What&#39;s Up With VAT? 7-1-1999

Meetings & Conventions: What's Up With VAT? July 1999 Current Issue
July 1999

What's Up With VAT?

If you’re not filing for Value Added Tax refunds, you’re missing out on easy money

By Cheryl-Anne Sturken

When the Chicago-based American Bar Association meets in London next July for its annual convention, the 11,000 expected attendees will find a bonus inside their registration packets: information on how to reclaim their Value Added Tax.

Similar to a sales tax, VAT is a transaction tax levied on many goods and services in Europe, Canada, Korea and Japan. VAT rates vary tremendously from country to country, from 7 percent in Canada, where it is known as the Goods & Services Tax, to a hefty 25 percent in Sweden.

Although leisure travelers may claim VAT refunds only on merchandise purchased, business travelers attending international meetings, conventions and trade shows stand to reclaim all or part of the VAT incurred on a host of expenses, including lodging, meals, registration fees and transportation. VAT on those expenses also can be reclaimed by U.S.-based companies or associations hosting international events. Furthermore, companies can claim VAT refunds on meetings-related expenses such as speaker fees, insurance, lighting, drayage and signage.

In the United Kingdom, where the current VAT rate is 17.5 percent across the board on eligible expenses, VAT recoupment for ABA conventioneers, not to mention the association itself, will amount to much more than small change. Unfortunately, says Christopher Matthews, press officer for the Delegation of the European Commission in New York City, the ABA is the exception, not the norm. "Many companies don't bother filing for VAT because they simply don't understand how it works," he says.

According to John Powell, president of Seattle-based Corporate VAT Management, a 5-year-old VAT consultancy and technology firm, "The biggest problem is that companies either don't know of the opportunity, or they think it is so complicated it is not worth the effort." Powell puts the annual aggregate for unreclaimed VAT by U.S. business travelers and U.S. companies at $2 billion.

To demystify the VAT reclaim process, and to get solid insider tips on how to conduct business in VAT countries so as to maximize reclaim amounts, M&C turned to the experts.

VAT RECLAIM
FOR DUMMIES

Auto VAT, designed by Seattle-based Corporate VAT Management, is a Windows-based program that is equipped with all the information needed to file a VAT reclaim in 15 European countries and Canada. The software generates a completed report that users can submit for reclaim, along with original invoices and an IRS No. 6166 Proof of Entitlement form.

John Powell, president of Corporate VAT Management, says, “Our technology assumes the user has no idea of how to reclaim VAT. It holds your hand through each step of the process.”

For information, contact Corporate VAT Management at (206) 292-0300; www.corporatevat.com

C.A.S.

What countries allow VAT refunds? As a result of an international tax law known as the Thirteenth Directive of the European Union, passed in 1986, roughly a dozen European countries offer a VAT refund. The directive permits companies that do not maintain offices registered in an EU member nation to file for VAT refund. Canada, Switzerland, Korea and Japan also offer some form of VAT refund.

How can I tell if my company is eligible to claim a refund? The general rule of thumb is any company not registered to pay VAT in a country within which it is doing business (in other words, a foreign company) is eligible to claim a VAT refund from that country. When filing for a refund, U.S. companies must submit Internal Revenue Service form No. 6166, Proof of Entitlement, which establishes the claimant as a bona fide company legally established to conduct business in the United States. Form No. 6166 is good for one year from the date of issue. In Japan, however, foreign companies must be registered with the Japanese tax authorities to file a claim.

What international meeting, trade show and convention expenses are eligible? "Trade shows get hit with VAT big time. So everything, right down to the [cost of the] person who vacuums the booths at night, is recoverable," says Peter Fleming, district manager for Meridian VAT Reclaim Inc.'s Southeast office in Atlanta. Typical trade show and conference costs subject to VAT are professional speaker fees, signage, lighting, insurance, move-in/out costs, published materials and rental fees. Fleming notes, however, that the VAT percentage can vary from country to country.

What individual business travel expenses are eligible for reclaim? Business travelers typically can reclaim VAT on lodging, meals, transportation, car rental and even gas. There are, however, a few exceptions. France, Ireland and Norway do not allow VAT reclaim on any individual business travel expenses. As with trade show and convention expenses, the VAT percentage applied to business travel expenses depends on the country. (For a complete country-by-country breakdown of eligible VAT expenses and percentages, see the chart below.)

Refundable VAT on Business, Conference and Trade Show ExpensesCOUNTRYPROFES-
SIONAL FEESTRADE SHOW EXPENSESINTER-
COMPANY EXPENSESHOTELMEALSCAR RENTALGASTRANSPOR-
TATION Austria 20% 20% 20% 10% 10% No No No Belgium 21% 21% 21% No No 21%* 21%* 6% Denmark 25% 25% 25% 25% 25% No No No Finland 22% 22% 22% 8% No 22% 22% 8% France 20.6% 20.6% 20.6% No No No No No Germany 16% 16% 16% 16% 16% 16% No 16% or 17%~ Iceland 24.5% 24.5% 24.5% 14% No 24.5% 24.5% 24.5% Ireland 21% 21% 21% No No No No No Liechtenstein 7.5% 7.5% 7.5% 3.5% 3% 15% 15% 3 Luxembourg 15% 15% 15% 3% 3% 15% 15% 3% Netherlands 17.5% 17.5% 17.5% 6% No 17.5% 17.5% 6% Norway 23% 23% 23% No No No No No Sweden 25% 25% 25% 12% 25% 25%* 25%* 12% Switzerland 7.5% 7.5% 7.5% 3.5% 7.5%* 7.5% 7.5% No U.K. 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% 17.5% * Half of VAT is eligible for reclaim
~ Taxi transportation
Source: Meridian VAT Reclaim Inc. (www.meridianvat.com); as of June 4, 1999

Are incentive trips eligible for reclaim? Technically, incentive trips are not eligible for VAT reclaim because they are not considered business trips. Also, keep in mind that only VAT expenses incurred by employees can be filed; VAT expenses incurred by guests of employees are not eligible for refund. Companies filing a claim for the costs they incur to host an incentive trip should include a formal itinerary of the trip's daily schedule, highlighting all business aspects, such as sales meetings and product launches, and submit it on company stationery along with the claim.

Often, a government will deny a company's claim for VAT rebate, but that does not mean its judgment has to be accepted. Martin Pinsonnault, president of TaxPort USA Corp. in New York City, a 6-year-old VAT reclaim company, recalls a claim he made with the Swedish VAT authorities on behalf on an American insurance company that had conducted an incentive trip in Sweden. "The claim was at first refused," he says. "But after we resubmitted it on company letterhead detailing the attributes of the trip, they offered a $75,000 refund. That was money back that the company was prepared to just write off."

What invoices are required to obtain a refund? Correct invoicing is perhaps the single most important aspect of a successful VAT reclaim because VAT authorities insist on having original invoices. Credit card receipts or statements; express check-out bills from hotels or car rental companies; e-mail receipts confirming payment, and faxed copies of bills are not accepted.

Switzerland adds a twist: VAT authorities there insist proof of payment accompany all VAT invoices submitted for reclaim. Proof can be in the form of a canceled check, bank statement, payment order to the bank, credit card receipt or credit card statement. If payment was made in cash, the original invoices must be stamped "paid in cash."

Ask the European supplier to provide an original invoice for each service, and ask to have the VAT percentage broken out. "Many times, VAT charges are hidden within an invoice as part of the overall cost," Fleming says. Also, he cautions, make sure to have invoices made out to the company that will be claiming the refund, not the meeting planner who contracted the supplier's service.

To avoid invoicing pitfalls, check each invoice as it comes in. Do not wait until the conclusion of the meeting or trade show when nerves are frayed and details tend to get lost in the wrap-up. And do not be shy about asking that a new invoice be generated. European businesses are used to dealing with VAT-sensitive issues.

Is a refund still possible if original invoices are missing? Sometimes, but only if you are lucky and have a very persistent reclaim company working for you. "If you don't have an original invoice, you still stand a chance of getting your VAT back," says Pinsonnault. "It just takes a little longer." He estimates 10 to 12 percent of all invoices TaxPort files on behalf of clients are not originals; of those, VAT refunds are issued on almost 100 percent. "The authorities say 'no,' and we say 'maybe.' We're very stubborn. It can be done, and there is nothing to lose in trying."

Is there a deadline for filing a claim? Yes. The United Kingdom runs on a July 1-to-June 30 VAT calendar. Claims may be filed up to six months after the end of the VAT year, or by Dec. 31. The rest of Europe runs on a Jan. 1-to-Dec. 31 VAT calendar. Claims may be filed up to six months after Dec. 31, or by June 30. Some European countries, such as Belgium, the Netherlands, Ireland and the United Kingdom, will allow retroactive VAT claims for invoices dating back several years. But, according to VAT reclaim experts, filing within deadline ensures a faster, hassle-free refund with fewer queries.

Canada operates on what in the VAT world is known as a "rolling" deadline. Reclaims on its Goods & Services Tax may be filed with Revenue Canada up to one year after the date the invoice was issued. As with European nations, Canada requires original invoices.

EXPERT ADVICE
In need of information on VAT reclaim or shopping for a reclaim service? The following resources can help.

Delegation of the European Commission
3 Dag Hammarskjold Plaza
305 E. 47th St.
New York, N.Y. 10017
(212) 371-3804
Fax: (212) 688-1013

Revenue Canada
Visitor Rebate Program
Summerside Tax Centre
Summerside PE CIN 6C6
Canada
(902) 432-5608
www.rc.gc.ca

International VAT Association
Attn: Peter Wilmott, chairman
Prisma Transport Consultants
523 Ave. Louise, Bte 24
1050 Brussels, Belgium
(011) 3-22 647-4263
Fax: (011) 3-22 647-2153

TaxPort USA Corp.
599 Lexington Ave., Suite 1204
New York, N.Y. 10022
(888) 298-8296
Fax: (888) 298-8297
www.taxport-usa.com

Meridian VAT Reclaim Inc.
125 W. 55th St.
New York, N.Y. 10019
(212) 554-6700; (800) 727-4VAT
Fax: (212) 974-0673
www.meridianvat.com

Customs & Excise VAT Overseas
Payment Unit
Customs House, P.o. Box 34
Londonderry BT48 7AE, N. Ireland
(011) 44-150 437-2727
Fax: (011) 44-150 437-2520
www.hotelsengland.com
(For lodging reclaim in U.K.)

How long does a refund take? Refund fulfillment varies from country to country. Expect five to nine months for a first-time claim, provided the claim was filed on time with all the necessary invoices. Otherwise, expect a check in three months.

How does a VAT reclaim service work? The No. 1 benefit of using reclaim companies is that they are familiar with the ins and outs of each nation's legislation and work with partners in the country in which the claim is being filed. VAT reclaim authorities tend to process claims in their language, and having a local go-between ensures key questions are not lost due to poor translation.

VAT reclaim companies get involved in as much or as little of the refund process as clients request, from complete on-site auditing, preparation and filing of a VAT reclaim to simply checking a client's self-prepared claim for accuracy.

Another benefit of using a qualified VAT reclaim service is that because successful refunds are their bread and butter, these companies push for VAT legislation that benefits their clients. "We had a client that imaged their invoices on microfilm and didn't keep any originals," says Fleming. "We were able to present an argument on their behalf to the United Kingdom's VAT authorities that the client, a first-time claimant, was unaware of the invoice rule. It was finally accepted, and now a precedent regarding microfilming of invoices for special cases has been set in that country."

Larger VAT reclaim services belong to the 40-member International VAT Association, based in Belgium (see "Expert Advice").

What do VAT reclaim services charge? Fees depend on client needs, but the industry average, according to Fleming, is roughly 20 percent of the VAT recouped, although it can run as high as 40 percent. Almost invariably, when no refund is issued, no fee is charged.

Meridian VAT Reclaim Inc. is so sure of its ability to obtain VAT refunds, it recently began offering corporate clients the option of a prepaid program. For an additional fee of 5 to 6 percent, depending on the country in which the claim is being filed, Meridian will prepay a refund to the client one month from the date of filing.