Value added taxes -- the consumption tax levied on goods and services in countries around the world -- can translate to huge refunds for business travelers, corporations and associations doing business and attending meetings and events outside the United States.
According to New York City-based American Express Corporate Services, VAT refunds typically are 2 to 6 percent of corporate clients’ international travel-related spend, yet many firms fail to recover millions of dollars in refunds every year, either because they underestimate their value or they are deterred by the complex rules surrounding the reclamation process.
In Europe alone, only 20 percent of the more than $1 billion paid in VAT is reclaimed, according to the Reston, Va.-based Federation of International Trade Associa-tions.
To understand the basics -- and challenges -- of VAT reclaim, M&C spoke with Britta Eriksson, president of Los Angeles-based Euro VAT Refund (www.eurovat.com), a financial services firm specializing in assisting North American companies in reclaiming VAT.
Q. What countries allow refunds for VAT?
Australia, Canada, Japan and most European countries allow refunds. However, the rules governing who can claim VAT, what exactly can be claimed and the process itself varies from country to country. “The biggest misconception among our clients based in the United States is that all European countries allow VAT reclaim, which simply is
not true,” says Eriksson. “In the Czech Republic, Greece, Italy, Portugal and Spain, it is virtually impossible. You will have to absorb that 17.5 to 25 percent VAT.”
Q. What expenses are eligible for a refund?
Typical eligible expenses include hotel stays, transportation costs (including taxis, trains and car rental), meals, registration for conferences and trade shows, marketing and advertising services, gas, communication expenses (telephone and computer), professional fees and shipping.
Q. What are the VAT tax rates?
Rates vary from country to country and within countries. They can be as low as 3 percent in Luxembourg or as high as 25 percent in Denmark. (See “VAT Update” for more details.)
Q. Are there specific VAT regulations that pertain to meetings and trade shows?
Yes. Some points to consider:
* If a U.S. planner or company is producing an event in Europe that will charge fees, such as registration, they might be required to register for VAT in the host country prior to the event taking place, or they could be denied a refund. Start VAT registration early, suggests Eriksson, because the process can take up to a month after tax authorities have received the required documents. If no fees are being charged for an event such as a business meeting, VAT registration usually is not required.
* Incentives are never refundable, unless clients can prove that at least 50 percent of the incentive program was business-related.
* The host country’s VAT must be included on all invoices issued to exhibitors, sponsors, attendees and the client.
* VAT paid on invoices to European vendors must be deducted.
* Nearly all VAT authorities reject credit card receipts as evidence, so insist on getting an original hard-copy invoice, which must be made out to the U.S. company, state the employee’s name and include the company’s official mailing address. The invoice also must break out the VAT charge from the total.
Q. Are there deadlines for making a claim?
Most European governments impose the strict deadline of June 30 for any expenses incurred in the previous calendar year. The United Kingdom, however, has separate submission deadlines for European Union and non-EU companies. EU-based companies must submit claims by June 30 for expenses incurred in the U.K. during the previous calendar year. Non-EU-based companies must submit refund applications by Dec. 31 for invoices dated July 1 of the previous year through June 30 of the current year. Belgium and the Netherlands allow retroactive submissions of up to five years. VAT reclaim can be filed up to four times a calendar year.
Q. Should planners get assistance for handling VAT?
Along with all the issues outlined above, those filing for VAT reclaim need to stay abreast of constant changes in legislation in various countries. “Planners should get VAT advice from the moment they start planning,” says Eriksson. “Too often, they think all they need to do is keep receipts and come home and file them; then they are surprised to learn they missed some important legal steps.”