Global competition and the search for new markets and opportunities have led companies to carry on business activities outside of their domestic markets. Often the activities start casually with a few individuals traveling to review opportunities in the foreign jurisdiction. As opportunities and operations unfold in the foreign jurisdiction, often a number of employees from head office start to travel to the host location as insufficient resources with adequate organizational experience are available there. Before long the company has senior leadership, operational managers and employees on the ground in the new location for significant periods of time.
Expatriate employees: payroll, administration and tax compliance
With the immediate focus on operational issues, no one has had the time to give some thought to the cross-border tax and human resource issues associated with the deployment of personnel into the host jurisdiction. Without careful oversight of the situation, the company and its employees may be exposed to significant corporate payroll, corporate tax and individual tax liabilities and penalties. The tax implications may also adversely affect the company’s business reputation, internally and externally. It is in the company’s best interest to manage these issues but internal resources and time constraints may prevent the appropriate attention to these matters at the outset. With tax authorities focusing on increased compliance, it is important for organizations to develop systems and procedures to manage, as best they can, the payroll, transfer pricing, and corporate and individual income tax implications of the cross-border activities.
Employee relocation policies
The development of an employee relocation policy and cross-border payroll and tax procedures should be put in place as soon as reasonably possible. A proper policy document will minimize exposures for tax and payroll for the organization and provide essential guidance to employees. No one likes surprises including employees who may have a significant tax liability to fund on their host country tax return. While most companies will assist with the funding of such liabilities, the policy can provide guidance on tax settlement process matters to help minimize collection issues.
Traveling employees
For employees who travel extensively, they will be exposed personally to significant tax issues. With some advance preparation, including an individual tax consultation, the employee will understand the issues and risks they need to manage to minimize unexpected tax liabilities. With the help of an employee international assignment policy, the company can work with the employee to ensure that the foreign assignment is successful both operationally and financially.
Andersen in Canada has worked with businesses with cross-border operations to develop assignment tax policies to help their human resource teams guide their employees through the process of complying with international employment opportunities. We would be pleased to speak to you about the services we can provide in policy development, corporate and individual tax advice and tax return preparation in both Canada and the U.S.
