Companies leave billions of dollars in unclaimed value-added tax on the table annually. “It’s one of the best-kept secrets for companies to save money,” said SAP Concur Expense global VP of product management for integration, globalization and cards strategy Hendrik Vordenbaeumen.
However, the complicated and time-consuming process to reclaim VAT would prompt many to take a hard pass, anyway. “VAT is high touch, high risk and relatively low value. A lot of work goes into it,” said ITW strategic sourcing manager Stuart Bartholomew. “But if you outsource it and there’s no risk to you and no additional work, why wouldn’t you do it? It’s a no-brainer.”
ITW has 90 divisions around the world, and 2016 global T&E spend totaled $144 million, according to BTN’s 2017 Corporate Travel 100. The company began reclaiming VAT through Taxback International about four years ago. Bartholomew said the amount recovered averages about 20 percent on every hotel bill. “If you have someone traveling to Europe, spending 200 euros a night in a hotel for four nights, 20 percent of that is significant. It’s worth doing.”
Complexity
VAT, also known as goods and services tax, is a consumption tax. More than 160 countries, but not the U.S., impose this tax, according to the Tax Policy Center. As a general example, travelers to Europe are entitled to reclaim VAT spent on items such as hotels, car rentals and restaurant bills. However, the amounts, which items are reclaimable and the requirements and processes vary between countries. The rules also occasionally change, requiring companies to stay on top of changes or risk losing a claim.
Within the European Union, an employee traveling within the country where his or her company is based can reclaim VAT in a straightforward fashion. “Domestic VAT reclaim is much easier to do, but [crossborder] VAT reclaim—that’s a big problem,” Vordenbaeumen said. The EU’s 8th Directive allows European companies sending travelers to other European countries to reclaim VAT, and the 13th Directive allows companies in non-EU countries to reclaim VAT from EU countries.
A company that wants to recover VAT must understand the rules and how to prepare and submit a claim for each country to which it sent travelers, explained Taxback International director of strategic partnerships Joe Healy. The company then must answer in the native language any queries from the local tax authority.
Sixty to 70 percent of receipts and invoices submitted don’t contain the correct information or are the incorrect receipt altogether. For example, hotel invoices must have the traveler’s company’s registered name and address, but most folios are made under the traveler’s name, disqualifying them from recuperating VAT. Meals require a proper VAT receipt, not simply the credit card receipt. “You can quickly see how you might start off on the road to recovery but then if you don’t meet those rules and don’t prepare the claims and answer queries properly, they will reject the claim so it’s a waste of time again,” Healy said.
Healy mentioned a large German pharmaceutical company that was reclaiming its own VAT, a total of 16,000 euros a year. However, the company discovered it was costing them 12,000 euros to retrieve that money. “I know they were up 4,000 euros, but of what? Should that number have been 50,000 euros?” Healy questioned.
VAT Recovery Companies
Various companies offer VAT-recovery services, some using more technology and automated processes than others to simplify it.
Healy pointed to a U.S. company with lots of international travel to the U.K. A third-party VAT reclamation provider without much automation recuperated $50,000 a year, which the company was happy with. Taxback, however, identified $450,000 in eligible VAT return. “In that first year, I got them back $320,000,” Healy said.
Both Taxback and Taxeo integrate with SAP Concur through an application programming interface, making it easy for them to receive expense report and image data. Taxeo also integrates with Chrome River, although Taxeo CEO Jean Cazes said no active Chrome River users use the service.
For clients of other expense management systems, Taxeo and Taxback collect expense and invoice data through secure file transfers or physical documents. Taxback runs the files through its proprietary optical character recognition software to determine whether the expense items are eligible for VAT reclaim. Eligible expenses upload automatically to Taxback’s database, and VAT specialists for particular countries work on reclamations and answer queries from those countries’ tax offices, Healy explained. When possible, the company goes back to the hotel or car rental company to redo incorrect receipts. Restaurants don’t have the capability to reissue VAT-compliant meal receipts. “It’s a lot of back and forth,” Healy admitted.
Healy said Taxback retrieves 80 percent to 90 percent of eligible invoices, mainly hotel and car rental receipts.
Taxeo has similar processes and has integrated with hotel partners and car rental company Europcar to ensure in near real-time that the invoice includes the needed information; this avoids the need to redo receipts, said CEO Jean Cazes. Travelers provide their unique Taxeo numbers to participating providers at check-in and the hotel or car rental company automatically transmits the information to Taxeo. The VAT company then analyzes, itemizes and creates a VAT-compliant invoice that replaces the old invoice in the hotel’s system, Cazes said. The claim is then ready to send to the appropriate tax office for VAT recovery.
Taxeo doesn’t “have a huge number of hotels” as partners, Cazes said. The company has a property-by-property strategy and targets midsize chains, but the network is growing as Taxeo gains clients. “As soon as we have a client, we see where they stay the most and affiliate with those hotels, which tend to be close to their headquarters or factories,” he said. “That saves quite a lot of money for everyone.”
In general, the VAT companies take a percentage of the amounts they recover and don’t charge anything if they recover no money. Taxback takes around 20 percent. Taxeo’s percentage depends on factors like the amount of the invoice and how manual the process is. The fee for an invoice that comes through Concur, for example, is less than for invoices that require chasing down documents.
The Possibilities
The VAT reclamation process is ripe for artificial intelligence automation. Taxback hopes to work with SAP Concur to use AI, soon after the traveler submits a photo of a receipt through Concur’s mobile app, to determine whether a receipt is VAT compliant, according to Healy. The feature would educate the traveler on collecting the right data from the onset so it reduces later back-and-forth. “It’s all about reinforcing the message,” he said.
However, SAP Concur’s Vordenbaeumen said adoption of such a feature may be farther down the road, as many companies don’t want to burden travelers more related to reimbursement.
More automation, though, could make expense reimbursement easier for travelers. Taxeo is working with an undisclosed expense management system to push the invoices it itemizes back to the expense system to relieve travelers of the tedious task, Cazes said. The company is waiting until it has more hotel partners to release the feature. “You split the room, breakfast, Wi-Fi and so on and prefill it in the expense management solution with the invoice attached and all the supplier data, and [the traveler] won’t have to do anything but check it,” Cazes said.
Additionally, while Taxback already partners with major card networks and issuing banks to retrieve card data, it will integrate with more through API connections to retrieve data more easily. Barclays will be the first API, sometime this year, according to Healy. Likewise, Healy said Taxback is looking to partner with hotels and travel management companies. “[VAT reclaim] is something travel management companies did not see the full value of,” Healy said.
Small Companies
Taxback and Taxeo said it’s worth it to look into VAT reclamation even if a company’s travel spend is pretty low. “If you spend $1,000 or the equivalent in local currency on a business trip, there’s going to be a VAT reclaim opportunity,” Healy said.
While most of Taxeo’s 200 clients are not small, it plans to launch a solution for such companies within a year. “When I say small, I mean very small, companies who spend 20,000 euros a year or companies with two or five people,” Cazes said. “The fact that it’s automated will make it possible.”