Mostly Harmless, Part XV
Tax reclamation is the process of applying for and securing tax refunds and rebates due to the organization. In many circumstances, a buying organization may be eligible to reclaim some or all of the taxes that it pays to a supplier. For example, in the US a buying organization can often reclaim out-of-state sales taxes (if the organization has no presence in that state), in Canada an organization can reclaim GST (Goods and Services Tax) paid, and in the UK, sometimes an organization can reclaim VAT (Value-Added Tax). In addition, a company can almost always reclaim tax overpayments if a filing is made in a timely manner, especially if the organization has an APA (Advance Pricing Agreement) in place.
Taxation is a tricky subject in just about any country. For example, in the US, while intangible assets are not subject to property taxes in most states, they are in some. The same holds true of electronic downloads (software, books, etc.). There’s the LKE, which allows capital gains tax to be deferred when the sale of an asset is being used to generate cash to buy new, or similar, assets to replace the asset which is being deprecated. Then there’s the tangled web called the Harmonized Tariff Scheduled (HTS) which determines import taxes, where classification mistakes are easily made and where a simple misclassification (ladies sleepwear vs. ladies lingerie) can result in a large difference in assessed taxes. (My favorite is imported printers. Leave the cartridge out, the tax rate can be 0. Put the cartridge in, that’s a “value” tax of about 5.5%.) And of course, there’s the issue of foreign taxes, which the organization can get credit for, and in essence reclaim, if properly recorded and reported.
Canada has similar complexity. Out-of-province purchases may not be subject to a provincial sales tax if the company does no business in that province. There’s the GST (Goods and Services Tax) which must be charged by the seller on all non-exempt purchases, but which a buying organization is able to reclaim in full on an annual, or quarterly basis (as the tax is designed so that the ultimate bearer of the tax is to be an individual). And then there are special tax credits, such as the SRED (Scientific Research & Experimental Development) tax credit that can be accrued on up to 75% of all eligible R&D expenses and used to offset (federal) taxes owed by the corporation.
And then there’s the EU, where every country, despite a common currency, still has it’s own complicated tax structure. There’s so much to keep track of that a number of businesses are built around the provision of taxation databases and regular updates to their customers, as some of these businesses are able to charge thousands a year just for database access. The EC (European Commission) Taxation and Customs Union site alone has 14 different databases indexed (and these are just the EU tax systems), including:
- AEO
Authorized Economic Operators
- EBTI
Binding Tariff Information
- QUOTA
Tariff quotas and ceilings.
- SEED
System for the Exchange of Excise Data
- SUSPENSIONS
Autonomous Tariff Suspensions
- TARIC
Integrated Community Tariff
- Taxes in Europe
The EC’s on-line information tool covering the main taxes in force in the EU member states.
- VIES
VAT Information Exchange System
As a result, tax reclamation is an involved and difficult process that requires really good e-Procurement support to get right. However, considering that it can save a large organization millions of dollars a year (or more), it’s worth it.
Next Post: Tax Reclamation, Part II