• Author
  • Recommend
  • Tags
  • Connect
  • Download
 

TAGS

Mobility programs must consider tax and immigration rules

Most companies’ global mobility programs will need to evolve quickly to optimize their value and impact for market opportunities and employees.

by Michael Bertolino, Global People Advisory Services Leader

Organizations that closely align their geographical talent footprint and market opportunities tend to be more productive and profitable. According to the EY report Right people, wrong place?, co-produced with LinkedIn, companies that better connect their global workforce strategy to global market opportunities derive significant benefits in productivity and profitability. A well-designed and monitored global-mobility program is an increasing business imperative — an important driver of successful people deployment while managing tax and immigration in tandem.

Global mobility is usually high on the agenda at multinational corporations. A series of interviews with global mobility leaders at multinational companies across various industries in 2017, by Ernst & Young in Australia, revealed that their mobility strategy was initially linked to the company’s broader business strategy. However, even where it was linked, it was not always reviewed on a regular basis.

Having worked with many global companies, our experience is that common barriers to strategies being implemented and reviewed regularly include a lack of support from the C-suite, the small size of the global mobility program/lack of budget, and industry-specific considerations, such as the program being project-based.
With what we are currently experiencing globally with an increase in nationalism, growth in emerging markets and changes to workforce demographics — not to mention Brexit and current US immigration policies — most mobility programs will need to evolve quickly to optimize their value and impact.

A tax-effective compensation package

In addition to these challenges, to create a truly effective global mobility policy, companies must also consider tax-effective compensation packages for the relevant employees. Nick Pond, EY Global People Advisory Services Mobility Leader, based in Hong Kong, states that tax is an element that drives compensation cost and that mobility assignment packages should address cross-border tax issues.

For example, organizations sending people to China, which has a high personal tax rate, will want to consider offering tax-free housing allowances to manage the tax impact upon individuals who are relocated to high tax jurisdictions. More companies are also offering programs that include a robust partner and spouse relocation policy to overcome resistance and to support the relocating partner, as described in a new EY study.

Pond adds that many companies will have a tax-equalization policy, which confirms that employees’ take-home pay remains the same as it would have been in their home country. Tax-equalization policies mitigate employees’ concerns that additional tax might be incurred when they relocate. Local country pay practices are another important data point (i.e., pay levels need to be competitive and ideally equitable with local peers), although this is not always practical if costs of living are very different.

Compensation packages must also take into consideration cross-border payroll and benefits issues. According to our 2017 EY Global Payroll Survey, 65% of organizations agree that a truly global payroll delivery model would bring about significant benefits, such as global reporting and cost optimization.

As Pond notes, it is critical for companies to get payroll right. Designing a payroll system might include, for example, a split payroll between the US dollar and Chinese RMB and a US-based retirement scheme for a US employee who relocates to China.

Wayne Parcell PSM, EY Global Immigration Leader based in Sydney, adds that no compensation issues can be addressed without looking at immigration as well. “Remuneration must be simple, transparent and cash-like,” he says. “Non-monetary compensation may be seen by immigration authorities as employee exploitation.”

Comprehensive compliance support

Companies will want to provide comprehensive compliance support so that relocated employees are not burdened by additional compliance obligations. Take the case of moving an employee from the US to Russia: organizations will want to offer comprehensive assistance with tax filings in both countries. “Imagine relocated employees trying to file their taxes in Russian Cyrillic script,” says Parcell.

Pond adds that individuals often have complex personal wealth situations. Mobility programs that provide comprehensive compliance assistance beyond direct pay enable relocated employees to focus solely on doing their job effectively.

Although these programs can seek to solve mobile employees’ tax issues, those issues can’t be viewed in isolation. Parcell points out that regulatory frameworks in different jurisdictions are designed to protect local hires and restrict immigration that is not cognizant of local labor markets. The strong geopolitical backdrop in many countries — from the US, where the current administration is seeking to reform immigration and entry criteria, to the UK, where many organizations are revising their mobility programs in the run-up to Brexit — adds more challenges to companies seeking to identify the right people to relocate and fill gaps in their workforces.

Right people, wrong place?

Impediments to filling those gaps come from governments around the world looking to make certain that immigration poses a minimal threat to local labor health. In this environment, companies must develop a strategic approach to mobility that allows flexibility, notes Parcell. Companies need to manage their mobility frameworks to gain a more detailed understanding of their own talent pools.

For example, they may want a particular individual to relocate to Australia, but regulations may limit the duration of stay of that person in the specified occupation to two years instead of a planned four years. Or in other cases, they may need to consider a rotational arrangement, in which the individual moves to the location for three to six months. Some jurisdictions make it so difficult that it is sometimes necessary to move the employee to an adjacent country and arrange to fly to the target market as needed.

In some markets, it may be necessary to avoid placing people in certain jurisdictions at all, due to the compliance or reputational risks involved. Companies need to keep in mind that in parts of sub-Saharan Africa, Eastern Europe and Central Asia, they may decide that placing people in certain countries poses unacceptable governance risks. Companies headquartered in the US, UK and Australia need to heed the restrictions imposed by the US Foreign Corrupt Practices Act, the UK Bribery Act and the Australian Crimes Act as they enter these markets.

The changing nature of business travel has become a significant mobility issue, according to Parcell. Companies need to include business travel management in their definition of mobility. With people traveling extensively for business, an employee who enters a market to perform work may come to the attention of revenue authorities seeking additional revenues to fund their governments. As immigration or work programs tighten, he says, companies are increasing their business visitor programs. The emerging trend among employees and their partners to find more agile ways of working to incorporate both partners’ career choices has fueled interest in business travel in preference to relocation.

“Organizations need to recognize that both revenue authorities and immigration authorities are looking at ways to better capture and share information on these travelers,” Parcell says. Their efforts have become more sophisticated and coordinated. He also points out that in July 2017, Australian authorities commenced a project to match 20 million visa records to identify holders who hadn’t filed their tax returns. An increasing number of countries have the tracking technology, or will quickly develop it, and the means to address these matching and short- and long-term country traffic issues. Companies seeking to mitigate immigration risk in cases like these must employ strong compliance and employee education programs.

New software solutions

Some are addressing this multi-level risk proactively through the deployment of new software solutions, Parcell notes. One example of this approach is an alliance EY recently formed with Concur, the world’s leading provider of travel, expense and invoice management solutions. Companies using the system benefit from the combination of a personal dashboard and one-to-one assistance that can highlight potential issues as they arise.

This type of approach is critical because while immigration issues must be reviewed before embarking on a trip, tax issues are triggered over time, Pond says. Only when the company and individual are advised of this possibility can they consider ways to mitigate potential tax issues, such as consolidating multiple trips to avoid permanent establishment status, which would cause the employer, as well as the employee, to have tax considerations in a particular country.

Although these issues are complex, companies can take many actions to monitor their impacts and set themselves on a course to better manage their mobility programs. Companies seeking to make the most of their mobility policies should strongly consider the following:

  • Seek approaches to mitigate the impact of tax and immigration on mobility with both issues in tandem, including the use of new software solutions
  • Design tax-effective compensation packages and tax equalization policies that address cross-border payroll and benefits delivery issues
  • Provide comprehensive compliance support to relocated employees
  • Develop a strategic approach to mobility that allows flexibility depending on country and legislative requirements

Any business seeking to be at the forefront of talent-mobility alignment can’t afford to think of tax and immigration in isolation. Those that manage these issues in tandem, while continuing to monitor and adjust their global mobility footprint — putting the right people in the right place — are those positioning themselves for success.

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

Font size

Tax topics >

No filter criteria selected.

Industries >

No filter criteria selected.

Countries >

No filter criteria selected.

 < Close

Connect

 < Close

Countries

 < Close

Tax topics

 < Close

Industries

 < Close

Regions

 < Close

0 articles have been saved