ACCO R DA N C E VAT R E COV E RY: F R O M A N A LYS I S
TO R E F U N D
Europe’s cross-border VAT recovery process has been
significantly – and beneficially – reformed over the last few
years.
But there are still areas of great complexity, often concerning
whether VAT should have been charged by suppliers. Despite
reform, companies in many sectors still have to negotiate
confusing and risky terrain when applying for crossborder VAT refunds. This involves understanding the VAT
implications of activities in a particular country and what
action needs to be taken in order to ensure that they do not
face a VAT cost.
One consequence of not understanding the implications
is that misdescribed claims get rejected. Another, is that
many companies make unnecessary claims as a result of not
grasping the rules. These are also rejected. In fact, many
companies end up paying commission to third parties for
obtaining credit notes - on claims that could be eliminated
through better procedures.
A B O U T ACCO R DA N C E
Accordance is an international VAT consultancy
and VAT compliance company. Our mission is to
enable businesses to trade internationally.
Getting VAT right is essential for international
trade. We help businesses avoid fines and
penalties, improve the cash-flow of expanding
companies and ensure clients are VAT compliant
by obtaining VAT registrations and handling VAT
reporting.
Millions of euros can be involved. The resultant cost and
cash flow issues are serious. European tax authorities, under
pressure to retain revenue in an austerity environment, are
reluctant to help: the slightest error is often punished by a
rejection of the claim.
Accordance is a specialist cross-border European VAT
practice. All our work is consultant led. We believe that the
key to successful cross-border VAT recovery is accurate
VAT analysis. We are committed to providing the most
commercially efficient solution possible for our clients’ VAT
recovery needs.
Experienced VAT consultants specialising in
cross-border transactions provide practical,
commercially beneficial VAT assistance to
companies across the EU and beyond – working
across a range of industries and business sizes.
We offer a single point of contact for international
VAT - our one-stop shop makes it easier for clients
to manage their international position.
The procedure for recovering VAT incurred in the EU depends
on whether you are established within the EU or outside the
EU.
Contact us to discuss further:
• Reduction of the incidence of cross border VAT for
businesses
• Establishment of a simplified electronic refund mechanism
for EU businesses
• Removal (where possible) of the requirement to provide
original invoices for electronic refund claims
• Introduction of an obligation for claimants to self-assess the
validity of their claim
• Introduction of the right for tax authorities to issue penalties
for invalid claims
• Introduction of the right for tax authorities to deny VAT
refunds where it could have been possible to exempt the
supply
Tower Point. 44 North Road
Brighton. BN1 1YR. UK
T +44 [0] 1273 573 950
info@accordancevat.com
www.accordancevat.com
T H E R E F U N D D I R E C T I V E ( 2 0 1 0)
The changes to the Place of Supply introduced in 2010, and
implemented in subsequent years, are now well established
within The EU. Objectives of the reform included:
In essence, the reforms were intended to make some of the
administrative aspects of recovering VAT less onerous. But,
at the same time, responsibility for claim accuracy on the part
of businesses was greatly increased. Tax authorities managing
austerity budgets will critically review larger Accounts
Payable claims, leading to situations where companies have
been denied millions of euros of VAT for what might seem
inconsequential errors.
C U R R E N T TA X AU T H O R I T Y P R AC T I C E
European tax authorities now routinely refuse to refund VAT
charged in respect of intra EU supplies even if the supplier
did not have the evidence to apply the exemption. In their
guidance, authorities say that taxpayers should contact their
supplier for a credit note.
Tax authorities will not hesitate to penalise. HMRC, for
example, reserve the right to apply penalties. To assist in
determining the correct level of penalty they ask the following:
• What did you do to make sure your claim was correct?
• If you were not sure about the correct tax treatment, what
advice was available to you and what advice did you seek and
who from?
• If you did seek advice, what advice were you given and did
you follow this advice? If you did not follow this advice, please
explain why
• Did you check HMRC’s guidance? If not please explain why.
1 3 T H E U VAT D I R E C T I V E
The paper based mechanism applicable to non EU claimants
(the 13th Directive) remains in place. The claim process
is generally more efficient than in the past; but there is a
far greater burden on businesses to make legitimate and
accurate claims. Even the most trivial discrepancies can cause
problems. Where tax authorities can reject a claim, they will
reject a claim.
N O N E U VAT R E F U N D S
Not all non-EU countries with a VAT or indirect tax system
allow refunds to overseas businesses, but many do.
Sometimes, this can be achieved through a similar process to
that in the EU where a claim form is completed and purchase
invoices are submitted. Other countries may require a
business to register for VAT locally in order to obtain a refund.
CO M P L E X T R A N S AC T I O N S
There are still a number of transaction types where a business
will incur local VAT which has to be recovered. Some are
industry specific and some are Member State specific.
Some tax authorities are strictly applying their right to deny
refunds of VAT which could have been exempted. It is crucial
to understand whether or not the cross-border transactions
you are managing are potentially exempt.
M E M B E R S TAT E S P E C I F I C R E G U L AT I O N S EXTENDED REVERSE CHARGE
Member States can make use of the extended reverse charge
to avoid VAT registrations for non-established businesses
making supplies in their State. Where these suppliers incur
local VAT they must make a refund claim.
I N D U S T RY S P E C I F I C R E G U L AT I O N S
Certain industries operate in a way that inevitably exposes
them to cross border VAT. Examples include:
To o l i n g c h a r g e s
Commonly occurs in the manufacturing/assembly industry.
A manufacturer requires certain parts to be made by a third
party, normally in a different EU Member State. A tool is
required and local VAT is charged.
C a r Te s t i n g
There are driving tracks within the EU that are used by
companies in the automotive industry to test tyres and seat
belts in winter conditions. The hire of the track is typically
subject to local VAT as it is considered to be connected to
immovable property.
Shop fitting
Activities connected with shop fitting are normally considered
as connected to immovable property and therefore subject
to local VAT. Additionally, materials may be bought locally
which will also be liable to local VAT. If the supplier is not able
to register because of the extended reverse charge, they will
need to recover the VAT via the refund directive.
G o o d s i m p o r te d i n to t h e E U f o r d e m o n s t r a t i o n /
ex h i b i t i o n (a n d co n s u m e d l o c a l l y)
Goods imported into the EU to be consumed/given away at
fairs or exhibitions are subject to import VAT.
C o n f e r e n ce o r g a n i s e r s
Professional Conference Organisers (PCOs) are typically not
able to register for VAT in the Member State where events
takes place as they are organising rather than hosting the
event. Correctly charged local VAT must be recovered via a
refund claim.
L e a s i n g co m p a n i e s
Where a company buys goods and then leases them to
customers, the purchase of the equipment is a supply of
goods and the lease is a supply of services. Where goods are
purchased locally then VAT will normally be charged on the
supplier invoice.
These are just some examples of complex refund scenarios.
Prudent claimants will take steps to establish whether their
high-value claims require expert attention.
U N N E C E S S A RY CO M M I S S I O N ?
A further issue for many claimants using third party VAT
recovery providers is of commission being paid annually
on claims ‘recovered’ through credit notes. Very often,
an appropriate VAT analysis would identify incorrect VAT
charging, and enable a simple supplier invoicing change
that would eliminate further VAT costs – and recurring
commission.
H I D D E N VAT
Many companies post invoices with “foreign” VAT on a gross
basis so that the VAT is expensed and invisible. As a result it
is not possible to easily identify VAT recovery opportunities
by looking at a company’s accounts. In these situations, it
is necessary to consider the activities of the company to
establish whether foreign VAT has been incurred. Expert
analysis is required in order to determine where VAT may
have been suffered and how it can be recovered.
ACCO R DA N C E : C L A I M S E C U R I T Y T H R O U G H
A N A LYS I S
Companies recovering significant amounts of cross-border
VAT face serious risks and challenges in the post-refund
directive austerity environment. Authorities will not pay
claims if they do not have to: and the refund framework is
complex for many claim types.
Claimants need to be confident either they or their provider
has a real grasp of the technical VAT issues involved in
their claims. Submission is no guarantee of success. High
value claims are now routinely rejected by aggressive tax
authorities, or can remain dormant or contested for many
years.
Accordance specialises in the analysis of cross-border
VAT. Our Consultants lead the company’s compliance and
reporting processes, as well as delivering cross-border VAT
projects for international businesses.
VAT Recovery at Accordance is based on the principle that
accurate analysis will lead to successful refund applications.
The larger the claim, the more important this becomes.
Understanding the transaction is a prerequisite for effective
VAT recovery. We offer expert claim management rather
than a ‘factory’ for volume processing.
• Consultant supervised procedures
• Claims reviewed by consultants before submission
• Wrongly-charged VAT identified – and eliminated in future
years
• Credit notes obtained
• Best practice claim training provided to clients
• Experienced claim managers
• Expert liaison with tax authorities
• Success only fees option