Trends in Global Mobility Policies Current Economic Drivers and Risk Management Considerations

Transcription

1 INTERNATIONAL EXECUTIVE SERVICES Trends in Global Mobility Policies Current Economic Drivers and Risk Management Considerations TAX November 5, 2010

2 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. entity. All rights reserved.

3 Agenda Current economic environment and impact on Global Mobility Discuss different types of risks associated with a global workforce Review how companies are assessing risk Global Mobility Policy Documentation Payroll and Accounting Compliance Tax Planning entity. All rights reserved. 2

4 What Are the Current Drivers of Your Human Capital/Talent Management Strategy? Current or imminent leadership gaps Lack of desired knowledge and/or skills Layoffs/workforce reductions Lack of understanding company s current workforce Regulatory compliance Anticipated mergers and acquisitions Geographical expansion Retirement of critical/executive roles Higher-than-desired employee turnover 44.8% 38.8% 38% 34% 18.8% 17.6% 16.8% 16.4% 12.8% Source: Knowledge Infusion and IHRIM Fifth Annual Talent Management Survey, August 2009 entity. All rights reserved. 3

5 Potential Volatility in a Global Business Environment Creates Diverse Internal Business Drivers Expansion or Contraction of Business Operations Cost containment Alignment with new Talent Management goals Temporary filling of skill gaps Employee developmental needs to increase capability Attracting talent in more challenging countries where local market competition is strong Changing assignee demographics (Gen Y and Millenials) Political unrest or regional security instability entity. All rights reserved. 4

6 Even in an Economic Downturn Organizations Still Need to Assess Their Business Needs for Proper Alignment to Policy Business Drivers Similar or Diverse? Positions / Functions Similar or Diverse? Assignment Population Small or Large? Locations Few or Many? CultureC Desire D i Consistency or Flexibility? Importance of Mobility Not important or Expected? entity. All rights reserved. 5

7 Cross-Border Personnel Moves Are Complex Actions/reactions are often required in the Home, Host, and other locations for each of the following: Legal Finance Tax Business Unit HR Employee Contract Intercompany Agreements Labor Laws Employment Laws Corporate Laws Budgeting Bookkeeping Financial Reporting Accruals Reconciliations Charges Direct Taxes Corporate Individual Indirect Taxes GST VAT Sales/Use Logistics Communication Quality Control Entry Barriers Administrative Support Facilities Security Comp. Payroll Policies Benefits Immigration Corporate Structure entity. All rights reserved. 6

8 Risks for Cross-Border Personnel Moves Unrecorded Liabilities Indirect Taxes Financial Reporting and Proxy Disclosure Permanent Establishment (PE) Exposure Payroll- Related Tax Withholding and Reporting Transfer Pricing Immigration Compliance Data Privacy entity. All rights reserved. 7

9 Human Resources Risk Assessment Assignment Letter Sub-Process Process Objective Risk Assignment Letter and Compensation Package Establish terms and conditions of assignment between employee and company Ensure employee understands compensation package and benefits Ensure employee understands purpose of assignment Plan properly for tax implications of assignment Determine if cost sharing agreements or dual contracts are appropriate Authorities determine who employer is which can result in adverse legal and tax consequences Costly exceptions to policy as the cost of the exception also attracts a host tax component and sometimes a home tax component Goals are not established for assignment Adverse and costly tax consequences for company and employee Not intended to be an exhaustive example. entity. All rights reserved. 8

10 Unrecorded Liabilities Organizations with a global workforce struggle with managing unrecorded liabilities associated with: Failure to accrue: Expatriate taxes Pension costs Social tax costs Certain employee costs Failure to track business travelers and short-term assignments lasting beyond treaty relief periods Charging compensation costs to the host for short-term assignments entity. All rights reserved. 9

11 Unrecorded Liabilities Budgeting g and Assignment Approval International Assignment Process Assignment Cost Estimate Process Objective Ensure cost is budgeted, costs are minimized, and corporate/individual tax issues are addressed Ensure policies are followed for compensation package for assignee while addressing corporate tax issues Ensure approval for assignment cost and which division will bear cost Unexpected costs due to non- compliance Establish accrual for assignment costs Risk Violation of corporate tax policies and procedures Exposure of corporate entity to tax in a jurisdiction where a business entity has not be established Tax issues for both the company (PE) and the employee Exposure to tax penalties and interest Legal issues if company is not registered should employee exercise/receive shares Not intended to be an exhaustive example. entity. All rights reserved. 10

12 Immigration Compliance International Assignment Process Immigration* Process Objective Ensure application with local government to legally work in country. Ensure application of family (non working) to reside in country legally. Risk Employee begins working in country prior to obtaining work permit. Family begins residency before obtaining proper authorization. Bad press for organization and possible ban to establish business in country. Employee/family is imprisoned or banned from ever entering/working in country. Tax costs are higher than anticipated due to incorrect work permit obtained. Immigration costs are higher than anticipated due to early entry. *Not intended to be an exhaustive example and consultation with Immigration Attorney is suggested. entity. All rights reserved. 11

13 Tax Withholding and Reporting Accurately reporting wages (including equity and other incentive compensation) takes both specialized systems and knowledge of global compliance standards. Compliance includes: Requiring the sourcing of income across countries Treaty implications on different types of income Understanding how foreign tax credits impact withholding entity. All rights reserved. 12

14 Payroll and Benefits Ongoing Administration, Withholding and Year End Reporting Sub-Process International Payroll and Benefits Process Objective Establish paying, shadow and split payrolls Calculation of assignment allowances Reimbursement of assignment expenses Withholding and reporting of third party payments Ensure employee has benefits while on assignment Determine if home or host benefits are needed and beneficial Risk Duplicate or incorrect costs or payments Incorrect earnings reporting Benefits are not available outside home country plan Pension plans are terminated due to non qualified employees are added to plan Income tax treaties are not leveraged resulting in higher costs than anticipated Social taxes are duplicated where totalization agreements are not leveraged Managing receivables collections and reporting Not intended to be an exhaustive example. entity. All rights reserved. 13

15 Risk Management in Global Mobility Extremely difficult issues Constantly evolving laws and accounting rules Increasingly mobile work force Lack of adequate tracking/administration systems Increased scrutiny by U.S. and foreign tax authorities ACTION Make an educated decision regarding risk tolerance Attempt to quantify exposures Document policies and controls Test controls to validate entity. All rights reserved. 14

16 Contact Details Laurie Jones KPMG LLP - Dallas (214) lauriejones@kpmg.com Gretchen Wilkinson KPMG LLP - Houston (713) gmwilkinson@kpmg.com entity. All rights reserved. 15