Globally expanding your business in today's economic
environment is daunting yet more imperative than ever. As businesses of every
size seek to become part of the global conversation, they often adopt new,
integrated business models and seek broad transformation at the finance level.
At the same time, they are targeting today's growth markets, which typically
are outside of North America. Capturing these new opportunities requires more
than just setting up shop in a new geographical region—you also need to
understand the culture, the language and the traditions in order to more
effectively conduct business transactions. This means your organization needs
to be able to deftly handle such practical considerations as currency exchange
and be well-versed in the targeted region's varying and evolving legal and
fiscal requirements. When it comes to travel and expense management, you'll see
wide variances from country to country in value-added tax reclaim rules,
preferred payment and expense systems, and per diem travel allowances.
The VAT Process
As you seek to expand, you'll find that international taxes,
including the value-added tax (VAT) and goods and services taxes (GST), can be
complicated. In the same way that sales tax in the United States varies among
states, every country's requirements are different. These taxes can amount to
significant sums of money, and penalties if you don't comply.
Understanding the subtle nuances of these differences is
essential for effectively managing programs and communicating with senior
management and travelers on a multinational, pan-European or global basis. Did
you know, for example, that VATs range from 15 percent to 25 percent depending
on the specific country? And did you know that companies doing business
internationally can recover virtually 100 percent on eligible expenses from up
to 41 countries? These expenses cover hotels, restaurants and meals, car rental
and local transportation, business entertaining, telecommunications, training,
trade shows and conferences and more. In addition, reclaimed VATs can quickly
add up to even more savings. By the same token, the consequences and costs of
errors and noncompliance are often severe and can stand in the way of your
Each country with a VAT refund system has different (and
ever-changing) rules, regulations and deadlines, so the reclaim process is a
complex and time-consuming process. And the more countries you do business in,
the more overwhelming it becomes.
Some costs are deductible in some countries but not in
others. For example, in Europe no countries except for Russia and Germany apply
a VAT tax to domestic air travel. To further complicate matters, when filing
for a tax reclamation, most countries will require you to submit the actual
receipt (or a PDF of it) in the respective country's language.
If you are beginning to feel a slight twinge of alarm, you
aren't alone. According to KPMG International's 2012 Benchmarking Survey on
VAT/GST, this area continues to be under-resourced, undermanaged and
undermeasured by the majority of global businesses. Most of the businesses
surveyed (59 percent) have between one and 10 full-time VAT/GST specialists,
and one-quarter have none at all.
No one is disputing the value and increased revenue that
business travel can bring. But when you consider that in many global
businesses, VAT/GST throughput is between $1 billion and $10 billion, you can
see most businesses lag where they need to be. As a result, they are missing
out on a huge opportunity to improve their bottom line.
As a decision-maker in your organization, you need to ask:
• Who in your
business is responsible for managing this increasingly complex, challenging and
financially significant global tax obligation?
• Do you have the
appropriate skills and resources in place?
• If so, how can
you assess how efficient and effective you are at managing this obligation and
drive best practices throughout your business?
Managing Payment And
You may have also discovered that corporate cards for
business travel purchases are the norm in the United States, but they are not
in other countries. Cash advances are very common in companies that do not use
automated expense management or issue corporate cards to traveling employees.
Such companies also are more likely to use billbacks or central billing arrangements.
This means that customers are often paying by invoice, which can create
cash-flow problems for travel management companies.
While expense systems are available, they aren't widely
deployed in many countries even at larger companies. As a result, employees are
manually compiling and submitting spreadsheets to report their expenses. As
with any manual process, there is the inevitable increased likelihood of human
error—translating into profit leakage and higher costs from noncompliance.
Another difference among countries are tax rules regarding
per diems. In one country, a per diem might be considered as payment and in
another it might not. That leads to differences in how per diems are taxed. For
example, Sweden is very aggressive regarding fiscal claims on per diems. In the
Netherlands and France, governments are still working out the fiscal
implications of per-diem allowances. Such allowances can be complex and
cumbersome because a traveler must calculate the number of hours they travel,
and some have industry-specific requirements.
Managing this kind of complex paper trail means you'll need
an expense management solution in place that provides management of both
electronic and hard-copy paper receipts, including auditing services to review
and approve them, as well as retention and storage.
How can you assess if your organization is on top of all
this? In spite of the complexities of international travel and expense
management, there are technology solutions available today to facilitate VAT
management and compliance, managing payments, expense reporting and travel
As you explore options, consider an integrated solution that
is easily implemented and runs on top of your existing systems. Depending on
your current needs and growth plan, consider working with a provider who can
offer more value-added services, including established global customer call
centers, corporate card administration, system administration, policy and
process management, reporting and receipt tracking.
Other key traits to look for in a partner include: How long
have they been in business? Can they offer a truly global and integrated,
end-to-end solution, powered by advanced analytics that help you transform your
data into smarter decisions?
Ultimately you'll want a provider that works to help you
manage a wide range of in-country requirements—empowering you to go global and
bring sustainable value that transcends short-term cost efficiencies.
The report originally
appeared in the June 18, 2012, issue of Business