When TravelPerk unveiled a 'Value Added Tax Solution' last week, it became the latest in a long line of service and technology companies aspiring to unlock one of the biggest jackpots in managed travel: a slick way to recover VAT on business trips.

The savings at stake are substantial. ¡°If you recover all your VAT, you will reduce your travel expenses by around ten per cent,¡± says Marcel DeWit, vice-president global tax & treasury for BCD Travel.

In the present coronavirus crisis, this percentage will likely be lower, as many countries have reduced their VAT rates to help stricken travel and hospitality suppliers. Belgium, for example, has reduced VAT for the hospitality sector from 21 per cent to 6 per cent until the end of 2020.

With travel expenditure greatly suppressed anyway, finding improved methods to recover VAT may seem a low priority right now, but that could change quickly once European companies are on the move again.

Indeed, the need could become urgent: some countries, including the UK, are considering raising VAT above pre-Covid levels to boost exchequers depleted by fighting the virus.

Yet recovering VAT is far easier said than done. Various specialists estimate around €20 billion of VAT incurred on business travel goes unreclaimed in a normal year.

And that figure, says Martin Biermann, chief product officer for HRS Group, does not take into account another huge chunk unrecovered on meeting and events expenditure. All in all, estimates Jean-Michel Kadaner, partner with Areka Consulting, ¡°Companies only recover 60 per cent of their potential VAT reclaim on average.¡±

The reason so much VAT stays on the table is complexity. All European Union countries are obliged to impose this tax, and make it recoverable for businesses, but the rules each member state applies vary enormously.

The standard rate ranges from 17 per cent in Luxembourg to 27 per cent in Hungary, but countries often set different rates for different types of travel-related service. In Germany, for example, accommodation is seven per cent while restaurants are 19 per cent. Conferences are also 19 per cent, as is car rental, but fuel is zero per cent. Public transport and taxis are 7 or 19 per cent depending on circumstances.

Nor do the inconsistencies end there. ¡°Each country has different rules for what is recoverable and when you can recover it,¡± says DeWit.?In the UK, if an employee takes a client to lunch, VAT can be reclaimed on the employee¡¯s meal but not the guest¡¯s.

¡°You also have different deadlines to make the reports to each national fiscal authority,¡± adds Kadaner. ¡°It takes a long time to gather and submit and a long time to get your money back.¡±

On top of all that is the frequent rejection of claims, which need to be accompanied by valid VAT invoices. Correct invoices must include the supplier¡¯s VAT number, the amount of VAT applied, and the name and address of the legal entity of travellers¡¯ employers, not? of the travellers themselves. ¡°21 per cent of VAT receipts are invalid,¡± says Biermann.

Yet another complication besets VAT applied to reservations made through TMCs and other third party booking services. Many booking providers work within the Tour Operators¡¯ Margin Scheme, which applies when an agency pays a supplier itself and then recharges the corporate client.

¡°If you purchase through a third party that operates to TOMS rules, it means you are not able to recover VAT,¡± says Robbie Falkenthal, director of tax for TravelPerk. ¡°You¡¯d be shocked how many service providers aren¡¯t fully aware of this issue or haven¡¯t addressed it.¡±

Fortunately, there are solutions to these many challenges. According to Biermann, 25 per cent of companies outsource VAT recovery to specialists on a gainshare basis. These providers prepare the recovery claims, chasing hotels and other suppliers for corrected receipts if the original is deemed invalid.

Savings vary. Kadaner says one of his clients, a large automotive company with annual T&E spend of €94 million, recovers €300,000 annually through a VAT specialist.

Results are improving thanks to increased automation and fuller integration between VAT specialists, expense management suppliers and booking service providers.

BCD, for example, allows clients to plug in VAT and expense providers to its SolutionSource management platform. As a result, a traveller can scan a restaurant receipt on their phone and the data will be sucked not only into their expense claim but also from there into the VAT report.

At the same time, BCD feeds in the relevant invoices it receives from suppliers. BCD is urging more hotels to issue their invoices electronically. ¡°We are working to get more and more integrated,¡± says DeWit.

Some booking providers have taken this idea even further. ¡°You have to do much more at the beginning of the process,¡± says Biermann. One of the big problems in corporate travel is that global distribution systems do not include a standardised reservation field for entering the legal entity name of the corporate client that is required for valid VAT receipts.

HRS solves the problem by operating direct connections to 80,000 hotels that account for more than 99 per cent of the bookings it handles. Under a process it calls Invisible Pay, HRS sends reservation, payment and invoicing instructions to the hotel simultaneously. The invoice is returned via the same channel at the time that the payment is taken.

Biermann claims that as a result HRS receives VAT-compliant invoices on day one of check-out for 88 per cent of the reservations it makes. By sending reminders to errant hotels, it claims to push that figure up to 98 per cent by day three.

TravelPerk¡¯s newly announced VAT solution works on a similar principle, but with car rental, air and rail suppliers as well as hotels. In certain cases, TravelPerk can raise an invoice on behalf of suppliers; failing that, it collects the invoice from the supplier.

The beauty of the idea, according to Falkenthal, is that, by cutting the traveller out of the process completely, ¡°this can drive savings for the travel programme without having to change travellers¡¯ behaviour.¡±

However, travellers do have the option to collect an invoice at check-out for hotels stays, in which case TravelPerk sends the property the name of the correct legal entity for invoicing purposes, and follows up with reminders to both hotel and traveller.

Travel managers can play their part in accelerating the digitisation of VAT recovery. ¡°Make sure that preferred suppliers provide VAT-compliant invoices as part of your agreement with them,¡± says DeWit, ideally committing to issuing electronic invoices.

Change is finally coming to the handling of VAT. It just needs a little encouragement.