Kevin-Hall - 24/06/2011 15:10 GMT
Although VAT rates have shot up throughout Europe, there is a way for non-European businesses to get some of that VAT back.
This is not just for “big business”: VAT is recoverable on hotels, meals, conferences, etc. and specialists will only charge a percentage of whatever is recovered (no-win no-fee), so this is accessible to any business which involves travelling to Europe.
Now, I am the first to acknowledge that European VAT is not the most exciting of topics (though British comedian Stephen Fry does get laughs from it!), but large numbers of businesses are missing out here and you should challenge your accountants to claim your share of the “European VAT mountain”.
Essentially, there is a little-known mechanism enshrined in European VAT law which allows non-European businesses to recover the VAT paid on purchases made in Europe; yet few businesses are taking advantage of it.
Why now? Thanks to large-scale bungling in Europe, the deadline for internal VAT reclaims had to be deferred by 6 months this year, so attention is turning to this otherwise little-known “cash-machine” in Europe. Moreover, the tax year (in the UK at least) ends 30 June 2011, with a window of just 6 months to make a claim; so non-European businesses should grab this opportunity immediately.
So ask your accountant now - or your Finance Director, or leave a message here - to make sure your business reclaims European VAT and reduces its travel expenses now.
Binman62 - 24/06/2011 15:16 GMT
Just Europe needs right now.......more tax avoidance!!!
Kevin-Hall - 24/06/2011 15:40 GMT
Not at all!
Sales between businesses are supposed to be VAT-free, and any VAT paid by businesses is (broadly-speaking) supposed to be recovered by businesses on their European VAT forms. The VAT charge only "sticks" when the public buy the product. It's laborious, but it's just how it works in Europe: most European businesses reclaim the VAT paid on their purchases.
To make it a level playing-field, non-European businesses are also entitled to reclaim VAT on their purchases too. But because the mechanism is not advertised, most don't do it. In fact, it is simply unfair on non-European businesses. They pay taxes which their European competitors do not pay!
Hippocampus - 24/06/2011 15:44 GMT
Binman, This is not tax avoidance. It's an established refund mechanism to allow non-EU businesses that are not VAT registered in the EU to recover VAT they incur on business expenses in the EU. There is a similar refund mechanism to allow EU businesses to recover VAT they incur in Member States in which they are not VAT registered and most countries outside the EU have reciprocal sales tax refund programmes with the EU.
All businesses are doing is legitimately recovering tax the law says they are entitled to recover.
NTarrant - 24/06/2011 16:04 GMT
Actually the EU VAT rules for reclamation between member states is quite complicated. For example a UK based company can't reclaim the VAT on a hotel stay in Dublin because it is exempt in Eire. There are other examples.
Non-EU can of course claim VAT back over a certain value as can tourists of non-EU. Business yes, but tourists I don't agree with getting the tax back.
Kevin-Hall - 24/06/2011 16:12 GMT
Yes, it's a fair point. I stated "broadly-speaking", because if I started with all the little complications, nobody would want to read it and the system would probably crash!! And we haven't even mentioned that France only allows a percentage of the VAT percentage to be reclaimed on diesel, for example ...
Nevertheless, I believe it is broadly true that if a non-European business submits their European VAT invoices to a suitable accountant, Finance Director or other specialist, there is VAT to be recovered.
Moreover, if the specialist only charges a percentage of whatever is recovered (taking care of the intricacies of VAT law within their own team, so everyone else is not distracted by it), this is simply money that the non-European business would otherwise lose. For those travelling to Europe frequently, it has to make sense to try, don't you think?
Binman62 - 24/06/2011 16:52 GMT
Can't see the US or Canada allowing this. Indeed as a tourist in the US it is not possible to reclaim and Canada make it so difficult it is just not worth it.
However you dress this up it is tax avoidance, it may be legal but it is not right.
Swissdiver - 25/06/2011 15:19 GMT
While yes, it is possible for non EU companies to claim back, it requires an accountant to be able to understand the form and fill in it correctly... Not exactly user friendly. And this supposes of course the non EU company is aware it can claim back...
craigwatson - 25/06/2011 15:35 GMT
swissdiver - i think that was Kevin-Hall's whole point in starting the thread. Im pretty sure he is that accountant ( or affiliated with such ).
craigwatson - 25/06/2011 15:41 GMT
Binman - both canada and the US refund taxes back to tourists, for both goods and services, such as hotels. quite easy to do in regards to canada, very diffucult to do for the US, as it depends whether state or federal tax you are trying to reclaim as to how you go about it.
quick google search will lead you to the government forms to fill out to obtain the refunds.
I dont see it as tax avoidance, as a tax is only for residents of that particular country. in an ideal world the refunding of sales tax to tourist/business boosts the economy of that country as you get more tourists arriving, but i think very few actually take advantage of this as it is confusing and not very easy to do on your own for alot of countries.
Hippocampus - 25/06/2011 15:53 GMT
Binman, This is not tax avoidance. That is akin to suggesting someone who puts savings into an ISA is engaging in tax avoidance.
Tax avoidance (broadly put) is where someone does something for no purpose other than reducing their tax liabilities and seeks to achieve an outcome that is contrary to the spirit and purpose of the legislation.
NTarrant - 25/06/2011 18:05 GMT
Kevin - yes I agree, using an agent can be much more useful and less time consuming than doing it ones self or getting an accountant. However for small amounts it is not always worth the expence. Like you say if it is regular it can be worth it.
On the tax back for tourists side, most countries you have to spend a certain amount on one particular item rather than a number of items totalling a certain amount. Norway is an example.
Iwant to buy an iPad2. UK and Swiss price are the same. Difference is the VAT, Swiss 8%, UK 20%. I'll buy them in the UK, reclaim the tax and pay the Swiss VAT. I'm 12% better off. As I have to buy 12 the saving is worthwhile and the UK (or at least John Lewis) will benefit.
Kevin-Hall - 27/06/2011 08:32 GMT
NTarrant - most VAT refund specialists charge only a percentage of the VAT recovered, so it is ALWAYS worth the expense.
For example, our firm charges 20% of the VAT reclaimed, and if your business has £6,000 of hotel expenses, we would reclaim £1,000 of VAT for your business (and deal with any complexities). We would retain £200 for our time, but your business would have an extra £800, merely for separating out the EC expenses and giving them to the VAT refund specialist.
Seems worthwhile, especially when you think how hard businesses have to work to make money in this global go-slow, don't you think?
Kevin-Hall - 27/06/2011 08:46 GMT
Binman62 - This is definitely not tax avoidance. It is how the EC VAT system is supposed to work!
EC businesses reclaim VAT, non-EC businesses recaim VAT, (nearly) all businesses reclaim VAT. The system is designed this way so that the VAT does not build up in the supply-chain as the product is passed from business to business. The VAT is only supposed to be charged on the full sales price to the final consumer, unless they are exporting the goods (in which case no VAT is charged).
For example, if EC Company A charges £100 (plus £20 VAT) to EC Company B; and if Company B cannot recover this £20 VAT, it would have to charge £132 (plus £26 VAT) in order to make just a 10% margin. The larger the supply chain, the more VAT would accumulate, forcing supply chains to become "in-house" to prevent excessive inter-company VAT charges accumulating.
EC VAT rules are deliberately set up to ensure that there is no double-taxation (which would inflate the cost for the final consumer), so that VAT is charged only the once at the point of sale to the final consumer. In other words, the intention of the VAT authorities is that EC Company A charges £100 (plus £20 VAT) to EC Company B, which reclaims the £20 VAT. EC Company B then charges £110 (plus £22 VAT).
It is a complex system to administer, but the EC VAT authorities (rightly or wrongly) believe this helps reduce VAT fraud. They also insist that non-EC businesses have the same rights as EC businesses, so that non-EC company B could also reclaim the VAT charged by EC company A. This is what we are discussing in this thread; and the fact that very few non-EC businesses operate the EC VAT system in the way the VAT authorities intended it to work.
Hope that helps?
There seems to be some confusion here between tax avoidance and tax evasion, The former - structuring your affairs so as legitimately to minimise tax paid - is perfectly legal, acceptable, and in many instances positively encouraged by government - an example being the ISAs that Hippocampus referred to. No-one should feel any shame at engaging in tax avoidance. Tax evasion, on the other hand, is the use of dishonest (and generally illegal) practices in order to escape payment of tax which should legitimately be paid.
So any non-EU business that is incurring VAT in circumstances where it doesn't need to, and reclaims that VAT, is engaging in (perfectly legitimate) tax avoidance, just as they are by claiming all appropriate tax deductions, allowances and (in this particular case) refunds.
NTarrant - 27/06/2011 09:30 GMT
Kevin - I totally agree with you in your example, but it does depend on the country and how much you spend. For example some years ago we did some work in the Netherlands. VAT on hotel accomodation was 5% at the time, it was a one off peice of work and our expenses for hotels came to I think around £800 in total. When we looked at reclaiming the VAT the minimum charge commission was more than the total amount due back.
So in the case of small amounts it is not worth it. That was what I was saying
Kevin-Hall - 27/06/2011 09:34 GMT
NTarrant - a fair point, agreed!
HongKongIan - I agree that your conclusions follow from the definitions. But these days, in practice, HMRC seem to use "tax avoidance" to mean tax/VAT planning which is not in the spirit of the law, although within the letter of the law. Binman62 seems to use it in the same sense. I object to this, because the spirit of VAT law is that businesses ought to reclaim the VAT on all purchases in order not to inflate/double-tax the price charged to the customer. Does that make sense?
I don't want to speculate on what Binman meant, Kevin-Hall, but re-reading his post it still doesn't seem to me that he was using the phrase in the sense that you suggest, since he seemed (to me) to be saying that reclaiming VAT in these circumstances is "legal but it is not right". Perhaps he was addressing some other aspect, though. I would welcome clarification from him! My knowledge of the particular VAT issue in question has all been from this thread, so I claim no expertise and confess to ample ignorance, but from what I have seen it doesn't seem to me that reclaiming VAT in these circumstances is against the spirit of the law. If anyone can educate me otherwise, I would welcome it, but until then I will stick with my perspective that such a reclaim is legitimate.
Even if it is against the spirit of the law, in the absence of artificial or sham structures or steps in business practices which are there purely for tax reduction and without any commercial benefit, I see nothing wrong with businesses (or individuals) reclaiming taxes which they are not legally required to bear. Laws in most countries I have come across tend to be rule-based, rather than principle-based. So stepping outside the spirit of the law but complying with the letter is still permitted (contrast, for example, the UK Takeover Code which is principle-based and drafted in such a way that compliance with the spirit, and not just the letter, is expected). Treating rule-based laws as if they were principle-based is a minefield and not something I want to encourage (it causes uncertainty as to the scope of the law, and too much scope for abuse by governments).
Kevin-Hall - 27/06/2011 10:00 GMT
HongKongIan - I think you are agreeing with me! There is strong congruance between "legal but not right" (your paraphrase of Binman62) and "in the spirit of the law, but not the letter of the law" (my paraphrase of Binman62). If this is not what Binman62 meant, I would be interested to hear why (s)he believes businesses should not recover VAT on purchases: there is a way to operate a VAT system this way (called "Margin Scheme" VAT, charging VAT only on the value added, not on the full sales price), but the EC VAT authorities do not operate this type of system. Perhaps they should!
Nevertheless, under the current EC VAT system, the recovery of VAT on purchases is BOTH within the letter of the law AND within the spirit of the law. It should be encouraged, in order to ensure that retail prices are not over-inflated due to double-taxation within the supply-chain.
I will not comment on tax avoidance which is within the letter of the law, but NOT within the spirit of the law. But I will note the fact that, due to a VAT case known as "Halifax", the European VAT authorities can now rely on the spirit of the law to prevent such abuses from occurring, though it does lead to uncertainty even for the honest trader!
Hope it helps?
