Rethinking Tax—The Future of Employee Global Mobility

Cast your mind back to say, 10 years ago. International remote working was not on the radar. Extended business trippers and commuters, while starting to become more commonplace, in the main still played second fiddle to the more traditional long-term type assignment (i.e. 12 months or more in duration) Typically, under such assignments the immigration, tax and social security implications were well understood in advance and well documented in a business’s employee mobility policy, making it more straightforward for a business and its assignee workforce to be globally compliant from a tax and other regulatory perspective.

While tracking of employee movements was important, apart from some exceptions, it was easy to do in most assignments. Apart from some deviation when it came to annual leave, most of the time each year was spent in the host location, with the resulting tax and other regulatory obligations relatively easy to determine and adhere to.

While the traditional long-term assignment is not on its death bed by any means, it is today being replaced more and more by shorter-term flexible type working arrangements. On occasion, this also involves the hiring of local and/or so-called independent contractors. Factor in the increasing trend towards international remote working, and it is fair to say that businesses have never before had to deal with such complexities, whether from the perspective of employee wellness, duty of care, regulatory compliance (including tax, social security and immigration), or indeed mobility policy design and application.

The Future?

Our recent Global Mobility Round Table Discussions, held in late 2021, focused on the future of global mobility.

A common theme in the discussions—regardless of sector—was the expectation that international remote working would continue, coupled with an increase in extended business trips and commuter-type assignments in lieu of the more traditional long-term assignment. The Covid-19 pandemic has accelerated a shift in employees’ expectations, forcing businesses to redefine the concept of mobility.

Covid-19 appears to have reset lifestyle priorities. Employees are effectively demanding a more flexible working environment, with a reduced personal and family impact—something that businesses are having to embrace to retain talent.

As advocates of change, millennials are at the forefront of this new mobility landscape. They are a highly mobile workforce, and this appears to be influencing businesses to consider adopting a more empowering approach to mobility policy. Moving jobs to people is also resulting in many more globally mobile employees working from third-country locations.

While such “new” type working arrangements are—in theory—in many cases more cost-effective than the traditional longer-term assignment, this comes with a “health warning.” Several participants in our round table discussions advised that they are genuinely struggling to identify the location of all their workforces at any given time.

Absence of accurate knowledge of the location of a business’s workforce on a real-time basis can clearly prove costly. Tax authorities are no doubt alert to the potential tax revenue from business travelers and remote workers and on compliance here the onus typically falls on the employer.

Why Does a Business Need to Track Employee Movement?

The increase in remote workers, business trips and short-term employee moves can potentially increase the risk of employees falling “under the radar.”

A common misconception is that there are no employment tax related issues if an employee spends less than 183 days in a country in a tax year. While this may prove true in some instances, businesses cannot adopt a one-size-fits-all approach here. An employee may be taxable in the overseas country from day one.

Take the case of an employee who fulfills, for example, a regional role, and where he/she may spend time in more than one country—it is possible that a tax exposure may arise in each country where the employee is performing duties, regardless of the frequency or duration of such visits to each country.

The same situation could easily occur where the employee is allowed to work from anywhere and spends time working in a few different countries over the course of a tax year. While the employee will likely also be liable for tax in his/her country of tax residence, this does not necessarily prevent tax from arising in any other country. While it is uncommon for real double taxation to arise, there could be a cash flow issue for the employee and/or business owing to the withholding tax requirements in each relevant foreign country and the delay in being able to claim a credit for such tax paid on the employee’s home country tax return.

Absent a business tracking its employees’ movements, then one or more of its mobile employee workforce can inadvertently trigger employer obligations in the overseas jurisdiction without the business being aware of any repercussions. For example, the business may not be aware that it is liable to withhold tax (and social security) from an employee’s salary, and non-compliance may result in penalties being imposed on the business by the foreign country authority. It is also possible that it could lead to an employee being present in another country without the appropriate work visa.

Such incidences of non-compliance could result in the business and its mobile employee workforce being sanctioned, such that the business is not permitted to conduct business in the foreign country and/or is liable to a financial penalty. Indeed, it is not uncommon to hear of employees being deported in such instances.

In the U.K., a business can be prosecuted under the corporate criminal offense legislation for evasion of U.K. or foreign tax and the U.K. tax authority, HM Revenue & Customs (HMRC), expects a business to put in place reasonable procedures to demonstrate it compliance with this legislation.

How Should a Business Track Employee Movement?

A recently conducted poll of 500 C-suite executives within the mid-market showed that a sizeable percentage of businesses either do not track employee cross-border movements (2%), or do so manually (46%); the remaining 52% responded that they have a formal integrated tracking software system.

It is worrying that many businesses report that they are still tracking employees with manual processes such as spreadsheets. An analysis of the data needs to be undertaken to determine whether any employees have breached day counts that result in an income tax liability or social security exposure, or indeed create a business tax risk or perhaps an immigration obligation. Manipulating and analyzing data from basic spreadsheets is a time-consuming and clearly inefficient approach from a compliance risk perspective.

More sophisticated tracking systems and technology solutions are available, and we predict they will become more commonplace in the future, as the complexity of business travel encourages companies to invest in solutions that not only facilitate compliance but also prompt quantification of any unbudgeted costs.

It is possible for employers to use an online platform with a smartphone app which enables them to track their employees’ movements, and includes a system of alerts which warn when a tax event could be on the horizon so that action can be taken to minimize any unintended tax consequences.

It is not uncommon for businesses to limit overseas days to anywhere between 30–90 days in each 12-month period to minimize any potential tax and social security risks. Clearly, such an approach comes with a “health warning,” as highlighted above, as an employee could potentially trigger a tax liability overseas from day one.

Of course, some businesses may be prepared to adopt such an approach in the war to attract and retain talent.

When Should a Business Track Employee Movement?

Simply put, a business should be continuously tracking its mobile workforce. Even if an employee’s number of days within a particular country does not trigger any tax obligations, it may trigger reporting requirements, and therefore days need to be accurately tracked and reported to the foreign country tax authority.

Short-term business visitors to the U.K. who are resident in countries with which the U.K. has a double taxation agreement need to be tracked and reported to HMRC under the Short-Term Business Visitors Agreement. If an employer does not sign up to the Agreement, then pay as you earn (PAYE) tax withholding must be operated from the first day of an employee’s visit to the U.K.

At the end of the tax year, the employer has the obligation to submit a report to HMRC detailing the number of visitors along with the number of days they have spent in the U.K. The reporting is reliant on accurate tracking from day one which only reinforces the need for all impacted businesses to have robust tracking processes in place to facilitate tax and other regulatory compliance.

Who Should be Responsible for Tracking Employee Movement?

Mobile employees who are not performing duties in a foreign country under the terms of the employer’s mobility policy often fall off the radar when it comes to tracking, and a business may have unclear processes in relation to business travelers and remote workers, resulting in non-compliance from a tax and other regulatory perspective.

The business might assume that the global mobility team is responsible for tracking the cross-border movements of such employees, but perhaps this is not always the case.

The rise of the remote worker and the accelerated shift towards shorter-term project based and commuter type assignments encourage all relevant stakeholders within the business to be more joined up in their approach. Aside from the potential tax, social security and immigration considerations, there are numerous other issues to consider, including duty of care, health and well-being and talent retention. While the solution may vary from business to business, it is our view that given the various issues involved, other stakeholders from, say, within HR/Finance/Legal/Operations/Board of Directors need to be part of the solution.

For example, a business could be compliant from a tax perspective but non-compliant from an immigration perspective if it is not considering whether an employee has the “right to work” in the relevant country. In the U.K., a company officer can be jailed and fined if found guilty of employing someone who does not have the right to work in the U.K.

Recommendations

A business should implement an employee mobility policy or policies that clearly communicate to all stakeholders the steps to be followed to enable an employee to perform work in a foreign country. Such policy or policies should also cover the extent to which international remote working is allowed; what constitutes extended business trips; commuter assignments, short-term and long-term assignments etc., and the terms and conditions governing each type of arrangement.

Considering the projected increase in cross-border employee mobility and remote working for the foreseeable future, it is imperative that a business is geared up to facilitate global tax compliance in respect of its mobile employee workforce.

We recommend that any business with cross-border employee movement:

• tracks its employees’ movements from day one of their respective travel (using an appropriate technology solution);
• revisits existing mobility policies to ensure such policies are fit for purpose;
• where appropriate, reshapes such mobility policies;
• ensures all relevant stakeholders in the business are joined up and fully aware of each other’s responsibilities from a mobility policy ownership and implementation perspective.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Andrew Bailey is a Partner and Global Head of Expatriate Services at BDO. James Hourigan is an Expatriate Tax Partner at BDO. He also leads BDO’s Africa Advisory Services desk based in London.

The authors can be contacted at: andrew.bailey@bdo.co.uk; james.hourigan@bdo.co.uk

The authors would like to give a special thanks for the invaluable input provided by their colleague Charlotte Hobrough, who is an Associate Director in the team.