Currency, tax issues can weigh on FF&E process
 
Currency, tax issues can weigh on FF&E process
31 MARCH 2010 6:57 AM

Without a proper understanding of conversion rates, taxes and accounting practices, a FF&E project can quickly become fraught with misunderstandings among vendors, purchasers and clients.

Daniel Englender, Bill Cheung and Darlene Henke contributed to this series.

Alan Benjamin

One of the most discussed areas of any international project is currency and how to deal with the multitude of complexities relating to budgeting, paying and accounting for supplier invoices, customs, duties and sales tax. Additionally, one cannot listen to any financial news report without an in-depth discussion on the direction of the major currencies of the world. From your own perspective, how will these fluctuations affect your project during the next 12 months to 18 months? Looking back over the past 18 months the dollar/pound exchange rate has been as high as US$2.07 to £1 and as low as US$1.42, so how do you account for these movements while reporting accurately to the owner and project team? Now multiply the issue by taking into account each of the other currencies involved.

Key elements to decide and confirm before a project commences include:

  • In what currency will a project be reported to the owner?;
  • in what currency will each of the suppliers and consultants be paid?;
  • does the client entity have deferred value-added tax (sales tax) status? If not, then all import customs and duties for goods emanating from outside the region will need to be paid at the point of entry, causing significant cash-flow issues?;
  • does the client want a separate budget for each currency, using separate, by currency, fund accounts to pay vendors with a “wrap-up” budget in one currency for all overall tracking?;
  • is the client keen to play the currency markets during the project or would he or she prefer to fix outgoings and ensure that the budget doesn’t waver?; and
  • which port of entry (for vendors’ products) offers the most beneficial tax advantage to the owner’s project?

Make sure the banking relationship of the client and all major consultants that will be receiving and dispersing the owner’s funds has experience in multiple currencies, check their exchange rates, and very critically, check to see how they handle bank checks and wire transfers. Note that in the U.S. more than 90 percent of our clients still want us to cut physical checks to pay vendors, while in our London office it’s unheard of to pay anyone with a check. In fact, our London office does not even have company checks to pay for the basics of running the office; rent, utilities and other expenses are handled solely by electronic means.

During times of volatile currency fluctuation, one may consider adding a “currency fluctuation clause” in the furniture, fixtures and equipment purchase orders to protect the mutual interest of the buyer and seller. It is possible to insert a currency clause that defines the exchange rate at the time the purchase order was issued and specifies a percent range of currency fluctuation that both the buyer and seller agree to. This way, within the specified currency fluctuation window, both sides mitigate their currency risks in a fair and equitable manner.

Overall, handling capital expenditure and FF&E projects around the world is fascinating, intellectually stimulating and the best education one can have in life; see the world, learn about different cultures, religions, foods and how things are done. It truly broadens one’s horizons and makes life interesting, including some of the travel stories about what all of us who cover the world have endured. After all, if we never did any hotels in London, I would not have had the pleasure of discussing with my London-based partner the difference in cost between a high-quality, tufted nylon guestroom carpet that we use all the time in 5-star hotels in the U.S. versus the woven, wool guestroom carpet they use all the time in Europe. While the math difference was clear, the explanation for using the wool carpet was simple (insert proper British accent): “In London, we simply do not walk on plastic carpet!”

At the end of the day, humans are humans, communication is communication and hospitality FF&E is hospitality FF&E. In every country it is designed, purchased, shipped, installed and paid for … but wow, vive le difference!

About this series: This is the fourth and final article in a series that examines how all aspects of the capital expenditure and FF&E process can differ around the world. Brands, owners and consultants operating for the first time in a foreign area will find useful guidance about regional customs and business practices.

Alan Benjamin (abenjamin@benjaminwest.com), a member of the International Society of Hospitality Consultants (www.ishc.com), is president and founder of Benjamin West in Boulder, Colorado.

Daniel Englender (denglender@benjaminwest.com), a member of the ISHC, is managing director of Benjamin West London.

Darlene Henke (dhenke@auditlogistics.com) is president of Audit Logistics LLC in Louisville, Colorado.

Bill Cheung (bcheung@benjaminwest.com) is managing director of Benjamin West Hong Kong.

The opinions expressed in this column do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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