To help Europe’s tourism trade, VAT refund process should be fixed

Published on : Wednesday, May 26, 2021

In April 2021, a lawsuit was filed in the EU. It could impact the US tourists to Europe and beyond once people start traveling again. This would allow them to save more money when they shop abroad.

Tourists who visit Europe and other South American, Asian, and African countries can get a reimbursement of their value-added tax on goods they buy that are expensive. The underlying principle for countries to do this is that it should give confidence to the tourists in spending more as they are coming to their country. Not just on goods but also when it comes to hotels and restaurants at the same time.

The VAT differs across the EU. It ranges from 20 to 27 percent, so the savings can be sizable: someone buying a €500 handbag in Rome which has a 22 percent VAT could, in theory, save as much as €110 from her purchase.

The tourists however don’t save that much as getting the reimbursement requires a middleman who eats up much of that. In the EU, two companies process nearly all VAT refunds, and they extract a sizable fee for their services.

In the world, Global Blue is the biggest VAT refund agent. It has more than 70 percent of the EU market for this service.

It mainly got hold of its market share by providing the retailers a good deal: If it can be their sole VAT refund agent, it kicks back a piece of the refund to the retailer. Retailers have pulled out in all these years ever-larger kickbacks from the duopolists, and the biggest among them receive half of the refund due tourists. For European luxury retailers this became a key profit center where sales to tourists make up the majority of their revenue.

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