36/17).

However, when dining with Danish business partners, the question of whether the restaurant bill is tax-deductible in Germany inevitably arises. After all, it is frustrating to forgo input VAT deduction and the deductibility of business expenses – that can make the restaurant visit more than 30% more expensive than necessary. Here is a condensed overview of the key German rules for managing directors who invite business partners to a restaurant and pay the bill ( details can be found, for example, in guidance issued by the Federal Ministry of Finance ( https://datenbank.nwb.de/Dokument/859905/ ) ) :

• Restaurant visits with business partners are generally deductible as business expenses, and the input VAT shown on the invoice can be reclaimed.
• 70% of the expenses reduce taxable income; 30% are non-deductible. The accounting department makes this allocation.
• Input VAT can be claimed in full. For invoices up to EUR 250 gross, the invoice does not need to be issued in the company’s name; above that threshold, it does.
• The costs must be reasonable and properly documented. What is considered “reasonable” is not uniformly defined. Luxury dining at Michelin-starred restaurants may be challenged in a tax audit. In Denmark, restaurant visits are typically more expensive than in Germany.
• “Properly documented” means retaining the restaurant receipt, which must itemize the food and beverages, show the VAT separately, and contain additional mandatory information.
• Action required: The receipt must be supplemented with details of the business occasion, the names of the guests entertained, and your own signature – ideally noted on the back of the receipt immediately at the table.
• If you forget to document these details during an engaging business discussion, the expense deduction is lost – and so is the input VAT deduction.

 

In Denmark, it is common practice for the total bill to be split equally among all participants – a friendly gesture reflecting good cooperation. From a tax perspective, however, this can be risky if proper documentation is missing: without the required details, neither the input VAT nor the business expense deduction will be granted. If each paying participant receives a receipt that itemizes, for example, “Menu 1” with a price and the corresponding VAT shown separately, the expenses will generally be recognized for tax purposes. 😉