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What's up with VAT?

Nov 01, 2011
This PlusPoint exclusive offers a more complete discussion of the global VAT situation than we were able to fit in print in this month's One+. Enjoy!

By Dalia Fahmy

Value-added tax is the double-edged sword of international meetings. On one hand, who doesn’t want to save 10 or 20 percent on an overseas meeting by getting a tax refund? On the other hand, who wants to deal with all of the rules and paperwork that come with VAT refund claims? That said, planners say they build their international event budgets around expectations of a VAT refund, and some even favor or avoid certain locations based on the tax rate.

Most countries have some form of value-added tax and rates generally range between 5 percent and 25 percent. In the European Union, the minimum standard rate set by the European Commission is 15 percent. Countries raise and lower their VAT rates quite frequently depending on political and economic circumstances. VAT is often not added to price lists and quotes, but appears on final bills. Planners should always ask vendors in advance whether quotes include VAT and how high it will be. Luckily, many countries refund VAT. Because refund laws vary by country and change frequently, most companies hire specialized firms that help them to reclaim the tax. Large organizations hire top tax advisories such as Deloitte and Ernst & Young, while other clients use smaller specialized VAT recovery firms.

It’s very important to remember that VAT rules are so complicated and nuanced, anyone seeking advice about this topic should contact a tax professional. Information in this article is meant as guidance only.

News from Europe
Earlier this year, new developments came into effect as the European Union attempts to standardize tax regulations among member states.

The key change has been around the “place of supply of services,” which alters how foreign entities organizing events in Europe are treated. Pamela Spence, secretary for the International VAT Association (IVA), says this has been the biggest change to affect the events industry in recent years.

Generally speaking, the new rules mandate U.S. corporations that organize events in Europe to collect VAT from their attendees before they can reclaim refunds for VAT payments made to vendors. However, before U.S. corporations can charge VAT, they must be authorized to do so, which means registering for a VAT number in the country where the event is taking place.

The good news is that rules have not changed for events that don’t collect any revenue. In such cases, companies don’t have to register in advance and can simply fill out the required paperwork and submit invoices for refund at the end of an event subject to the local VAT rules, according to Dieter Kern, vice president at Canada-based InsaTax.

News from Around the World
It’s difficult to make generalizations about VAT refund rules in other regions because they vary even more widely. In Asia, countries that allow refunds without a prohibitive amount of red tape include Taiwan, which has a 5 percent VAT and South Korea, which has a 10 percent VAT. In Latin America, rules also vary. Mexico, for example, waives the 16 percent VAT for international conferences, congresses, trade shows and other types of qualified events.

Cutting Through Red Tape

Registering for a VAT number and claiming refunds can be painstaking or simple, depending on the country. Countries that make it easiest for U.S. companies include: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, the Netherlands, Sweden, Switzerland and the U.K. Countries that make it particularly difficult include Bulgaria, Lithuania, Latvia, Poland, Romania, Slovenia, Slovakia and Turkey. Countries that lie somewhere in the middle include Iceland, Japan, New Zealand, Norway and South Africa, IVA’s Spence says. Some countries offer no VAT refund at all to American companies, because they argue that the U.S.—which has no value-added tax at all—doesn’t reciprocate the generosity.

To make things more complicated, not all countries refund VAT on the same items, according to Britta Eriksson, president & CEO of California-based Euro VAT Refund. France, for example, doesn’t refund taxes paid on hotel rooms or food, but will refund tax charged by the venue. At the other extreme, Sweden refunds VAT paid on virtually any invoice. In most countries, tax paid on incentive trips is not refundable because incentive trips are considered a leisure expense, not business.

In order to take the guess work out of the VAT puzzle, Thomas Reiser, executive director of the International Society on Thrombosis and Haemostasis (ISTH), says his organization calls authorities in the relevant country before planning an event, in order to be absolutely sure about the rules. Even though ISTH uses a large accounting firm to help it obtain the refund, Reiser says calling authorities directly helps give him peace of mind.

“It’s the only way to be on the safe side,” Reiser said.

That said, not every organization makes the effort to reclaim VAT. Symantec’s Global Event Marketing Manager Ashely Muntan, CMP, says the financial benefit of reclaiming the tax is sometimes too small to make a significant difference to the company’s event budget.

“For a company like Symantec, by the time you collect all the invoices, submit the paperwork, track it for three months, finance may find that a write off is more worthwhile,” she said.

Image: Creative Commons (CC) International-critics

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