Global mobility came to a screeching halt in early 2020 as most countries locked down to limit the spread of the coronavirus. Now the world is beginning to reopen as vaccine distributions increase, albeit at a varying pace across regions. The impact of the pandemic on global mobility remains uncertain: will business travel return to a pre–pandemic mix and volume?
Whilst a Zoom room is a workable alternative for remote teams to communicate and collaborate, there is immense value in being physically in the same room: the handshake when meeting a new client, the non-verbal cues outside the camera frame, the additional connections discovered over coffee breaks.
After following risk–adverse protocols during the past year, I expect employees’ willingness to return to “normal” may be slow, starting with a few business trips or shorter-term assignments.
Short stays in a tax authority can have tax consequences. Some countries, like the United States, impose tax from the first day an employee performs work within their borders. Employees sent on short-term assignments usually do not uproot themselves by selling their homes or bringing spouses and children along. They maintain connection, or tax residence, at home, and are thus generally subject to home country tax. Hence, the same income may be taxed by both authorities. Double taxation can discourage business travel, increase costs, and potentially limit cross-border trade.
Income tax treaties come into play here, as they are designed primarily to facilitate cross–border trade. Whilst treaties are agreed upon between two countries, they typically follow common models, one of which is established by the Organization for Economic Cooperation and Development (OECD). In this model, income from employment is taxed where work is performed unless it is not material. The OECD set 183 days as the materiality threshold, making the treaty especially useful for business trips and short assignments.
The Equus tax database holds over 100 countries’ income tax treaties and utilizes the data in two product offerings: PinPoint Business Travel, and AssignmentPro Cost Estimate.
PinPoint reports income tax risks using business travel data, which is either entered individually or automatically transferred from a corporate travel process. If an income tax treaty is in force between the employee’s country of residence and the destination country, and the travel days do not exceed 183, PinPoint reports a low risk. Business rules can also be added to check the costs recharge and permanent establishment conditions included in the “income from employment” article of tax treaties.
Global mobility leaders are contributing more value to their organizations’ business processes. Providing tax risk assessment for business travel to help manage costs and compliance is another opportunity. It is far better to know the tax risk up front and proactively steer behavior than to explain unexpected costs after the event.
AssignmentPro enables global mobility operations to manage assignments and moves. In particular, the Cost Estimate feature supports a company’s cost management process to align resource allocation to prioritized goals.
Like PinPoint, the Cost Estimate feature incorporates Equus’ tax treaty data for use in short–term assignments. If the duration is six months or less and a treaty is in force between the two countries, the estimate will automatically exclude host tax. Only home tax costs will be included in total costs providing an indicative cost estimate.
One tax treaty database delivering dual benefits from Equus Solutions.
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Before her career in Global Mobility, Vickie held increasingly senior positions in financial and technology auditing, first at Coopers & Lybrand (PwC) and later became Vice President at JP Morgan Singapore before moving to New Zealand where she joined a tax practice. In those roles, she gained valuable experience in the areas of process and control management. She has always been fascinated by tax, an interest that motivated her to earn a Master’s degree in Taxation, as well as international certifications from San Jose State University.
Vickie joined Equus in 2007, as Equus’ VP of Tax Solutions. Her responsibilities include maintaining all facets of tax calculations for over 150 supported authorities; overseeing release processes to deliver enhancements and periodic updates, and managing clients’ implementation and support. She ensures that the tax intelligence built-in to Equus solutions is always accurate and up-to-date.
Look out for Vickie’s blogs focused on tax updates within our software and industry insights on taxation within the Global Mobility Space.