Report shows firms have problems recovering foreign VAT
Wednesday February 24, 2010
A new report reveals that a significant number of businesses that are incurring VAT on costs in countries where they are not carrying out any taxable activities are having problems recovering this VAT.
According to a survey by the Organisation for Economic Co-operation and Development’s Committee on Fiscal Affairs, many countries will refund the VAT incurred on these costs through specific reclaim procedures or by allowing firms to recover these costs through direct VAT registration or the zero-rating of supplies to foreign business.
However, the complexity of the reclaim procedures and in some cases, the lack of any recovery system altogether, means that many businesses simply cannot always recover VAT on these costs.
Nearly three-quarters (72 per cent) of companies surveyed said they found foreign VAT relief procedures difficult, while more than one in five firms said they are unable to recover any foreign VAT whatsoever.
Of the businesses that manage to recover VAT on costs incurred in foreign countries, a quarter said that they could only claim less than 25 per cent of VAT.
The survey’s researchers said the findings point towards the urgent need of a greater level of harmonisation and standardisation of VAT relief procedures, which would improve the speed and efficiency of these repayment systems to the benefit of ordinary firms.
The study also shows that businesses would like to see better communications with tax administrators in order to improve VAT relief procedures. The Committee on Fiscal Affairs said it will continue to help countries enhance their VAT relief systems whilst still protecting them against fraud.
In 2006, the OECD countries agreed the principle “that the burden of value added taxes themselves should not lie on taxable companies except where clearly provided for in legislation”.