Businesses around the world are losing out on billions of euro in unclaimed VAT on employee expenses. Taxback International's Continuous Improvement Programme (CIP) addresses this issue and is helping companies achieve dramatic increases in VAT recovery rates.
The solution has already been responsible for €150 million in VAT recovered for clients in its first full year on the market and is on target to reach €250 million this year, according to Taxback International commercial director, Catherine Quirke.
“When companies have employees travelling for business purposes they are entitled to claim VAT back on many of the expenses from the tax authorities in the countries where the expenses were incurred,” she explains. “A large company could have millions of expense claims for employees every year and it is usually impractical to review them all to see whether VAT is recoverable on them or not. In many cases they just submit applications to tax authorities and just hope for the best. We realised there has to be a better way of doing this.”
The first element of the solution is a software application which analyses the expense claims and receipts to identify the actual potential for VAT recovery. This is typically as low as 30 per cent to 40 per cent due to a number of factors mainly related to poor compliance. These include failure by employees to get VAT receipts, general poor record keeping, illegible images of receipts and so on.
Recovery rates are increased by identifying the compliant receipts. “We work with all the main expense management system providers as well as the major credit card companies to get access to client expense data,” says Quirke.
The next phase of the process is to tackle the non-compliant expense claims. “We have developed technology which matches the images of the receipts with the expense claim data,” she continues. “This gives our clients full visibility of their non-compliant data. This allows us to work out what we can do to help to improve the compliance rate and make sure the same mistakes don’t happen next time.”
Anything identified as eligible for a refund but non-compliant is reported back to the client in real time. She explains that 60 per cent of non-compliant claims are due to employee error, 15 per cent is the result of a failure to get VAT invoices, and 10 per cent is down to missing invoices. Having analysed the reasons for non-compliance, the Taxback International team develops an improvement programme for the client.
“We have developed a travel notification app for clients,” she says. “For example, if an employee is travelling to Germany on business tomorrow they will get an email from us reminding them of what they need to do to ensure that their expense claims are VAT reclaim compliant. It might remind them to make sure to get a VAT receipt when checking out of their hotel. We can also gamify the system to introduce an element of competition and reward. The app can show users their travel and expense records, how much VAT was reclaimed and rank them against the company average. Some companies reward employees by giving them a share of the VAT reclaimed and the app can look after that as well.”
The market response has been excellent. “The great thing about it is that the revenue generated for clients goes straight to the bottom line. We have found that we increase VAT recovery by up to 30 per cent in the first year. That has translated into our win rate with clients. When we pitch against our main competitors we win 98 per cent of the time.”
