Restrictions due to the pandemic have negatively impacted the activities of entrepreneurs. More than once, business trips abroad had to be canceled at the very last moment, when tickets had already been purchased and the hotel had been booked. Today such situations are also possible.
In this article we will look at whether non-reimbursable travel expenses can be taken into account when calculating income tax. First, let’s look at Chapter 25 of the Tax Code of the Russian Federation.
What costs can be taken into account
Paragraph 1 of Article 252 of the Tax Code of the Russian Federation states that taxation of expenses is possible if they are recognized as justified and documented. Costs must be intended for activities that are aimed at generating income.
These costs also include losses specified in paragraph 2 of Article 265 of the Tax Code of the Russian Federation. These include losses incurred by the organization in the reporting period.
Based on the above, we can conclude that when canceling a business trip, the company has the right to take into account non-refundable expenses when calculating income tax. But they must be justified, documented and not be included among expenses not taken into account for tax purposes (Article 270 of the Tax Code of the Russian Federation).
This is confirmed by the letter of the Ministry of Finance of Russia dated 07/03/2020 No. 03-03-06/1/57735. Does this also apply to business trips canceled due to coronavirus or due to closed borders?
Trip cancellation due to border closures
If the trip was canceled due to insurmountable circumstances, which include natural disasters, epidemics (including coronavirus infection), closure of transport links, then the costs of it can be taken into account when calculating income tax.
For example, in the case of the coronavirus pandemic, Rospotrebnadzor recommended against traveling abroad during the pandemic (letter dated March 10, 2020 No. 02/3853-2020-27). But these expenses are not in Article 270 of the Tax Code of the Russian Federation, so they could safely be attributed to the expenses of subparagraph 6 in paragraph 2 of Article 265 of the Tax Code of the Russian Federation (losses from emergency situations).
Grounds for accounting for expenses in the event of a penalty for returning tickets
Let us turn to subclause 13 of clause 1 of Article 265 of the Tax Code of the Russian Federation. It states that the company has the right to include in non-operating expenses expenses in the form of sanctions for violation of contractual obligations. Sanctions for violation of the contract include penalties for returning tickets.
This is also stated in the letter of the Ministry of Finance dated 09/08/2017 No. 03-03-06/1/57890:
the company has the right to take into account the costs of penalties when returning tickets. Again, they must be documented and not listed in Article 270 of the Tax Code of the Russian Federation.
Exception
If a trip is canceled due to the fault of a business traveler, then the costs of non-refundable tickets and paid hotel accommodation cannot be included as expenses for income tax purposes. This is indicated in the letter of the Federal Tax Service of Russia dated January 29, 2020 No. SD-4-3/1352@.
