For US companies doing business in Europe, VAT can be difficult to understand and even more complex to implement. Non-resident business entities – including those located in the Unites States – are eligible to reclaim a VAT refund on transactions that occur in a VAT-charging country, such as Europe, UK, Canada, Japan, South Korea and Australia. This includes travel expenses, conference fees, supplier goods, marketing services and a host of other expenses that take place when US representatives do business on foreign soil. It also includes VAT charges that must be levied when a US business imports goods into Europe for onward supply in the EU, imports and maintains an inventory of goods in a European location, operates a local subsidiary, or even sells electronically-delivered software, games or music to private individuals in Europe.
While the onus is on the US business to administer VAT, it is important to note that businesses are meant to be VAT tax collectors, not tax payers. VAT is an end user tax, and businesses are not intended to lose money on these transitions.
Why aren’t U.S. companies reclaiming their VAT?
Oftentimes, US businesses supplying goods or services in Europe are simply unaware of VAT and its implications. They do not realize that VAT levied on their company travel expenses are fully refundable, nor do they realize that they have an obligation to register and charge local VAT in certain circumstances.
In some cases, even when businesses do realize their obligations related to VAT, the companies find the VAT refund process complex and tedious. The tax authorities of each Member State have a certain degree of flexibility in the implementation of VAT. Differences may apply to tax rates, exemptions, reverse charge mechanisms, languages, reporting requirements and deadlines. A US company’s in-house finance department may not possess a clear enough understanding of the detailed and widely-varying regulations and requirements in each country.
Further, companies that do make the effort to recover their VAT are often unsuccessful. Claims are often addressed using semi-automated/manual and error-prone processes that are both time-consuming and costly. Unfortunately, if specific criteria or deadlines are not met, the refund is forfeited. Worse, failed and incorrect claims result in significant penalties, lack of financial governance and improper compliance.
Potential of VAT recovery for US corporations
Considering that VAT can represent up to 27% of invoice spend, recovering the VAT on their T&E can make a significant impact to the company’s revenue goals. Given the significant financial benefits of a robust recovery process, US corporations should proactively seek solutions to ensure their foreign VAT is recovered and all VAT-related processes are properly integrated within their business models. Ensuring a correct VAT recovery process enables maximization of VAT refunds, cash flow and avoidance of non-compliance penalties.
To optimize VAT recovery efforts, US companies must take stock of their processes, data quality, and technology.
Review and adapt processes: Tax stakeholders view processes from a VAT recovery perspective. Ask tough questions about such key issues as suitability of invoice format to VAT reclamation, and more. Once you’ve identified the core issues, process adaptions are far simpler to implement.
Enhanced data quality: Start by analyzing all touch points, and identify and train those with a stake in VAT recovery. Then, leverage both their experience and newly-acquired VAT knowledge to identify specific issues and smoothly effect change.
Introduce efficiencies through technology: Automated VAT recovery systems more effectively validate VAT data while streamlining the whole VAT recovery process and markedly raising the amount of VAT recovered. By implementing a single, centralized and automated technology-based VAT Recovery process, enterprise-wide, companies can maximize visibility, compliance and control over the global VAT spend. Effective solutions should deliver value without resource-consuming, manual data aggregation and qualification.
How does automated VAT recovery work?
Advanced, automated VAT recovery systems seamlessly access standard data and scanned invoices from your ERP, TES and other internal systems. This is data that already exists – but often remains unexploited for the purpose of VAT recovery.
These systems minutely examine travel expense data and employee travel expense reports. Automatically eliminating errors, duplications, disqualified evidence, and incomplete data – they find disparities between actual expenses and documented expenses, between real costs and considered costs. They also illuminate data leakage – the significant gaps between data and evidence. Then, automated VAT Recovery systems validate and prepare, submit and manage foreign claims worldwide.
For US corporations operating internationally, we prepared a White Paper about the importance of the VAT refund process for US corporations and the steps needed to get started on the road to VAT recovery.
VATBox has successfully streamlined the VAT recovery process, providing businesses and financial institutions with unrivaled visibility, compliance and data integrity. Leveraging the cloud and utilizing full automation, VATBox exhibits complete control of a company’s VAT spend, while making the recovery process more productive and yielding higher returns. You can request a free demo to learn more about how VATBox’s AI-driven solution can help your company thrive in today’s complex financial times.