European Taxes Wreak Havoc On Incentive Budgeting

<B>European Taxes Wreak Havoc On Incentive Budgeting</B>

By Chris Davis

Incentive and meeting managers who hold events in Europe and Canada often have the option of reclaiming some or all of the value-added taxes charged to their travel bills, although the process can be a confusing morass of tax rules and regulations. As more corporations include some business aspects into their large group incentives, however, some have found it's worth the trouble to wade through the VAT reclamation process.

Many European countries have strict, but complex, definitions of what constitutes a "business meeting," in which VAT usually is refundable, and an "incentive event," in which it usually isn't. Budget incorrectly and the consequences could be severe.

"There does seem to be a general misunderstanding that corporations can reclaim VAT on pure group incentives," said Britta Eriksson, president of Culver City, Calif.-based Euro VAT Refund, a VAT consulting firm. "You may be able to get refunds based on if at least half of the incentive trip is dedicated to work, but it's getting harder."

Many countries charge VAT on just about every meetings expense, including hotels, meals, ground transportation, professional services and trade shows. The actual percentages vary for each expense by country.

European tax authorities usually will refund VAT on a proportional basis with the amount of business a corporation conducts. For example, if half the day is spent in actual meetings, with the remaining half engaged in leisure activities, authorities usually will refund half the VAT. But, Eriksson said, authorities will not simply take a corporations' word concerning its percentage of work-related activities. "They will want to see at least an agenda," Eriksson said. "Also, providing receipts for hotel meeting room and audiovisual rentals, or evidence of outside speakers, is usually sufficient."

Since the concept is widely misunderstood and since variations in authorities' applications of VAT regulations are not uncommon, corporations that aren't familiar with VAT refund management can incur financial consequences. "Many still think they can get VAT back for incentives, and it's a major blow when they don't budget accordingly," Eriksson said.

Shirley Mertz, meeting services manager at Columbus, Ohio-based Nationwide Insurance Enterprise and president of the Insurance Conference Planners Association, recently completed Nationwide's first conference in Switzerland and is entering the VAT reclamation process for the first time.

"We've never done it before, and it has to be submitted in French," Mertz said. "We will submit it because we should receive several thousand dollars back, based on percentage of room charges and percentage of offsite and onsite menus. We'll let our legal department take a look at it, but we'll actually fill out the form in-house."

Mertz said on the final day of the conference, when she and her staff were reconciling charges, she was approached by a Swiss VAT broker. "We submit it through the broker and he takes a percentage of the refund as a handling fee after making sure we get our money," Mertz said. "He was concerned whether Nationwide had Nationwide sites in Switzerland, which would have negated a refund, but we don't."

Once the form is completed, corporations usually can have the refund in hand four to 12 months later, Eriksson said.

While corporations holding business meetings in Europe usually don't have to register with tax authorities, those that use independent planners to handle their overseas events often do. "There are always exceptions, but if the planner charges a fee to the corporation, it can be very difficult to reclaim VAT if the meeting wasn't registered," Eriksson said. "It helps to be educated at the planning stage."

Despite the complexities of the process and the fact that VAT usually is not refundable on most leisure activities, some corporations will seek reclamation at every opportunity.

"Whenever possible, we will look to reclaim VAT," said Mark Kustwan, assistant vice president or conference planning at MassMutual Life Insurance Co. of Springfield, Mass. "We will try to do it in-house, if we have the expertise for the particular event, but we have used third parties when necessary." Kustwan said MassMutual has been successful in reclaiming VAT after meetings held in the United Kingdom and Canada, and less so in France and Monaco. "Anything we can do to get it back, we do," he said. "It's worth it to us."

Though there's been a general trend toward including more business in incentive meetings, most incentive managers won't intentionally work company business into the mix for VAT reclamation purposes. "We've found that the restrictions on what constitutes a business meeting are so tight that we usually don't bother," said John Ferguson, assistant vice president of creative services at Galveston, Texas-based American National Insurance Co. "I just can't see taking people halfway around the world, then making them sit in a hotel ballroom for tax purposes."

Ferguson said there is at least some business component to all incentive events American National holds, and the company will pick and choose it's attempts at VAT reclamation based on the lenience of the host country and the level of business conducted. He mentioned Canada as one destination where the company will seek post-event reclamation. "There are times where we will go for it," he said, "but it's very seldom. For the most part, we don't even fool with it."

Given the wait for the refund itself, and the complexities of the filing process, there are companies that will not bother with VAT refunds for small meetings, even those dedicated to business. "We've done small meetings in Europe where we have managed the refund process," said Steve Clark, assistant vice president of conference and travel services at Madison, Wis.-based CUNA Mutual Group. "But it's a very labor-intensive process, and the paperwork may be more trouble than it's worth unless the meeting is particularly large.