Data Analytics: Know Tax Compliance Risk Associated with Business Travel

By Lorraine Cohen and John Jennings Nov 13, 2014
Collecting and analyzing global workforce data offers many possibilities for creating value for your organization. One of the most relevant applications for workforce analytics today may be to manage the tax compliance risks associated with business travel, as tax authorities become increasingly vigilant in collecting tax revenues generated by employees working within their jurisdictions.

Understanding where your employees are working is critical to addressing growing compliance risks. Yet, in a recent Deloitte webcast survey of 2,100 business executives, only about five percent said they proactively use data to make decisions about and gain insights related to “business travelers,” employees who travel to visit suppliers or customers, work on projects, or attend meetings. Unlike expatriates or assignees tracked by HR, business travelers frequently are not on the “radar screen.”

Why the concern? Often, the physical location where services are performed is the jurisdiction that has first right to tax income earned while providing those services. In most jurisdictions, employers must allocate the income related to that travel and report and withhold accordingly. If the travel involves locations where the company has not previously performed services, there could be potential corporate tax issues related to permanent establishment for international travel or nexus for U.S. domestic travel. Employees may face income tax obligations and potentially immigration concerns if they do not have proper work authorization.

Many U.S. states and international jurisdictions are looking to close budget gaps, and one way they are doing so is by identifying the source of revenue and trying to collect from the nonresidents traveling there for business.

Rules differ by jurisdiction, and the landscape is complex and changing. More and more companies are using analytics to manage this area—but so, too, are tax authorities, which have similar tools and techniques to aid discovery.

If your organization hasn’t addressed business traveler compliance previously, your first step should be to identify business travelers and determine the countries and states into which they are traveling. With this data, you can study population samples to quantify exposure, prioritize actions, and develop support for change.

It’s almost impossible to go from zero to 100-percent compliance on day one, so develop guidelines that address the highest-risk populations—and then evolve your approach to incorporate larger parts of the business traveler population over time. This will help you identify relevant data sources, evaluate data quality, create processes for obtaining the data you need, and then document requirements and rules.

Once your guidelines are in place, establish a regular cycle for obtaining data and begin implementing the technology and processes for pulling and analyzing data as well as for processing the compliance, reporting, and withholding requirements. Communication is important to confirm that affected employees understand what they need to do.

Finally, commit to monitoring results and revising guidelines and processes continuously to allow you to reach a point of acceptable compliance. Given the evolving environment, you will need to continuously monitor new jurisdictional requirements, assess evolving risks, and adjust your original guidelines accordingly. It is also important to review compliance and employee satisfaction regularly to be sure that the systems are providing you with the information you need but in a way that isn’t burdensome or culturally inappropriate.

Acting now and approaching this process as an evolution can pave the path to the type of insight and foresight necessary for proactive decision making. What if you could see when someone is about to trigger a filing event and make informed decisions about the travel before it occurs? That’s the potential value of data analytics.

Lorraine Cohen is a partner in the Global Employer Services practice for Deloitte Tax LLP. She has over 25 years of experience providing services to global companies, including expatriate tax program management consulting and compliance, tax planning, and human resource policy consulting.

John Jennings is a partner in the Global Employer Services practice for Deloitte Tax LLP. He has helped multinational organizations address the HR and tax challenges of transferring personnel and compensation plans across borders, and has assisted corporations with the various facets of their global compensation programs.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

©2014, Deloitte Development LLC

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