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The Supreme Administrative Court on proving expenses for business trips

In its recent judgment 8 Afs 313/2021-42, the Supreme Administrative Court ("SAC") addressed the issue of proving expenses for business trips. At issue was the question of whether expenses for business trips abroad and expenses for the purchase of a public transport voucher for employees could be treated as a tax deductible expense.

Expenditure on foreign business trips

The taxpayer, an individual advocate, incurred expenses for business trips to the USA, Canada, the Netherlands, and Austria in 2012 and 2013. During the tax audit, the taxpayer submitted invoices for clients in Canada and the USA as evidence of the foreign business trips. He also submitted copies of documents relating to private travel to the US and an affidavit for travel outside Canada and the US stating that he always undertook these business trips to meet clients in person.

During the tax audit, the tax authorities partially accepted the documentation submitted and allowed the expenses for the business trips to the USA and Canada. In the view of the tax authorities, the affidavit submitted for the other countries is not evidence of reasonable incurred expenses, but is merely an assertion recorded in writing. Thus, they did not recognise the expenses for other business trips.

At court hearing, the taxpayer argued that in long-term business relationships, it is not possible to assume that every business trip will be billed to the client. In the taxpayer view, it is quite common for travel to a client's location to be a risk to the lawyer, but it is a necessary step in obtaining or retaining clients.

The SAC agreed with the conclusions of the tax authorities and the municipal court. The SAC agrees with the view that not every foreign trip needs to be accounted for as an attachment to a tax bill/invoice. According to settled case law, it is sufficient to prove that the travel expenses were incurred in connection with the expected income. The tax authorities also assessed the travel expenses in this way. In the present case, the tax authorities accepted proof of the relationship between the destination of the work award and the existence of the client in that location. However, the mere split of travel into private and business travel cannot be regarded as evidence of business travel.

Purchase of public transport vouchers for employees

During the tax audit, the tax authorities also challenged the expenses on the purchase of public transport vouchers for the taxpayer's employees. In the tax authority's view, the taxpayer did not prove that this expenses were wholly incurred for the purpose of generate, assure and maintain taxable income.

In the case of expenses on public transport vouchers, the taxpayer argued that the purchase of a long-term voucher was more economically advantageous than the purchase of individual tickets. The purpose of purchasing a long-term coupon was, inter alia, to save on secondary administrative costs.

In this case, the SAC also agreed with the conclusion of the municipal court. Neither the tax authorities nor the municipal court required the taxpayer to purchase a separate ticket for each journey and to account for it separately. The tax authorities only required the taxpayer to prove that the voucher was used entirely for business purposes and was not used for private purposes. At the same time, taxpayer could prove the business reasons by various proofs. . For example, it could have been a simple record of business trips taken. In the view of the SAC, the taxpayer could have proved the use of the fare for business purposes in other ways. However, he did not do so.

We would be happy to discuss this case-law and its application to specific practical situations with you. If you have any questions, please contact the authors of the article or the EY tax team you are working with.

Authors:

Lukáš Nika

Ladislava Zamazalová