Value-added tax accounts for as much as 5% of the annual cost of foreign travel, yet most businesses do not attempt to recover it. Now help is at hand with Taxeo, a solution that automates the recovery process and boosts your company’s savings.
Value-added tax is common, and it’s costly—particularly for companies with international travelers. The entire European Union, Switzerland, Canada, South Korea and other countries impose up to 27% VAT on a wide range of goods and services. While businesses are usually entitled to recover VAT, a complicated reclaim process means few companies attempt it outside their home markets.
In the European Union, for example, companies reclaim only about €2 billion (roughly US$2.61 billion) of the €7.5 billion in foreign VAT incurred annually. Only about half of large EU businesses recover foreign VAT at all, the European Commission reports, and the recovery effort by small businesses is even more anemic. The cost of doing nothing is substantial: Auditing giant KPMG estimates that VAT can account for up to 5% of a company’s foreign travel spend.
Guillaume Leclerc, BCD Travel’s senior manager of strategic marketing for product planning and portfolio development, says even those companies that do make VAT claims may not be getting all they’re due. “Claims often are only on high-value invoices generated by internal departments, such as the bills paid for trade fairs,” he says. “Most of the time companies do not recover the VAT incurred by their business travelers.”
Why are companies missing out on this savings? Smaller businesses, especially, lack awareness that it’s even possible to recover foreign VAT. And many firms simply do not appreciate how much of their money is going unclaimed. Even businesses that understand the true cost of VAT often are deterred by the complexity of filing claims in different countries operating under different and confusing rules. Add in language barriers, a manual process that’s painfully slow and the time it takes to receive a refund, and it’s hardly surprising businesses have shied away from VAT reclaim.
But now a robust combination of industry know-how and technology is simplifying recovery. BCD Travel is partnering with Taxeo, a company that automates the VAT-reclaim process. Here’s how it works: A business traveler presents a Taxeo-enabled card at the reception desk of a participating hotel. A clerk swipes it, and the traveler’s expense data is automatically captured and analyzed to identify which purchases qualify for claims. From there, a VAT claim is automatically filed to the relevant foreign tax authority.
A growing number of hotels and car rental companies are adopting the Taxeo automated process. Meanwhile, Taxeo is filling the gaps with a conventional manual VAT-reclaim service. But automation is the game-changer, Leclerc says. With it companies can achieve a higher proportion of compliant invoices, save time, capture fully itemized travel expenses and create a more transparent reporting process.
“With Taxeo, a company that spends €5 million on foreign travel could easily incur €300,000 in recoverable VAT,” he says. “That’s why we strongly recommend the solution to our clients.”
Ways to maximize VAT recovery
Educate travelers. Explain to travelers that their invoice must list the hotel’s VAT number and your company’s correct name and address (not the traveler’s name and address). The invoice also needs to itemize clearly how much VAT is applied to individual items—for example, a room may carry a different VAT rate than food and beverages.
Steer clear of daily allowances. Travelers with daily allowances to spend as they please have less incentive to collect VAT-compliant invoices.
Engage preferred suppliers. Involve suppliers in your VAT-recovery initiative to simplify and expand your reclaim opportunities.
Use an automated expense management system. You’ll gain greater visibility into ways you can recover VAT, and some expense management systems even can generate VAT reclaim reports.
Automate your VAT recovery. Maximize efficiency and savings by automating the recovery process.
Outsource foreign VAT recovery. Where automation isn’t yet possible, hire a reclaim specialty firm. You’ll pay them with a portion of your recovered VAT, but their expertise and economies of scale will still save you more money than processing claims on your own.
VAT rates in top EU business destinations