New research from digital payments leader, Conferma Pay, has revealed European companies failed to reclaim $16.5B of Value Added Tax (VAT) related to business travel in 2021.
Across Europe, corporates can reclaim VAT on employee travel expenses for business trips, including transport, meals and accommodation.
Yet during a period where the rate of inflation exceeds eight per cent in many markets, and central banks are embarking on significant tightening of monetary policy, businesses are missing out on vital profitability by failing to reclaim VAT.
The latest Business Travel Index from the Global Business Travel Association (GBTA) estimated Western European companies spent $131 billion on business travel last year.
Based on analysis of its proprietary data and conversations with partners, Conferma Pay estimates that only 40 per cent of businesses currently reclaim VAT in-house, via travel management company (TMC) partners or using support tools like Conferma Snap+.
With US-based think tank, the Tax Foundation, confirming Europe’s average rate of VAT is 21 per cent, the analysis suggests that $16.5 billion in business travel tax remained unclaimed last year.
Kelly Cleeton, senior business development director, Conferma Pay, commented: “There’s been a degree of complacency across the business travel industry when it comes to VAT reclaim.
“It’s viewed as difficult and labour intensive, yet there are a variety of ways firms can improve the process.”
Cleeton continued: “Most TMCs offer reconciliation services and software exists that can pull data from hotel or flight invoices and automatically populate reclaim forms.
“With an uncertain economic outlook, and the business travel recovery gathering pace, the industry should be doing all it can to limit costs.”
Companies in Germany, Europe’s largest business travel market, have the most to gain by reclaiming VAT owed to them, but there are significant opportunities across the continent.
VAT reclaim could represent an even bigger opportunity this year as business travel bounces back.
The GBTA expects pent-up demand for business travel will fuel significant growth in western European markets during 2022 and 2023, leading to a full recovery to pre-pandemic levels of spending by 2024.
When the sector does recover to 2019 levels, unclaimed business travel VAT will stand at circa $49.4 billion, unless more companies tackle the issue.
Conferma Pay Snap+ collects hotel invoices for each transaction paid using Conferma Pay virtual card technology.
The service then matches the amount, date and line-item breakdown to the right payment, identifies key merchant information in readiness so the VAT can easily be identified in readiness to be reclaimed across the company’s entire hotel spend.