Background: The 30/70 Method
The so-called 30/70 method is an estimation technique used in tax audits of restaurants that serve both food and beverages. It is based on the assumption that the ratio between food and beverages consumed varies only slightly, since guests typically order a certain quantity of beverages with each meal. The method assumes a fixed ratio of 30 % beverage revenue to 70 % food revenue. Tax auditors apply this method when deficiencies have been identified in cash register records or bookkeeping. The method may also be applied to the simplified profit determination known as the cash-basis accounting method (§ 4 Abs. 3 EStG) (Finanzgericht Nürnberg, judgment of 8 May 2012, 2 K 1122/2009).
Case Law: What Do the Courts Say?
The tax courts have largely held the 30/70 method to be permissible. Its application, however, remains controversial and is not appropriate in every case. The Finanzgericht Düsseldorf rejected the estimation method in a case in which auditors sought to estimate revenue from a low-margin product (food) on the basis of a high-margin product (beverages) (judgment of 26 March 2012, 6 K 2749/11 K.G.U.F).
Recent Case: Restaurant with Takeaway Sales
In a recent decision, the Finanzgericht Münster held that the 30/70 method is not suitable for a restaurant with takeaway sales. The court's reasoning was summarised in the following headnote: "No direct conclusions can be drawn from beverage revenue in the restaurant about takeaway food sales" (judgment of 4 December 2015, 4 K 2616/14 E,G,U). In that case, the tax auditor performed a beverage calculation to determine profit and revenue add-backs and extrapolated a hypothetical total revenue from the recorded share of beverage sales. The tax judges followed this approach only in part.
Conclusion
Like any revenue or profit estimation, the 30/70 method involves uncertainty. The calculation result can and should be critically reviewed by any affected restaurant operator and, where appropriate, challenged. Tax auditors tend toward overstatement and frequently assume revenue figures that are not economically achievable.
Frequently asked questions
Frequently asked questions
What is the 30/70 method in tax audits?
The 30/70 method is an estimation technique used in sit-down restaurants, based on the assumption that 30% of revenue comes from beverages and 70% from food. It relies on the premise that guests consume a certain amount of beverages with each meal and that this ratio fluctuates only slightly. The recorded beverage revenue is then used to extrapolate a hypothetical total revenue.
When may the tax office apply the 30/70 method?
The method is typically used when deficiencies in the cash register records or bookkeeping have been identified. It may also be applied to the cash-basis income statement (Einnahmenüberschussrechnung) under § 4 Abs. 3 EStG (FG Nürnberg, judgment of 8 May 2012, 2 K 1122/2009). As a rule, it requires the tax office to have authority to make an estimated assessment.
In which cases have tax courts rejected the 30/70 method?
The FG Düsseldorf rejected the method in a case where conclusions were drawn from a high-margin product (beverages) to a low-margin product (food) (judgment of 26 March 2012, 6 K 2749/11 K.G.U.F). The FG Münster also deemed it unsuitable for restaurants with takeaway sales (judgment of 4 December 2015, 4 K 2616/14 E,G,U).
Why is the 30/70 method not suitable for takeaway sales?
Takeaway sales typically consist mainly of food without corresponding beverage consumption. The beverage revenue generated in the restaurant therefore does not allow reliable conclusions to be drawn about food sold off-premises. Extrapolating based on the 30/70 ratio would result in inflated and unrealistic revenue figures.
How should restaurant operators respond to an additional tax assessment based on the 30/70 method?
Affected restaurant operators should critically review the calculation results and, if necessary, challenge them, as tax auditors often assume revenues that are not economically achievable. Arguments such as takeaway sales, deviating consumption patterns or specific characteristics of the business can speak against a blanket application of the method. Citing relevant tax court rulings can further support your position.