As the end of the year draws near, companies may be looking at offering gifts to their clients.
This is therefore a good time for a reminder that these business gifts are subject to specific tax treatment, whether in respect of tax on profits or VAT.
1. Tax on profits
In terms of income tax, business gifts are deductible from taxable profit when they are a normal operating costs, meaning that the gifts are made in the interest of the company bestowing them.
In principle, there are no set conditions as to the value of such gifts, however, the French tax authorities may contest the deductibility of such expenses it if considers that the value of the gift’s is exaggerated. The French tax authorities must then prove that the expenses was not made in the company’s interest. The value of the gift considered as excessive may be reintegrated into the taxable profits of the distributing company.
Furthermore, corporate gifts for which the global value exceeds €3,000 per tax year have to be listed in the detailed account of overhead expenses that must be supplied in support of the company’s income tax return.
Failing that, the payment of a fine equivalent to 5 % of the amounts not provided on the detailed account of overhead expenses will be due.
This fine is reduced to 1 % when the expenses are deductible from company profits.
It should however be noted that business gifts that have been specifically designed to advertise the company distributing them, i.e. objects bearing an apparent and indelible advertising inscription relative to the company in question, and whose value does not exceed € 69 incl. VAT per year and per beneficiary, do not have to be included on the detailed account of overhead expenses.
2. Threshold for VAT recovery
In principle, VAT on goods transferred without consideration or a consideration less than their normal value is not deductible.
This rule applies regardless the status of the beneficiary and even if the gift was made in the company’s interest.
Nevertheless, this rule is not applicable to objects of negligible value and VAT on such objects of negligible value may be deductible.
The condition relative to the negligible value of an object is met when the unitary value of such an object does not exceed €69 including VAT.
The value of €69 including. VAT is determined as follows:
– By taking into account any distribution costs paid for by the company, in particular transport and packaging costs;
– Per year and per recipient. When several gifts are made to a sole beneficiary, the total value of the gifts given to such beneficiary during the course of one year may not exceed €69 incl. VAT.
The amount of €69 will be revised as of 1st January 2021.