Identifying Specific Examples of Food & Beverage Expenses and In-House Food & Beverage Expenses

Introduction

In many cases, it may be difficult to determine what exactly is included in the scope of “food & beverage expenses” and “in-house food & beverage expenses”. It is important to confirm what specific expenses are included in information about entertainment expenses.

Scope of Food & Beverage Expenses

Food and beverage expenses are defined as "expenses required for eating, drinking, and other similar activities among entertainment expenses," and here we will explain specifically which expenses fall under this category.

Food and beverage expenses of company employees while entertaining and eating with clients, etc., naturally fall under the category of food & beverage expenses.

In addition, the cost of providing boxed lunches to clients, for example, when conducting business or holding events, also falls under this category.

However, in such cases, it is assumed that the food and beverages are expected to be consumed within a reasonable time after being served, and there is no need to judge food & beverage charges separately from table charges.

In addition, "souvenir expenses" required to take home food and beverages served at a restaurant, etc., after eating or drinking at the restaurant, etc., as well as "table charges and service charges" to be paid for eating and drinking, etc., also fall under the category of food & beverage expenses.

Gifts of Food and Drink Do Not Fall under This Category

On the other hand, the mere act of giving an assortment of food & beverages as a gift is no different from the so-called “mid-year gift" or "year-end gift," and so is not included among eating, drinking, or other similar acts.

Therefore, "expenses required to present an assortment of food & beverages as a gift" do not fall under the category of food & beverage expenses, but rather entertainment expenses. In addition, "transportation expenses" to take clients to and from restaurants, etc., also do not fall under the category of food & beverage expenses.

Scope of In-House Food and Beverage Expenses

The scope of food and beverage expenses excludes "in-house food and beverage expenses (i.e., those spent exclusively for entertainment expenses, etc. for directors or employees of the corporation, or their relatives). Therefore, even if in-house food and beverage expenses are less than ¥10,000 per person, they are, in principle, classified as entertainment expenses, etc.

Even if there is only one client to be entertained, if a significant number of employees are required to participate in the entertainment, the costs do not fall under the category of in-house food and beverage expenses.

Note, however, that if you are only formally inviting an employee of a client or other party to participate in an event, the cost may be classified as an in-house food and beverage expense.

In addition, if multiple meals and drinks are considered to be a single event, the total food and beverage expenses for the entire event will be used as the basis for determining whether or not the amount is less than 10,000 yen per person.

(Example: When it is deemed that the amount paid for food and beverages, etc. was divided into separate payments, even though the food and beverages, etc. were in fact consumed at the same establishment)

In addition, it is absolutely prohibited to divide the amount of the same event/act of eating, drinking, etc. into smaller amounts of 10,000 yen or less, or to state the name of the other party falsely, as this is considered concealment or obfuscation of facts, and may subject the taxpayer to heavy additional taxes.

Proper Handling of Gift Certificates, and Related Tax Considerations

Introduction

The tax treatment of gift certificates is different from that of other items purchased, so any time the word "gift certificate" appears in the general ledger of entertainment expenses, it will be checked during a tax audit.

Management by Ledger

When gift certificates are purchased and actually given to clients, etc., do you keep a ledger that clearly states the date of the gift, the name of the company and person in charge, and the amount of the gift? If there are any gift certificates remaining at the end of the fiscal year, are they capitalized as supplies?

It is very often the case that gift certificates are lumped together and recorded as entertainment expenses on the date of purchase, and the amount remaining at the end of the fiscal year is not checked.

Since it is impossible to recall everything that happened several years ago at the time of a tax audit, it is in practice necessary to keep a ledger.

Decision of the National Tax Appeal Tribunal

There have been cases where taxpayers' claims were not accepted, and none of the costs of gift certificate purchases were recognized as deductible expenses.

Even in a case where a gift certificate was actually given to the reported recipient and used as an entertainment expense, there is a strong possibility that it will not be recognized as a deductible expense if the details of the expense cannot be specifically explained.

In such cases, the National Tax Appeal Tribunal has been judging as follows: the Tribunal takes the position that detailed information on the usage of gift certificates, the recipients thereof, the dates of distribution, etc., is essential in order to treat the purchase costs of the gift certificates as deductible expenses.

In many cases, however, taxpayers have not been able to present this information adequately, resulting in the costs of the gift certificates not being deductible for tax purposes.

• The list of gift certificates used includes the year and month, as well as the name of the counter-party company and the relationship, but does not include the specific date the gift was given, the name and address of the recipient party, or the amount of the gift; or
• There is no documentation regarding the inventory of gift certificates; or
• The specific distribution of gift certificates and the existence of gift certificates remaining at the end of the fiscal year cannot be ascertained.
• Based on such examples, it must be stated that how the gift certificates were used is unclear.
• As long as the way(s) such certificates were used is unclear, it cannot be determined whether the usage was related to the business or not.
• As a result, the cost of purchasing those gift certificates is not considered to be entertainment expense, and is not deductible.

The Same Goes for Beer Coupons, Postage Stamps, etc.

This treatment also applies to monetary equivalents such as beer coupons, postage stamps, and revenue stamps. Although gift certificates tend to attract attention because they are often very expensive, we believe that the same treatment applies basically to items that are handled at cash voucher shops and the like.

Whether the item is used by the company itself or given as a gift to another company, it is not at the time of purchase that it is deductible for tax purposes. The actual time of use or the time of gift/distribution is when it is to be included in deductible expenses.

Therefore, cash equivalents remaining at the end of the accounting period should be capitalized as supplies.

This is especially important to note when large amounts of cash-equivalent items are purchased at the last minute near the end of a period, since they are easily noticed.

Expense Management Tips on Using Transportation IC Cards

Introduction

Even just the expense reimbursement procedure is a hassle, but it becomes even more difficult if you run more than one company. In this issue, we will explain some tips for using transportation IC cards.

Charging (Adding Value to) a Transportation System IC Card Is Not an Expense

First of all, as a basic premise, even if you have a receipt for a charge (deposit) added to a transportation system IC card, it is not considered to be an expense. The receipt at the time of ‘charging up’ a transportation system IC card is simply proof of a “deposit", and cannot be posted as an expense.

This is because a specific expense has not yet been incurred. Only when the card’s balance is used can the expense be recorded. Please do not misunderstand this point, and mistakenly keep only the receipt of the deposit.

Also, for example, a president who runs two companies, Company A and Company B, might mix three types of expenses on one transportation IC card: Company A's expenses; Company B's expenses; and personal expenditures that are not business expenses.

This makes expense reimbursement very complicated, and it is easy for mistakes to occur, such as Company A's expenses being reimbursed by Company B, or personal expenditures being charged as business expenses.

Use Multiple Transportation IC cards

A way to possibly prevent such mistakes is to use multiple transportation IC cards.

For example, using a Suica (JR East) card only for Company A expenses, a PASMO card only for Company B expenses, an ICOCA (JR West) card only for personal expenditures, and so on. If you write the name of the company, such as Company A or Company B, on each transportation IC card, you will most likely not make a mistake.

(Example) Suica: used only for Company A expenses
PASMO: used only for Company B expenses
ICOCA: used for personal expenditures only

On the other hand, if you are managing a single company, you could use a Suica card for all travel expenses and a PASMO card for all your supplies. And since it is possible to have multiple transportation IC cards of the same type without dividing them into different types, these can be further subdivided.

Besides plastic cards, similar methods can be utilized for smartphone applications.

Using SFCard Viewer

The final step is the SFCard Viewer provided by Sony. If you purchase a card reader that is compatible with it, just hold the IC card over the card reader and the details of the contents will be at once converted to a CSV file.

About SFCard Viewer 2:
Up to 20 entries for train usage history and balances for Kitaca, Suica, TOICA, ICOCA, SUGOCA, SAPICA, icsca, PASMO, manaca, PiTaPa, PASPY, nimoca, Hayakaken, and others can be checked. The dates, boarding and alighting stations, and amounts are listed in order from the most recent. The data can be exported to CSV or text files.

In this way, intricate expense reimbursements can be made much simpler.