The Court of Cassation issued judgment No. 14049 on May 22, 2023, regarding the distinction between advertising expenses and representation expenses for VAT reimbursement purposes. The case in question involves the classification of a payment made by a well-known luxury company as a contribution to the organization expenses of a social event. The contribution was partly used to accommodate wealthy clients for the exhibition of the company’s precious jewelry and partly for the restoration of the historical residence where the event took place. In line with EU case law on VAT deduction for advertising costs (Court of Justice, November 25, 2021, case C-334/20), the Supreme Court reaffirms that the “discretionary criterion” distinguishing representation expenses from advertising expenses should be based on the objectives pursued. Representation expenses are aimed at enhancing the company’s image and potential for development “without giving rise to an expectation of increased sales,” while advertising expenses directly promote the marketed products and services. Therefore, expenses like sponsorship cannot be considered “advertising” in the absence of potential commercial returns. In this specific case, the strategy underlying the operations is determined by Article 120 of Legislative Decree No. 42/2004, according to which any contribution made for initiatives related to the enhancement of cultural heritage, with the general purpose of promoting the image or activities of the contributing entity, falls within the scope of “sponsorship of cultural goods.” For these reasons, the Court of Cassation confirms the denial of VAT reimbursement for the amount paid by the company as it falls under representation expenses.
Source: eutekne.info
