CJEU: non-deductibility of VAT on client entertainment

CJEU Upholds the Non-Deductibility of VAT on Client Hospitality Expenses 

The recent judgment of the Court of Justice of the European Union (CJEU) of 12 March 2026 settles one of the most debated issues in the field of VAT: the deductibility of input VAT on expenses incurred for client hospitality. The ruling confirms that Spanish legislation, which generally denies this deduction in cases such as entertainment events, recreational services or client invitations, is compatible with EU law and thus reinforces a restrictive approach that may have a significant impact on many companies. 

If a ranking were drawn up of the most controversial issues in tax matters, the topic addressed in this article would undoubtedly rank among the most prominent — if not even secure a place on the podium: can companies deduct input VAT on expenses incurred for client hospitality? 

This is an issue that may give rise to some concern, and even surprise, when considering the different treatment afforded to expenses incurred for client hospitality depending on whether one is dealing with direct taxation (Corporate Income Tax or Personal Income Tax) or indirect taxation (Value Added Tax). 

Thus, as a general rule, and subject to certain specific limitations, expenses incurred for client hospitality are deductible for Corporate Income Tax or Personal Income Tax purposes, provided that they are linked to the generation of income. 

This “automaticity” — understood as the possibility of deducting expenses based on their link to the generation of income, subject to the fulfilment of certain additional requirements — has not, however, existed in the field of VAT. Indeed, VAT legislation has traditionally included such expenses (recreational services and client hospitality) within its “blacklist”, by providing that input VAT incurred on the acquisition of, inter alia, (i) entertainment and recreational services or (ii) goods and services intended for client hospitality may not be deducted, in whole or in part. 

In its judgment of 12 March in Case C-515/24 (Randstad España, SLU), the Court of Justice of the European Union (CJEU) appears to have brought this controversy to an end, confirming that the restrictions imposed under Spanish law on the deductibility of input VAT on expenses relating to entertainment, recreational services and client hospitality are fully compatible with EU law and consistent with the intention of the EU legislature. 

More specifically, the CJEU considers that, for VAT purposes, it is irrelevant whether such expenses (entertainment, recreational services or client hospitality) may be regarded as deductible for direct tax purposes (Corporate Income Tax or Personal Income Tax), since, in any event, they are expenses aimed at satisfying private needs. 

Admittedly, in other cases it may be more debatable — even for the Court itself — whether the goods or services acquired are in fact intended to satisfy private needs. However, this is not the case in the present circumstances (tickets to football matches, access to the Formula 1 paddock, etc.), where their private consumption does not appear to raise any doubts for the CJEU. 

It remains to be seen how Spanish courts — and, in particular, the Supreme Court — will interpret this judgment, particularly in pending cases where the private (rather than business-related) nature of the consumption may be less evident.