IRS To Impose VAT Reclaim Fee

The Internal Revenue Service next week will start imposing a new fee on companies filing to recover value-added taxes on foreign purchases. The annual fee is $35 to $50 to acquire VAT filing forms, which Les Baer, North America president for tax recovery service Meridian, said would create an administrative burden on companies and a barrier to reclaiming foreign-incurred taxes.

Beginning Nov. 1, the IRS will charge up to $50 for companies to file a Form 8802, which attests to its U.S. residency and paves the way for VAT filings. Previously there was no charge to file the form.

In a letter to IRS commissioner Mark Everson, Baer said the fee would create "missed VAT reclaim opportunity for U.S. based companies," discourage small and midsize businesses from filing for value- added tax recovery and cost the U.S. government "significant taxable income."

"The primary reason that a user fee is not appropriate in this case is because the cost to the IRS for providing this form is fully recovered since U.S. companies pay taxes on the refunds they receive from the foreign governments," Baer's letter said.

Meridian sought to take on the administrative burden, but a corporate officer must file the form, attesting to its accuracy.

"No other foreign government charges their companies to get the same form," Baer said last week. "The U.S. is the only government to do that. Now, every year companies have to do this and send a check in—it's an administrative burden."

Meridian also is concerned about its own lost revenue, since it is likely some companies would miss deadlines or not bother to file. Further, Baer said the new process could damage a business model employed by VAT recovery firms—a promise of no money up front in return for a portion of returned taxes.

"The VAT authorities throughout Europe are not the least bit disappointed to see the U.S. government raise another hurdle to discourage U.S. companies from attempting to recover a refund from these governments," Baer said in the letter.

Baer said that many U.S. companies already don't take advantage of VAT recovery, leaving money on the table. "Statistics show that currently U.S. companies fail to get refunds on hundreds of millions of dollars that are due to them by foreign governments. This fee will further discourage many firms from even attempting to explore the opportunity to recover VAT."

Meridian, one of the largest VAT recovery companies—which claims half of the Fortune 500 among its clients—is rallying its client base to discourage the IRS from imposing the charges.