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Businesses are going mobile. They are expanding their operations across
borders requiring them to get people with the right skills in the right place
at the right time. While long-term employee assignments have been the
traditional way to accomplish this goal, companies are increasingly using
frequent business travel to achieve their business objectives.
Frequent business travel allows businesses to have a highly mobile workforce
and in certain circumstances, be more cost effective, making it an attractive
alternative. While this sounds appealing, companies should be wary that there
are many risks and challenges that can arise.Most notably,
frequent business travel can trigger financial risk associated with corporate
and personal taxes. And these tax obligations can be difficult to identify and
manage because the travelers are typically not part of the traditional mobility
program. Identifying who is traveling, at what point they trigger tax
obligations, and getting processes in place to pay taxes can be challenging
An employee’s presence in the United States or a foreign country can trigger
personal income tax obligations as well as withholding and reporting
obligations for the employer. Such presence may also trigger both employee and
employer obligations to remit social security tax, as well as obligations to
file individual tax returns in the host location. Further, corporate level
income and value-added taxes may be triggered. The news is not all bad because
some of the income tax-related obligations may be mitigated by an income tax
treaty between the home and host countries.
If these taxes are not paid, tax authorities can also assess interest and
penalties. Any noncompliance with applicable tax and other laws may raise
reputational risks for the organization especially if the organization is
perceived as knowingly avoiding their tax obligations. These risks are
compounded by the fact that tax authorities are more aware now of the explosion
of frequent business travel and are increasing their monitoring in an attempt
to maximize tax revenue.
Aligning policies, processes and stakeholders. Managing risks
associated with frequent business travel should be part of the overall mobility
strategy and governance framework of the enterprise. HR and tax functions
typically do not track these cross-border travelers, their activities, or their
resulting compliance obligations so the first step is to identify the scope of
travel and associated tax obligations. Policies and processes must then be
tailored to satisfy the organization’s goals and risk tolerance.
The organization should assign the mandate of the frequent business traveler
program preferably as part of the tax and HR functions that oversee the
traditional mobility program. In addition, the “buy-in” of the organization’s
senior leadership is essential—ideally, management will view the frequent
business travel program as an important investment.
Efficiently gathering the right data. The frequent business travel
program must have the means to timely gather accurate information relating to
employee travel. This data must include the identification of the specific
persons traveling, where they are traveling to, how often they travel, time
already spent in foreign locations for work, and what type of activity they are
doing.This information is essential for determining the
organization’s risk and exposure to foreign taxes, interest and penalties.
Organizations have a variety of means to gather this data that range from
manual to automatic.Technology-enabled solutions can
provide significant efficiencies for the organization both from a cost,
resource and time perspective as compared to manual processes. For example,
technology can be deployed on mobile devices so that employees can enter
information on a real-time basis that becomes immediately available to the
employer. Technology solutions can also compare travel data against the tax
rules of the employee’s home and host locations and automatically analyze
taxable events such as reaching income tax thresholds.
Using creative ways to reduce burden. When frequent business travel
creates obligations to file individual-level tax returns in the host
jurisdiction, this can become incredibly burdensome due to a potentially large
number of returns that may be required. But there is a growing trend for some
tax authorities to eliminate these individual income tax filings as long as
taxpayers pay the proper amount of tax owed through the employer’s payroll
withholding system. These so-called “cooperative compliance” arrangements can
achieve reduced compliance costs and efficiencies due to the better utilization
of resources by both taxpayers and tax authorities.
Tax authorities in many countries have implemented, or are taking steps to
implement their own customized approach of cooperative compliance. While it can
be accomplished by domestic legislation, many countries formalize cooperative
compliance arrangements in some kind of written agreement with taxpayers, such
as a special ruling or dispensation. A recent survey by PwC of 60 countries
found that a significant portion of such jurisdictions had the potential to
immediately negotiate an agreement to streamline mobile employee compliance in
Will Frequent Business Travel Increase?
The answer is an unequivocal “yes.” As organizations continue to look for
growth opportunities abroad, employees will be increasingly mobile with
frequent business travel expected to be a significant mode of movement. Tax
authorities are expected to become even more aggressive relating to the
potential tax obligations associated with the frequent business travel. And
countries are expected to require more transparency surrounding a company’s
workforce around the world, potentially shining a spotlight on noncompliance.
As the business grows, those HR and tax functions that are not prepared are
going to find it more and more difficult to get this issue under
The bottom line is that organizations should put frequent business travel
and its impact on the agenda to evaluate sooner rather than later. Proactive
steps now to manage mobile workforces will go a long way to reduce financial
risk, manage costs and align compliance processes with business objectives. An
important takeaway is that if the business starts early to formalize a frequent
business traveler program, it can start reaping benefits exponentially years
down the road.
Peter Clarke is global mobility practice leader at PwC.
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