Tax time is just around the corner and the changing nature of how and where work is getting completed has certainly added new complications to tax compliancy. As if global compensation collection and reporting wasn't hard enough previously, over the last few years the responsibilities of global mobility teams have expanded beyond traditional expatriates to include assisting with unique short-term assignments, varied cross-border permanent transfers that sometimes include ongoing allowances, business travel, intern programs, commuting and remote work.
In creating the title for this post, I re-worked the title from the article below because it feels like the tax element is really the tail on the kite. The tax repercussions and challenges come from the changing landscape of how work is getting structured. With a much greater insistence for flexibility and increased openness to where work gets completed, there are many more situations that become options, with international remote working being one of the many. The warning presented by BDO in this article is that the increase in remote workers, business trips and short-term employee moves can potentially increase the risk of employees falling “under the radar" and can inadvertently trigger employer obligations in an overseas jurisdiction without the business being aware of any repercussions.
Whether by formal mobility arrangement, remote work or business travel, when a tax obligation is triggered it is important that companies have a process in place to make timely payment to the taxing authority. Without a defined process, companies can be left scrambling when unexpected liabilities arise and tax deadlines loom. According to Alexcis Perrine, Manager of Global Compensation here at Plus, there has been a noticeable increase in requests for tax payment administration with no other relocation or assignment benefits offered. Requests of this nature have doubled in frequency from 2019 to 2021 and we expect to see continued growth in line with the rise of remote working and other non-traditional arrangements.
According to our friends at GTN, we know that employees who work in another state or province within the same country can create additional payroll reporting and withholding obligations for the company, but a policy that allows for work in a different country than where the employer is located drastically increases the risk of non-compliance for companies. There is a lot to consider when it comes to policy, monitoring and reporting. Failure to handle reporting can lead to costly audits, including financial penalties for the company and/or employee. Ultimately, when you are not staffed to create a proper policy and framework for your mobile workforce, it may lead to many potentially costly risks.
The BDO team cites an example that is likely to arise more often over the next few years where the employee is allowed to work from anywhere and spends time working in a few different countries over the course of a tax year:
"While the employee will likely also be liable for tax in his/her country of tax residence, this does not necessarily prevent tax from arising in any other country. While it is uncommon for real double taxation to arise, there could be a cash flow issue for the employee and/or business owing to the withholding tax requirements in each relevant foreign country and the delay in being able to claim a credit for such tax paid on the employee’s home country tax return."
To avoid compliance issues, they emphasize the importance of having a policy that clearly communicates to all stakeholders everything that needs to happen to enable an employee to work in a foreign country. They also emphasize the critical ability of tracking and reporting, and recommend implementing technology to support this endeavor.
While the traditional long-term assignment is not on its death bed by any means, it is today being replaced more and more by shorter-term flexible type working arrangements. On occasion, this also involves the hiring of local and/or so-called independent contractors. Factor in the increasing trend towards international remote working, and it is fair to say that businesses have never before had to deal with such complexities, whether from the perspective of employee wellness, duty of care, regulatory compliance (including tax, social security and immigration), or indeed mobility policy design and application.