Claiming refunds for value-added taxes - Western Europe - Small Business Financial Adviser

Nation's Business, Nov, 1995 by Lynn Woods

Companies that do business in Western Europe may be eligible for sizable refunds of value-added taxes, which are levied on a variety of goods and services there. It takes patience and skill, however, to claim a refund.

While tourists can reclaim the VAT only on certain goods, businesses may be eligible for refunds on their expenses for hotel rooms, car rentals, gasoline purchases, meals, hiring of translators or other professional services, training courses, and trade-show expenses. However, because the tax, which averages 15 percent, is included in the price of these services, many companies are unaware that they're paying the tax--and certainly unaware that they may claim a refund.

Others may know they can claim a refund but decide against it because it involves extensive paperwork.

To qualify for a refund, companies must submit original receipts showing the name of the company (not just the individual traveler) and inscribed with the supplier's VAT registration number. A form from the tax authority in each country must be filled out annually in the language of that country, along with Internal Revenue Service Form 6166, which certifies that the company has filed a U.S. tax return.

The tax laws themselves are complicated. VATs not only vary from country to country but also may differ from service to service or product to product within a country. In one country, the VAT may be 25 percent of the cost of meals and gasoline but only 12 percent for hotel rooms.

In addition, not all VATs may be eligible for refunds. Meals are eligible in Sweden, Germany, and the United Kingdom but not in Belgium, Finland, or the Netherlands. Nontravel expenses, such as telecommunications and advertising, may qualify for refunds in some countries but not in others.

And the amount refunded by some countries may be slightly less than the full amount of the VAT paid.

Small companies may feel overwhelmed by the task of researching the VAT and filling out the paperwork. Many firms employ a VAT-reclaim service, which, for a commission of 20 to 40 percent of the tax refunded for small to midsize companies, will do all the paperwork for them. Among the VAT-reclaim firms that deal with small as well as large companies are EuroVAT Refund (1-800-828-0609, Los Angeles), Meridian VAT Reclaim (212-554-6700, offices throughout the nation), Travel Tax Management International (612-338-6973, Minneapolis), and Universal VAT Services (404-396-5690, Atlanta).

Applying for VAT refunds can be worth the cost if a few of a company's employees travel to Europe at least three to five times a year or if they attend European trade shows, where there can be substantial expenses above and beyond hotels and meals.

Employees should obtain original receipts; a car-rental contract or credit-card bill for a restaurant meal won't do.

To simplify the filing process, one employee should be responsible for collecting and copying the original receipts and turning the originals over to the VAT-reclaim service.

It takes at least four months to receive a refund. For the United Kingdom, it takes about six months; it's a year for Germany and the Netherlands and up to four years for Italy and France.

--Lynn Woods

The author is a free-lance writer in Woodstock, N.Y.