Misfiled VAT Claims Are Costing U.S. Companies Money

<B> Misfiled VAT Claims Are Costing U.S. Companies Money</B>

By Lauren Bielski

More U.S. companies are hosting for-profit meetings abroad than ever before--and many are missing out on tax rebates they could be receiving because of misfiled claims, according to several VAT refund companies.

Joan Merten, an administrator with the Oklahoma office of U.K.-based VAT reclaim firm QuipSound, said foreign tax dollars can be hard to reclaim, particularly for "sixth-directive status" firms, the category under which U.S. businesses hosting meetings in other countries fall.

Meeting planners may be aware of the requirements for filing for a refund after holding a corporate meeting abroad, but many who branch into for-profit meetings overlook the more complicated VAT registering demands.

"Incorrect invoices result, and when you turn them in, they don't count. By the time the company goes to get claims reinvoiced they miss deadlines because the reinvoicing is so time-consuming," Merten said.

Agreed Britta Eriksson, president of Euro Vat Refund in Culver City, "I've recently gotten numerous calls from potential clients who have read about VAT tax or have gotten second-hand accounts about recouping it but don't understand that they have different filing requirements as revenue-generating entities. Then they misfile paperwork and miss out. Many have lost big money because they have the impression that the process is simpler than it actually is."

Deborah Ferolito, president and CEO of Meridian VAT Reclaim in New York, agreed that VAT is a complicated tax and requires expertise to file correctly. "In countries like France that have stringent interpretations of European Union VAT directives, a misfiled claim has no hope of recovery," she said.

Misconceptions with VAT stem from differences in the tax system here in the United States, where items are taxed only at the point of sale. Another problem is the proliferation of VAT software tools that lead many to believe that VAT reclaim is easy, Eriksson said.

In VAT countries, each "vendor" in the chain of manufacturing, delivery and consumption of goods/services is taxed. Generally speaking, businesses collect the VAT, a sort of national sales tax, from their clients. Everyone pays tax on what value they "add" to the chain of manufacturing or service delivery, which is what gave the tax its name. All VAT generated by foreign companies is recoverable by firms registered with the countries where they do business if they file the proper refund forms.

By now, most U.S. corporations know how to file in the case of individual travelers going abroad. VAT rules vary for each country, and forms must be filed separately with each one, but registering is usually not required. The traveler brings back original hotel, car rental and meal receipts and the VAT reclaim process becomes an extension of T&E processing. Provided the paper work is handled within a year, the company is entitled to get that tax outlay refunded.

Merten said that all European countries except the U.K. have a filing deadline of June 30 for all VAT incurred in the previous year. In the U.K., there is a Dec. 31 filing deadline for VAT generated between July 1 through June 30.

By now, most understand that much about reclaim, and Eriksson and her colleagues have built a new industry in the United States on explaining the rest of the story. The Culver City, Calif.-based reclaim processing firm was one of the first to handle such business when international tax laws changed to accommodate the reclaiming of VAT here in 1989.

<B>Outsourcing VAT Reclaim</B>

Using the services of a professional VAT reclaim firm need not be prohibitively expensive, Eriksson said, since "many reclaim firms, including us, charge an hourly rate, and there are only three distinct periods when their services are necessary." Because processing VAT properly can make or break the bottom line of an overseas event, companies need to make smart VAT management strategies a priority.

Eriksson said the most serious error she repeatedly sees is that of timing; this typically accompanies a general mishandling of the registering procedure when a company is hosting a for-profit event internationally. Whether you outsource registration or go it alone, sixth-directive VAT must be registered before the business starts collecting money for the event or paying vendor invoices.

"We advise our clients to do it right after the initial RFPs have been signed," Eriksson said. Otherwise, none of the receipts reflect the correct tax information.

The registration process is in one sense simple because it involves filling out a two-page document and receiving a unique VAT registration number. Still, it can be difficult to contact the European tax authority without a VAT expert because tax personnel abroad speak in a highly specialized lingo in addition to their native tongue, she said.

If a client contracts with a third-party planner, that planner should register for VAT, and charge VAT systematically.

For a meeting that takes nine months to plan--even if planning originates in the United States and uses U.S. vendors--taxes that accrue need to be filed quarterly with the tax authority in the host country. Invoicing for all services also needs to be issued in compliance with those tax authorities.

Still, not everyone agrees that a service bureau's continual involvement in the process is the way to go. Mark Kotzer, sales and marketing director for Corporate VAT Management in Seattle, said his software product (<i>Meetings Today</i>, April 28, 1997) can handle the filing for meeting hosts as well as meeting guests. "I agree with Britta that registration for meeting hosts abroad requires expertise and that we can be of service to ensure a favorable outcome for a U.S. firm," he said. "But I disagree that VAT software can't handle the rest of the job."

But Eriksson, Ferolito and Merten maintain that the rush to grab VAT has lead to mistakes. "Typically what happens is that a company that held an event at an international destination gets a bill from a planner, sees the tax bill and reacts," Eriksson said. By then, it is usually too late.

Indeed, Eriksson suggested that planners begin to think of VAT issues at the very earliest point of meeting planning, even before choosing a site. A truly VAT-friendly country like the United Kingdom, for example, she suggested, might be a better choice for a for-profit meeting than the more-restrictive France. "We acknowledge that tax policies aren't the only factor governing a destination decision--but maybe they should be," she said.