Germans May End Refunds

By Lauren Bielski

American companies that participate in trade shows, hold meetings or conduct business with companies based in Germany might not receive their value-added tax (VAT) reclaim check this year-or in the future.

The German VAT Authority and the Ministry of Finance in Bonn are considering disqualifying the United States from receiving the rebate due to a violation of a new reciprocity clause built into revised tax laws.

While the process of retrieving the VAT was always arcane, firms that learned to handle-or outsource-the red tape could count on often sizable rebates. But a decision by the German government could nullify all claims made after June 3, 1995.

"I get calls in this office almost daily checking the status of this, and the answer remains the same as it's been for months: The issue is still pending," said Deiter Eimermann, a tax specialist with the German Tax Administration's U.S. office in Washington. He noted that the June 30 deadline for 1995 VAT reclaims passed without official word from Germany.

The German VAT, a 15 percent tax levied at each point of sale from manufacturing to final purchase, can add significant expense to conducting business in Germany. The taxes are applied to hotel stays, meals, car rentals and other transportation, professional services, marketing activities and training seminars.

In Germany, domestic companies have been able to reclaim a portion of this tax at the end of the year. Since 1986, foreign companies doing business in Germany have been able to reclaim the VAT on T&E expenses in order to spur investment in the country.

VAT rules changed again after the German government made sweeping revisions to the tax laws this year. The rule itself is straightforward: Countries with VAT or VAT-comparable taxes must rebate the tax to German companies doing business on their soil in order to receive rebates when they visit Germany. Countries without a comparable tax are exempt. The problem, however, is that the Ministry of Finance has yet to firmly establish whether the U.S. system of sales tax is comparable. Because the United States doesn't rebate taxes to foreign companies, it would fail the reciprocity rule. Although several tax experts have said that the U.S. tax is not comparable because it is only charged once to end users, Germany might interpret the law otherwise.

Germany-equipped with outstanding exhibit halls and credited with first-class service operations-enjoys 70 percent of Europe's trade show business. The American Chamber of Commerce stated in a memo issued to the Federal Ministry of Bonn last year that a policy change could drive U.S. business out and damage bilateral trade relations.

The German Convention Bureau, based in East Meadow N.Y., believes that U.S. firms will remain exempt from meeting reciprocity requirements. "Since the U.S. has not yet been placed on a list of banned countries, I interpret that to mean that the decision has already been made," said the bureau's director of U.S. and Canada, Karen Franz.

Franz said that because Germany's relatively prompt handling of VAT reclaims-the process elsewhere can typically take up to 15 months-is a strong selling point for encouraging U.S. companies to participate in conferences in Germany, she is concerned about any pending changes in the law. "The law was changed because Germany's very generous policy was being taken advantage of; they found a lot of fraud in the claims that were being processed," she said, adding that blacklisted countries didn't have rules that gave taxes back to Germany.

Still, U.S. companies are concerned. Bjorn Bieneck, president of Bienick International, a company that represents trade shows for the Berlin Convention Center, said that a decision to revoke VAT reclaim could discourage U.S. companies from participating in programs there. "If it costs 15 percent more to do business in Germany, it will likely drive business away." Bieneck, who has lobbied the German government since last summer to make a final decision on the status of U.S. companies, noted that at least $65,000 is at stake for filings he made on behalf of 300 U.S. companies.

Even if the United States is granted the right to continue receiving VAT rebates, the German tax law is tougher on foreign-based applications, requiring a higher minimum level of taxation ($1,000 if filing quarterly and $500 if filing annually) than European Community counterparts, according to Staci Krell, assistant vice president of New York City-based Meridian VAT Reclaim.