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Midsize Cos. Embrace VAT Reclaim

By Michael B. Baker / February 04, 2007 / Contact Reporter
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Midmarket companies increasingly are reaping financial benefits by reclaiming value-added taxes, as their international travel increases and VAT reclamation technology matures.

Since Europe began refunding VAT to U.S. companies in 1989, the process largely has been to the benefit of larger companies with the means to handle the labor-intensive process, said Britta Eriksson, president of Euro VAT Refund, a firm that specializes in helping North American companies reclaim the taxes.

Now, as automation is becoming more common in midmarket expense management (BTN, Oct. 23, 2006), reclaiming VAT is more cost-effective for those companies as well.

"We have solid client growth, and more comes in every year," Eriksson said. "It's the not-so-big companies and the companies that are growing quickly that are still learning and getting on board."

Rolls-Royce North America, which counts about 75 percent of its travel as international, has reclaimed the taxes by using Gelco Expense Management's auditing service since 2002. The aircraft engine manufacturer and power systems conglomerate since has been able to reclaim 27.4 percent of its VAT expense, said Kim Stennette-White, accounts payable manager for its financial services center.

"As an international company, it's been really beneficial to us," Stennette-White said. "It's another revenue for us, and we probably would not have been able to recoup as much as we have without utilizing the process."

Gelco clients like Rolls-Royce send in their original expense documents for receipt imaging purposes. When that includes a high level of international spending, a VAT company can pull the receipts for expenses with reclaimable VAT, said Connie Hoen, Gelco's head of audit services. Other major suppliers of expense reporting technology, such as Cybershift's Necho and Concur Technologies, also have established tools to address multinational reporting issues including VAT recovery, (BTN, July 17, 2006).

The percentage of companies that use the service still is small, according to Hoen, but Gelco presents it to any new client with international travel that implements the imaging service.

"In the past, they would have to go through all the boxes and look in every single one," Hoen said. "It's a great time-saver for them. There are a lot of companies that are just leaving money on the table."

Because of the work associated with VAT recovery, few companies attempt the process without outsourcing, Eriksson said. For Rolls-Royce, it was a necessity.

"It's very effortless," Stennette-White said. "If we had to do a lot of manual processes and legwork in finding the information, we probably would not even bother to do it."

As automated expense reporting becomes more common with midmarket companies, it also will become easier for those companies to determine whether VAT recovery is even worth the effort, Eriksson said. Suppliers like Gelco can estimate VAT recovery potential to determine the cost benefit more easily than companies could on their own, she said.

"Some can do themselves it when they particularly go to just one country," said Eriksson. "My advice, though, is don't try to spend too much time trying to figure it out yourself."
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