Author: Tracy Novotny Tracy is a Director in GTN’s West Central region. She has over 14 years of experience in global mobility and is recognized by her clients for her focus on customer experience and an ability to explain complex tax matters in an understandable and actionable manner. She is a frequent writer and speaker on mobility tax topics, including cross-border and domestic payroll, delinquent filings, and business travelers. +1.763.252.0320 | email@example.com
During a merger or acquisition, obtaining an understanding of the mobile employee population comes with many considerations including talent management, immigration, and tax. In this month’s newsletter, we provide an overview of the mobility tax considerations for mergers and acquisitions (M&A) in three key areas: people, policy, and process.
People – understanding your mobile employee population
One of the first steps required from a mobility perspective is to understand what types of mobile employees may be involved and how the mobile employees will be impacted. While it is obvious that a review will be required of the current and combined mobile workforce, it will also be important to proactively consider any new and future needs for the organization. Here, an M&A often results in a need to relocate employees for such purposes as training, integration of company culture and practices, changes in employee roles, and applicability of new markets and business locations.In assessing both the current and future state of a combined mobility program, it will be important to understand the locations and types of scenarios that will be involved.
With four main types of mobile employees (i.e., one-way transfers, assignees, business travelers, and non-traditional mobility scenarios), you will need to understand what your mobility population looks like and what categories the employees fall under. They each come with their own set of unique considerations.
For one-way transfers, a determination of the transfer cases that are in process will be important along with confirmation that there is still a need for that employee to transfer to the intended location due to the M&A.
Assignment cases can get more complex as there are several areas to address. For example, key questions to consider are:
- How many assignees are there?
- What countries are the assignees in? In addition to tax considerations, there may be employment law and immigration considerations, especially related to employees who may be terminated or those switching to a new employment contract.
- For existing cases, how far is the employee(s) into the assignment and will the M&A impact their assignment?
- Will new assignments be required to support the M&A / future business goals and objectives?
- Will current policies and processes support new scenarios or locations? Are my vendors able to handle any new locations or anticipated increase in volume of moves?
Due to difficulties in tracking and lack of documentation, business travelers and non-traditional mobility scenarios can often be difficult to uncover and review. However, these cases have the same types of risk as longer-term assignments, including possible legal, reputational, and financial issues. As such, it will be important to inquire and understand these types of scenarios.
Policy – understanding the policies that apply to your mobile employees
Along with the people considerations of an M&A comes the important step in understanding the policies that apply to those mobile employees. Mobility policies can vary greatly between companies. It will be imperative to review all policies including the benefits provided within each policy. After the M&A is complete, you will need to consider whether you will continue to utilize separate policies for existing mobile employee scenarios or if you will transfer all post-M&A mobile employee to a new policy.
There is unfortunately no one best answer as to which approach to take. If going with a multiple policy approach, be aware that multiple polices can often lead to miscommunications, increased costs, and increased risk if not fully understood. If moving towards a whole new policy, keep in mind that communicating policy changes to mobile employees is extremely important for setting expectations and executing a smooth policy transition.
The following are some important tips to consider:
- Determine what assignment polices exist. As an example, are there different policies for short-term assignments versus long-term assignments?
- Determine how mobility scenarios are defined. The length of time an employee is working in a Host location often defines the policy provided. However, definitions between companies can vary. For example, an employee traveling to a Host location for three months may be considered a short-term assignee under one policy but may be considered a business traveler under another policy. Given employee benefits and provided services often vary between policies, it is important to understand the policy definitions and how they are applied.
- Determine and review existing permanent transfer policies and, as possible, align the polices on a go-forward basis.
- Determine what policies exist for business travelers. Is there a policy around tracking and reporting business travelers? Are there administrative guidelines that are followed related to physical presence thresholds in specific locations? What types of benefits and expenses are allowed for reimbursement for business travelers? If tax obligations arise for business travelers, is there a policy relating to tax gross-up assistance?
- An increasing number of non-traditional mobility scenarios exist with companies as well. As such, it is important to understand those cases and determine where policies exist.
- Review existing tax equalization policies. Do the policies need to be updated for elements such as tax equalized compensation, equity, or personal income?
- Determine whether policies exist and what the company position is on reporting for trailing liabilities arising from equity and deferred compensation.