Keeping track: Tax changes for mobile employees

Across a number of countries, the way internationally mobile employees are taxed is being shaken-up. This follows the G20/OECD-led Base Erosion and Profit Shifting (BEPS) Action Plan recommendations set out over a year ago.

This huge package of reforms is designed to bring tax liabilities more closely into line with the economic ‘substance’ of where and how value is created. For internationally mobile employees specifically, this may mean that corporate tax liabilities can arise in locations where the employee carries out activities, rather than just where they are legally employed or on the payroll.

The potential impact includes a sharp increase in the number of jurisdictions in which your company may be deemed to have a taxable presence (permanent establishment) and the complex tax registration, calculation and reporting demands that go with this. Failure to get to grips with the shift will increase your risk of tax investigation, dispute, penalties and potential reputational damage.

Putting tax management for internationally mobile employees on a solid footing needs a more systematic approach. How can your business get up to speed?

What are we seeing change?

Permanent establishment

Changes to tax rules resulting from the BEPS Action Plan increase the range of activities that fall within the definition of a permanent establishment.

Transparency

New country by country reporting requirements mean that if your company is within the BEPS threshold you will have to disclose how many people are working within a particular tax jurisdiction, together with additional information such as how much revenue is being generated in that country.

Heightened risk

BEPS heightens tax risk by increasing both the complexity and the scrutiny of the arrangements for internationally mobile employees. Do your tax arrangements and disclosures reflect the economic substance of your activities?

Strategic implications

The new rules have already led to significant shifts in either personnel or corporate registration for tax purposes. More are likely to follow.

Apportioning value

If one of your employees goes to work on a secondment or project, the entity that permanently employs them may charge the host entity.

What now?

The impact of the BEPS Action Plan has raised the bar of managing internationally mobile employees further still. Read the full article - PDF [ 489 kb ] and explore the actions that your business could be taking to address key areas and aligning your strategy, mobility and tax.