Author: Mark is Managing Director for GTN’s South region. He has over 20 years of professional experience in advising multinational companies on global mobility related issues, including expatriate taxation, payroll, equity compensation planning, international assignment policy review, and program administration. Having been an expat himself enhanced his desire to assist and help simplify the process for assignees who are overseas. +1.713.244.5020 | mtirpak@gtn.com
During the past year, the uncertainty that came with the COVID-19 pandemic combined with travel bans caused many companies to put a hold on new expatriate assignments. However, the increased rate of vaccination, especially within the US, is now creating opportunities for companies to consider re-starting international assignments. At the same time, the combination of increased spending by governments to fight the pandemic along with reduced tax revenue due to pandemic-induced economic slowdowns, are creating an environment ripe for tightening regulatory compliance for cross-border assignments and business travelers.
The coming increase in global relocation in the face of increased scrutiny will result in heightened risk for those managing mobility programs. Below, we look at some of the key risk areas related to your expatriate employees and four steps companies should consider implementing to help manage the global assignment risk for their expatriate employees.
Key global assignment risks for expatriates
Given the importance of mobility to many companies’ growth and talent management, it is critical that key risk areas for both the company and employee are understood and managed.
Regulatory and compliance risk
Compliance risk due to increased regulations is on the rise. As an example, Canadian tax authorities continue to audit companies for adherence to withholding tax requirements for business travelers who may otherwise be exempt from income tax under a treaty. The authorities typically look back five years to assess withholding tax, with those companies potentially incurring significant costs relating to compliance and difficulties in filing individual income tax returns to receive refunds.
This example reflects the need to fully understand compliance and regulatory requirements for locations where employees travel on business. In this case, the withholding would have applied after even a single workday in Canada but could have been avoided if proper waivers had been received in advance. Cross-border business travel can result in work streams for many functions within a company, including HR, tax, payroll, legal, finance, and relocation departments.
Financial and budgetary risk
As illustrated above, failure to comply can lead to unexpected costs and potentially significant penalties and interest. Equally important, however, is the need to understand the costs of proposed expatriate assignments in advance. Through proper review, planning may be possible to lower costs, allowing business units to properly bid on new work and appropriately accrue assignment costs. Preparation of tax cost projections prior to the start of the expatriate assignment allows companies to book an accrual for the full estimated tax cost of the expatriate assignment. The accrual process helps to minimize surprise hits to the business unit’s bottom line.
Prosecution
The risk of prosecution is not just a scare tactic! For example, there have been numerous cases where individuals have been convicted of federal tax charges for failure to appropriately report bank accounts maintained outside the United States. In some countries, tax evasion can be considered a capital offense. Representatives of the company can be held accountable for failure to meet regulatory and reporting requirements, thus, understanding and meeting regulatory requirements is critical.
Legal and employment law
Failure to properly comply with immigration laws can lead to unexpected costs, project delays, legal challenges, or deportation for the employee. Failure to consider local employment law can also be costly, potentially opening the company up to lawsuits, delays in client deliverables, and unhappy employees. In a recent webinar we hosted, we examined the risks, strategies, and approaches employers can take to help alleviate some of the legal concerns.
