In April 2021, the European Commission received a complaint about the current VAT refund system for foreign tourists who purchase goods in EU countries. This refund is ostensibly intended to increase tourist spending and boost local economies. The complaint, filed by fintech startup Refundit, denounced two aspects of the current VAT refund system.
Firstly, the complaint bemoaned the inefficiency of this time-consuming and outdated process, which has only resulted in a partial reimbursement of the VAT paid by the consumer. This alone raises legitimate doubt about the VAT exemption meeting its alleged goal of motivating tourists to spend more money on goods and services when on vacation in the EU.
Secondly, the complaint denounced the monopoly imposed on the sector by two dominant VAT refund agents and the retailers who receive escalating merchant commissions from them in exclusive arrangements. These are ultimately paid for by the tourist through the disproportionate fees charged on each refund transaction.
Neither the refund agents nor the retailers involved will be happy to change what is a very profitable situation for them, but the system needs to be reformed so that tourists also receive their correct share and so that the sector can be opened to other service providers with fair competition.