Executive Travel : Reclaim Those Taxing European Travel Expenses
Most business travel expenditures are just that--expended and gone. Now, however, a growing number of companies are applying to get some of the money they spend on international travel refunded through value-added-tax reclaim programs.
Value-added tax, known as VAT, is essentially a sales tax on various products and services typically used by executives traveling in Europe. The categories for which VAT can be recovered include such products and services as car rentals, hotels, transportation, fuel, exhibition booths and display materials.
Although the taxes vary from about 3% to 25%, the average VAT paid by U.S. companies is about 15%, said Sherri Schick, district manager for New York-based Meridian VAT Reclaim, one of the country’s largest companies that handle VAT claims. That means, on average, companies can recoup about 15% of their European travel expenditures in recoverable categories by filing VAT claims, Schick said.
American companies paid about $600 million in recoverable VAT last year, but because many companies didn’t file the necessary paperwork, they recaptured less than $200 million of that, according to ITS Fabry Inc., a French reclaim service that is collaborating with Diners Club on a new VAT recovery program for Diners Club cardholders.
That unclaimed $400 million has attracted the attention of corporate cost cutters.
“More and more companies are doing VAT reclaim because people are looking for any way they can to contribute to the bottom line,” Schick said.
In theory, companies have been entitled to get this tax money back since 1988, when the European Economic Community passed a directive allowing the VAT refund for foreign companies. Generally, U.S.-based companies that do not have branch offices in the host countries are eligible to file a VAT claim to get the money back.
Until recently, however, getting VAT money back has been such a complicated ordeal that many companies have written it off as not worth the time and effort. Laws covering VAT claims are constantly changing, the procedures for filing a claim vary widely, the amount of recoverable VAT in each category is different from country to country, and the countries themselves are sometimes fickle in how they process the claims.
“You might have your claim rejected because the receipts were (facing) the wrong direction,” Schick said.
Now, however, there are a growing number of firms specializing in helping companies recover VAT money. At the National Business Travel Assn.'s annual convention in Los Angeles last month, several booths were devoted to VAT reclaim efforts.
“VAT (reclamation) can be very cumbersome,” said Walter Sanders, spokesman for Diners Club, which last month launched a VAT recovery service for its corporate card members.
For a company to make a claim, it must submit original receipts for all claimed items--not just credit card records or photocopies--and its traveling executives must file application forms before they leave the country in order to be eligible to get the money back.
“Most business executives are pulling a sprint through the airport at that point,” Sanders said. “They aren’t thinking about VAT.” As a result, many companies lack the proper documentation to make a claim.
Reclaim services help companies set up systems for capturing the necessary documentation, train business travelers on proper exit procedures to make sure they can later make a claim and then take care of making the actual claims for the companies. Such services usually take a percentage of the money recovered. The percentage charged to the client varies according to how complicated the claim is, Schick said.
Often, there is a considerable amount of money at stake.
For example, Travelex, a London-based VAT reclaim service, estimates that if a company spends $200,000 in business travel to Europe--not including air fares--$150,000 of that would be eligible for tax recovery. Assuming an average VAT tax of 15%, the company would get back $22,500 in taxes.
Actual amounts recovered vary according to where the company travels and what types of expenses it has, Schick said.
In Britain, for example, the recoverable tax is 17.5% on hotels, exhibition expenses, staff meals, rental cars, gas and training courses. Germany allows companies to recover its 15% VAT for the same categories. Denmark has some of the highest recoverable VAT taxes, levying 25% on exhibition costs, training courses and fuel.
But at the same time, it allows no recovery on taxes paid for hotels, car rentals or meals. Recoverable VAT taxes in Luxembourg are lower: 6% for exhibition expenses and 3% for hotels. The recoverable VAT on rental cars, gas and training costs is 15%.
The variation among countries also extends to the length of time it takes to process a claim and how far back claims can be made. Currently Belgium, Denmark and the Netherlands allow claims retroactive to five years, Schick said. For Germany it’s three years, and everywhere else it’s one year. Most claims take between six months and a year to process, she said.
How Much Can You Get Back?
Value-added tax rates for the European Union nations that allow businesses to be reimbursed for common business travel expenses. The -- symbol indicates taxes on the item are not recoverable.
Exhibition Hotel Staff Car Fuel Training Country expenses costs meals rental costs courses Belgium 19.5% -- -- 19.5%* 19.5%* 19.5% Britain 17.5 17.5% 17.5% 17.5 17.5 17.5 Denmark 25 -- -- -- 25 25 France 18.6 -- -- 18.6 -- 18.6 Germany 15 15 15 15 15 15 Ireland 21 -- -- -- 21 21 Italy 19 -- -- -- -- 19 Luxembourg 6 3 3 15 15 15 Netherlands 17.5 17.5 -- 6 17.5 17.5 Portugal 16 -- -- -- -- 16 Spain 15 -- -- -- -- 15 Sweden 25 25 25 25 25 25
Processing Country time Belgium 12 months Britain 6 Denmark 5 France 8 Germany 10 Ireland 3 Italy 42 Luxembourg 16 Netherlands 4 Portugal 15 Spain 14 Sweden 3
Source: Travelex Financial Services. Status as of March, 1994.
* 50% recoverable