In the issue of Taxation Question 2022/7 on the VAT assessment and invoicing of event organization the tax authority stated, among other things, that the food and drink purchased in connection with event organization service used can be regarded as part of the event organization as a complex service, which means that 27% VAT is charged and VAT can be deducted after these purchases as appropriate.

The Taxation Question lays down the basic principle that in the VAT system all supply of services/goods should generally be considered separate and independent, i.e. they should be taxed independently. However, it happens that a transaction is made up of several elements, and includes several supply of services or goods that can otherwise be performed independently. In such a case, if these transactions are so closely related that they form a single indivisible economic transaction, they must be treated as a single complex transaction in the VAT system. The same procedure must be followed if one or more activities are related to a main activity as an ancillary activity, so the tax assessment of the main activity applies to the former(s).

The tax authority explains that the event organization service can also be a complex service, when the taxpayer undertakes to provide and organize an event according to the customer’s needs, which typically includes several service elements tailored to the customer’s needs (e.g. room rental with the appropriate equipment, sound technology, provision of other technical devices, catering/providing food, drinks, etc.).

If, as a result of the agreement of the parties, services and products used / purchased by the event organizer in its own name, but for the benefit of the customer and passed on/resold to the customer are regarded as a single complex service in the VAT system within the relationship between the event organizer and the customer (considering the above-mentioned aspects), it is necessary to specify the place of performance, the date on which the tax liability arises, the basis of the tax, and the tax rate in a uniform manner for a single transaction.

On the other hand, if it is not possible to identify a service that is regarded as the main service within the complex service provision, the VAT liability must be determined according to the general rules. So, for example, if the domestic customer has requested a catering service as part of the ordered package, and a uniform service is provided to the customer, no matter that the event organizer is charged with 5% input VAT on the catering service, the event organization service, with all its elements i.e. also catering service, is subject to a 27% tax rate and must be invoiced accordingly.

In accordance with the above, if an event organization service that is considered a complex transaction in the VAT system also includes an element whose purchase tax would otherwise be subject to a deduction ban based on Section 124 of the VAT Act (e.g. food, drink), the deduction of input VAT charged on the use of the event organization service provided as a complex transaction must also be judged according to the general rules, and thus Section 124 of the VAT Act cannot be applied i.e. the VAT can be deducted according to the general rules. In this case, according to the tax authority, the customer does not purchase products or services subject to the deduction ban from the event organizer, but uses an event organization service.

The event organization service to be treated as a complex transaction must be indicated as a single transaction. However, there is no obstacle to the fact that each service element, along with their consideration, is shown as informative data on the invoice or in its annex, moreover, it is recommended to act accordingly so that the user of the service will fulfill any other personal income tax and social contribution tax obligations which might arise due to official, business, representation or leisure events.

The tax authority draws attention to the fact that event organization can also be part of a more complex package that may also include travel services (e.g. accommodation, passenger transport). If the customer uses such a complex package consisting of event organization and travel services, it is also necessary to consider whether the main service in this complex package is event organization or travel organization, since for travel organization the special rules for travel organization services regulated in Chapter XV of VAT rules apply.

In the light of the above, it is very important to classify each service and correctly assess its complex or independent nature in order to determine the applicable taxation mechanism – this is an important task from the point of view of both the service provider and its user.

Subscribe to our newsletter!