Are the expenses for greenery around the company's headquarters costs of representation?
There are usually green areas around the company's headquarters, due to which the company incurs certain maintenance costs. The correct recognition of these costs in PKPiR raises many doubts. The most common dispute is whether such expenses constitute tax deductible costs or whether they should be included in the cost of representation, which have been statutorily excluded from tax costs.
Pursuant to Art. 22 of the PIT Act, tax deductible costs are expenses incurred in order to achieve income or to preserve or secure their source, with the exception of the costs excluded in Art. 23 of the Act. Just in art. 23 representation costs were excluded from tax deductible costs. Such costs include, in particular, expenses for catering services and expenses for the purchase of food and beverages, including alcoholic drinks. The question arises, what exactly is representation and whether the company that incurs expenses for the development of green areas around the company should include them in this particular cost category.
The concept of representation
The literal concept of representation is not clarified in the law. According to the dictionary definition, this term should be understood as grandeur, elegance, and lavishness. It is customary to assume that representation is all activities consisting in creating and consolidating a good image of a company, which are to raise its prestige. According to the tax authorities, representation in relation to business activity consists in official and commercial contacts with other entrepreneurs, contractors and guests. These contacts are to influence the formation of a positive image of the company. The costs incurred for the representation are aimed at establishing new or maintaining existing contacts and acquaintances. These costs include refreshments from contractors, gifts for guests. The taxpayer is responsible for assessing whether a given expense was incurred for representation purposes or if it is a normal cost of business activity.
Expenditure on greenery around the company's headquarters
As for the costs related to maintaining the green trend around the company's headquarters, we cannot count them as representation costs due to their lack of elegance and lavishness. The company is obliged to take care of the land in its possession due to the aesthetic values and customary standards. This means that it should perform work related to maintaining order and cleanliness on its premises. Therefore, it can be concluded that the costs of green areas around the company's seat can be classified as tax deductible costs. The costs of land development include care and mowing lawns, watering plants, fertilizing greenery.
It should be remembered, however, that these expenses will constitute tax deductible costs only if they are reasonable and the property will not differ significantly from other neighboring properties. In order to be safe about properly counting green expenses as costs, it is best to plant standard plants on the company's premises, similar to others in the area.
If a company decides to plant, for example, exotic, expensive shrubs or flowers on its premises that cannot be found anywhere in the vicinity, then these expenses as tax deductible costs may be undermined. Such costs will be representative.