Belgium has qualified for the World Cup semi-finals and the Belgian company BeerCo wants to invite some of its best customers to attend an exclusive World Cup event organised in the King Baudouin Stadium in Brussels.
For this last-minute initiative BeerCo will purchase VIP packages from the specialised Belgian company SoccerCo. These packages include access to the stadium for a ‘first class match viewing experience’, an entertainment show with some of the best Belgian artists and DJs before and after the game, a ‘champagne & caviar’ dinner with players of the legendary Belgian ‘Mexico 1986’ soccer team, an open bar and VIP parking in front of the stadium. The packages are sold by SoccerCo at 250 EUR (excl. VAT) per person.
BeerCo’s CFO is a huge supporter of the Belgian team, but he is also a very diligent CFO who would like to know in advance what the event will cost the company. He would especially like to know the applicable VAT rate and whether BeerCo would be entitled to deduct the costs for both VAT and income tax purposes.
In order to determine the applicable VAT rate one has to establish whether each supply must be regarded as distinct and independent, causing each supply to follow its own VAT rate (e.g. parking 21%, dinner 12%, drinks 21%, access to soccer game & entertainment 6%, etc.) or whether the whole VIP package can be considered as one single transaction for which the VAT rate of the principal supply in that package would apply.
In order to determine whether a transaction that comprises several supplies of goods and services constitutes a single transaction for the purposes of VAT, the economic objective of that transaction should be taken into consideration. The fact that a single price is charged for the package is an indication, but not decisive in this respect.
SoccerCo considers that viewing the World Cup game in the unique atmosphere of the King Baudouin Stadium is the main (economic) objective of buying the package and that the variety of other goods / services included in the package should therefore be considered as ancillary supplies. It therefore sells its VIP packages at the reduced VAT rate of 6% for access to sport and entertainment events.
Although a few exceptions exist (e.g. promotional costs, VAT on business seats, etc.) BeerCo will generally not be able to deduct VAT on the purchase of the VIP packages.
For corporate income tax purposes, BeerCo can only deduct 50% of the purchase costs for the VIP packages from its taxable base since these costs are considered reception costs. However, an exception would apply if BeerCo provides its own (draught) beer to its guests in the VIP room. The expenses made in this respect relate to the degustation of self-produced goods and are 100% tax deductible.