The recipe for successful VAT refunds

Some trends I have a hard time understanding. If you open a cookbook these days, you get pages full of information about the country, the culture and the background of all the ingredients you might need before you even get to see anything of an actual recipe. I'm still of the generation that I just want to read, "you need 1¼ liters of broth (tablet) and in that you put 1 onion, 60 grams of butter, 300 grams of risotto rice, 100 ml of dry white wine and 75 grams of Parmigiano Reggiano. Done!"

That the rice comes from a hillside in the north of the Po Valley in Italy (also called "il paesaggio delle acque", the landscape of the water, by the locals) and has been tended there by simple, Italian peasants, romanticized in the film Riso Amaro by the actress Silvana Mangano, in short tight pants and torn tights, is of no interest to me. At least not at the moment when I am standing in the kitchen wondering how long I actually have to stir everything together.

Btw is like a cookbook

As far as I am concerned, the same applies to VAT. If an entrepreneur has a question, he wants an answer. Unfortunately, there are not many advisors who always understand that. How often does it not happen that an entrepreneur asks a question and then after a few weeks he receives a long memo with all the rules, case law and background information and finally a "conclusion" with 3 options he then has to choose from. Recognizable? Hopefully not.

Look, on the other hand, it's not always avoidable. Sometimes VAT rules are a bit unclear or there is room for interpretation. It is important for an entrepreneur to know these nuances and make decisions based on them. An advisor is nothing more than that: someone who gives advice. But a good advisor does provide a clear explanation and gives an advance on the decision that the entrepreneur must or can take.

Clear recipe for the VAT refund

As a business owner, you need clarity. Fortunately, there are simple answers to some VAT questions. For example, when it comes to reclaiming VAT on (foreign) expenses. This is often not the sexiest topic for many entrepreneurs, but especially in the current times, every VAT refund is a nice bonus.

Because there is much to say about the year 2021, but the VAT rules for reclaiming VAT have not changed. And although the number of (foreign) trips and attending events was a lot less than other years; the VAT on travel and accommodation expenses are still costs that you, as a business owner, do not have to leave behind.

The ingredients make the dish

There are several service providers who can help with this, and the approach does not seem to differ very much. The receipts and invoices received and kept by the business owner and her employees themselves form the basis of the refund request. These are processed, often computerized, after which the refund request is submitted. The local tax authorities process the request and after asking any additional questions, they refund the VAT.

Yet there are major differences in approach and elaboration. The dish is the same, but the ingredients may vary in quality.

Supermarket or the greengrocer?

To avoid as many questions from tax authorities as possible, qualitative verification of receipts and invoices is important. Automation helps, but even with the best OCR techniques and software that extracts all relevant elements from scanned receipts and invoices, a qualitative and often manual interpretation is required. After all, it is not professional and even punishable to knowingly and intentionally use incorrect invoices to claim VAT refunds. Not only is a refund request then refused, but fines can even be imposed.

When choosing a service provider to reclaim VAT, the following considerations are necessary:

1. Does the service provider have the technical means to process (large volumes of) invoices?
2. Is this automation capable of correctly classifying and processing invoices?
3. Can this technology quickly and effortlessly read and process information and documents from the ERP or expense processing system?
4. What qualitative controls are in place?
5. How and by whom will any questions from tax authorities be answered?
6. Does the entrepreneur have insight into the process and, if so, in what way?

Most service providers will confidently answer "yes, we do/can" to the above questions. But there are certainly differences.

Technology

Reading and recognizing an invoice requires intelligent OCR software. But also the ability to translate the information on the invoice to and compare it with more than 2,000 VAT rules in force in the EU. Especially when processing large volumes of invoices, it is necessary to use good technology and automation.

Qualitative processing

In addition, the VAT specialist makes a difference in qualitative processing. A robot can automatically process large quantities, but even the smartest machine will not be able to qualitatively assess all invoices. For example, because there are several lines on an invoice, because the description is not clear or because for certain types of expenses, the tax authorities always have additional questions or want to receive additional information.

The latter in particular can only be properly overcome by having the invoices and refund requests checked by someone who has real experience with VAT. Anyone can send a pile of receipts to the tax authorities and hope that the refunded VAT will be accepted. But really good service providers make sure the request is fair and of the right quality. It is also important to anticipate possible questions from the tax authorities.

Fewer questions and smooth process

Ultimately, this results in fewer questions from the tax authorities and an easier process for subsequent years, because the service provider is seen as a reliable partner by the tax authorities. Of course, this also applies toward you, the entrepreneur.

Transparency in the process, manner and communication with the tax authorities is important. As a business owner, you want control and insight into your own VAT position, including the refund requests submitted on your behalf and the communication that takes place with the local tax authorities on your behalf.

Are you leaving VAT?

VAT on expenses always remains an underexposed part of the VAT function. In some cases, the VAT specialist or finance department is not even involved in processing and accounting for expenses reimbursements to staff members. A simple sampling or analysis of the types of expenses and VAT amounts can give a first impression of the VAT you are leaving behind.

My advice is to look into this anyway or have someone look into it. That event or meeting at the foreign location may just generate a few hundred euros in foreign VAT. It's a waste to let those go to waste.

I would be happy to take a look with you. Not necessarily to discuss the origin of rice, but to explain our recipe for VAT refunds.

Bas de Koning is a VAT partner at Less Grey, specializing in indirect taxes.