New York University University Policies

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1 New York University University Policies Title: Tax Compliance and Tax Protection Policy Effective Date: Upon Issuance Supersedes: Issuing Authority: Office of Finance and Budget Responsible Officer: Executive Vice President for Finance and Information Technology Purpose of this Policy This policy contains the tax policies adopted by New York University (NYU). The policy is effective for all assignments initiated under NYU s Policy for Faculty and Administrators on International Assignment 1 dated August 1, Eligible employees under this policy are Faculty and Administrators (collectively referred to as international assignee(s) or assignee(s) in this document) who accept a temporary international assignment to work in a country other than their home country, excluding NYU Abu Dhabi, with the intent of returning to work for NYU in their home country. For purposes of this Policy, home country refers to the point of work origin of the assignee and not their citizenship or nationality. Faculty and Administrators who are going to NYU Abu Dhabi should refer to the NYU Abu Dhabi s Tax Levelization Policy. Scope of this Policy The objectives of this policy are (a) to provide assistance to eligible assignees with their home and host country tax compliance obligations as it relates to NYU-derived compensation and to protect assignees from incremental tax liabilities on such compensation in accordance with this policy and (b) to set forth the international assignee s responsibilities with respect to tax compliance, including their obligation to comply with all applicable tax laws and regulations. NYU recognizes that an assignee s actual tax liability while on international assignment may differ from the amount of taxes they would have paid if they did not go on an international assignment. The change results from two factors: - Taxable income, in most cases, increases during the assignment due to the inclusion of international assignment allowances and reimbursements in reportable income; and - Host-country tax regulations (types of income taxed, tax rates, etc.) may differ from those of the home-country tax regulations. NYU s Tax Protection Policy ensures that during and immediately after the international assignment, an international assignee s income tax and, where applicable, social insurance liabilities 1 This policy does not apply to faculty and administrators who are providing services under the auspices of NYU abroad. 1

2 on his or her NYU compensation are no more than their hypothetical stay-at-home tax liability as defined by this policy. The precise calculation of an assignee s hypothetical stay-at-home tax liability varies by reference to the assignee s home country including whether or not social insurance liabilities are tax protected (refer to the relevant country-specific supplement). Tax protection pursuant to this policy only protects assignees from incremental income and social security taxes on specified NYU compensation and is not meant to protect assignees from incremental tax liability associated with their Non-NYU income or from taxes other than income and social security taxes. Procedures for Implementation Assignee Responsibilities It is NYU s policy to comply with all tax laws and regulations. NYU also requires all employees to comply with the tax laws and regulations in both their home and host countries, which includes the filing of all required income tax returns and forms and payment of taxes as applicable. Each assignee is required to make all applicable tax filings on a timely basis and to pay applicable income taxes and, if required, social insurance taxes to the proper taxing authorities. Tax laws and regulations in each applicable jurisdiction govern the obligations of each assignee in this regard. The following guidelines have been adopted by NYU to help ensure that assignees are in compliance with their worldwide income tax obligations: NYU regards compliance with applicable home and host country income and other tax return filing requirements as a mandatory obligation of each assignee. Assignees must conduct themselves at all times in a lawful and ethical manner, including complying with all tax obligations and other legal requirements, as a failure to do so can jeopardize their employment. It is understood that assignees may seek to minimize their liability for worldwide income taxes, but they may do so only in accordance with appropriate, lawful principles of tax planning. Assignees receiving tax protection benefits under this policy must cooperate with NYU, including with respect to ensuring their tax returns are filed in a timely manner on a basis that minimizes the tax protection cost to NYU as permitted by law. However, the ultimate obligation for timely filing and minimizing the tax protection benefit amount is that of the assignee. If the assignee is not sufficiently responsive and cooperative (for example, does not submit all necessary information to permit the tax protection settlement to be prepared within a reasonable time frame), NYU reserves the right to revoke the tax protection benefits provided under this policy. Tax Services Provided NYU offers tax return preparation services through its designated tax service provider to eligible assignees. It is strongly recommended that eligible assignees use the services of the designated tax service provider as NYU will not reimburse the costs of other tax preparers or consultants. NYU will periodically review the services provided by the designated tax service provider and reserves the right to change providers and/or the level of services provided at any time without advance notice. 2

3 Services currently provided by NYU s designated tax service provider to assignees eligible for tax protection benefits include: A pre-arrival meeting with the assignee and spouse, if applicable, to discuss the tax considerations of being on assignment and to discuss the provisions of this policy. Tax consultation limited to that necessary to the preparation of income tax returns. If the assignee wishes to engage another consultant or wishes to engage the designated tax service provider for other services (for example, for financial planning), the related fees will be at the assignee's own expense. Preparation of home and host country income tax returns or declarations if NYU compensation is subject to tax. Fees are not reimbursed for any other tax preparation services, including estate, gift, trust and/or other family members' tax returns (other than the spouse on a married filing joint return). Calculation of the tax protection benefit and year end tax protection settlement. Assistance with tax authority inquiries and audits of returns prepared by the designated tax service provider if related to NYU employment. The designated tax service provider is required by its policies to treat assignees as direct clients of the firm and will seek to preserve the confidentiality of the personal information collected from the assignee. However, the designated tax service provider may be required to disclose some personal information in the aggregate to NYU in connection with the tax protection benefit amount available to the assignee. 3

4 TAX PROTECTION Overview of Tax Protection Under NYU s Tax Protection policy, each assignee bears a maximum tax burden on NYU compensation approximately equal to that which the assignee would have incurred if he or she did not go on assignment and remained working in their home country. In the case of income and, if applicable, social insurance taxes, the actual taxes paid by an assignee may in fact be more, or less, than the taxes that would have been incurred in the assignee s home country. Tax protection is accomplished by reimbursing the international assignee the incremental actual taxes in excess of their hypothetical stay-at-home tax liability. The assignee s hypothetical stayat-home tax liability is calculated based on income taxes (including but not limited to national/federal, state/provincial/cantonal and local/municipal/city taxes) and social insurance taxes, if applicable, that the international assignee would have paid in the home country on their NYU stay-at-home compensation (see Income Subject to Tax Protection ). Notwithstanding any benefit that may be provided to the assignee under this policy, the assignee remains personally responsible for timely payment of all applicable income and other taxes and timely filing of all applicable tax returns. When accurate and appropriate income tax withholding forms are submitted by the assignee to NYU, as applicable, the employer will withhold and pay over taxes to the taxing authorities as requested in accordance with the employer s procedures (including with respect to the timing for implementing requested withholdings). The assignee remains wholly and individually responsible for any additional federal, state, or local tax liabilities as a result of the assignee's employment and stay in host location, including the payment of such taxes to the appropriate taxing authority for amounts not withheld. Scope of Taxes Covered NYU s tax protection policy only covers the international assignee s home and host income and social insurance taxes on NYU assignment related compensation. The scope of taxes specifically excluded from this policy include, but are not limited to, Value Added Tax, Goods and Service Tax, any net wealth or inheritance/estate tax, gift tax, sales tax, and property tax. Such additional taxes are the personal responsibility of the assignee. Period Covered NYU s tax protection policy covers all applicable tax years the international assignee is on assignment. In addition, at NYU s discretion, the tax policy also applies to any tax year subsequent to the assignment that may be affected by factors such as income amounts reportable as a result of the assignment or available tax credits funded by NYU. Income Subject to Tax Protection Only NYU compensation is eligible for tax protection. NYU stay-at-home compensation consists of, but is not limited to: NYU Base salary; Performance awards; Other NYU incentive compensation or performance reward compensation; NYU Stipends; NYU Summer pay; 4

5 Unused accrued vacation time payout; and, Severance pay. NYU stay-at-home compensation does not include any assignment related allowances as listed in their assignment letters. Income Not Subject to Tax Protection Income derived from sources other than the assignee s NYU employment is referred to as Non- NYU Income and is specifically excluded from NYU s Tax Protection policy. Thus, the assignee will be responsible for all actual home and host country taxes on Non-NYU Income which may be more or less than what they would have paid on a stay-at-home basis. Non-NYU Income includes, but is not limited to: The assignee s personal investment income (interest, dividends, and income/loss from rental properties, partnerships); The assignee s employment income from sources other than NYU; Income of the assignee s spouse, including employment or self-employment earnings; Income (or loss) derived from the sale of real property (capital gain, depreciation loss); and Income relating to currency gains and mortgage transactions. Hypothetical Stay-at-home Tax Liability Hypothetical stay-at-home tax liability refers to the income and social insurance taxes applicable in the assignee s home country. As noted in Section 1 above, an assignee s home country refers to the point of work origin of the assignee and not their citizenship or nationality. For example, if a non-u.s. citizen hired by NYU s Washington Square campus accepts an assignment to NYU Shanghai, their hypothetical stay at home tax liability will consist of a hypothetical U.S. federal, state/local and social security tax. The assignee s hypothetical stay-at-home tax liability will be based on the assignee s stay-at-home compensation (as defined in Section 2.4 above). Please refer to the individual home country tax supplements for details on how the hypothetical stay-at-home tax liability will be calculated. Year End Tax Protection Settlement Upon completion of the assignee s home and host country tax returns, NYU s designated tax service provider will calculate the final tax protection benefit due the assignee by comparing the assignee s actual tax liability on tax protected NYU income to the assignee s hypothetical stay-at-home tax liability. NYU s designated tax service provider will also prepare a tax protection settlement to reconcile any advance tax protection payments to the final tax protection benefit due to the assignee. Upon completion of the tax protection settlement, NYU s designated tax service provider will send a copy of the settlement to the assignee and to NYU for processing. If a tax protection payment is due to the assignee, such amount will be processed through payroll and paid in the same manner as the assignee receives his/her paycheck. If an amount is due back to NYU, the assignee will be requested to wire funds or forward a check or money order made payable to NYU for the amount due. Any amount due to NYU must be paid within 30 days of the date the settlement was issued to the assignee. 5

6 In the event the amounts due back to NYU are not repaid in a timely manner, NYU reserves the right to recapture all unpaid amounts by offsetting the amount due against assignment allowances or future tax protection benefits. To ensure consistency and proper application of this policy, only tax protection settlements prepared by NYU s designated tax service provider will be accepted. 6

7 OTHER CONSIDERATIONS Purchase of a Residence in the Host Country Purchasing a residence in the host country while on assignment is strongly discouraged. If the assignee purchases a residence in the host country, all tax consequences resulting from the purchase and/or sale of the property are outside the scope of this policy. The assignee will bear, in full, any related taxes. This will be the case even if the employment is ended early at NYU s decision. This includes: The impact of any taxable gain (or loss); Transfer and other taxes associated with the purchase, sale or financing; and Home and/or host-country tax consequences from currency exchange gains/losses from the payoff of mortgages. Sale of Property, including a Primary Residence Any gain from the sale of property, including the sale of a primary residence, is considered Non- NYU income. As such, NYU will not protect the assignee from any loss resulting from the sale of the residence or loss of the exclusion of any gain from the sale of a primary residence due to the assignee s employment in host country. In addition, NYU will not bear any tax cost relating to the depreciation recapture, if any, upon the sale of the property, including a primary residence. Retirement Plans Contributions During employment with NYU, the assignee is likely to experience an increase in compensation due to the inclusion of taxable allowances such as housing and travel allowances or may not have any taxable earned income after taking into account available income exclusions. This may inhibit their ability to contribute to certain types of retirement plans (e.g. Traditional and ROTH IRAs). NYU will not protect or otherwise compensate the assignee if he/she is unable to contribute to certain retirement plan accounts while working in the host location or for the loss of tax benefits if contributions are made. Exit Tax Assignees who permanently depart from their home country or, in the case of U.S. Persons, who relinquish their U.S. citizenship or green card, may be subject to an exit tax. The exit tax treats the expatriator as if he/she had sold all his/her assets at fair market value on the day before the date of expatriation (if certain other conditions are met). If the total gain on such deemed disposition exceeds a specific threshold, as determined by the home country, it may be subject to an additional home country income tax. It is important to note that NYU bears no responsibility with regard to the exit tax, as the relinquishing of citizenship or permanent residency is a personal decision. Participant in a Tax Reimbursement Program of Another Employer If an international assignee is covered by another company s tax reimbursement policy during their pre/post NYU international assignment period or if their spouse/domestic partner is covered by another company s tax reimbursement policy, the manner in which the Year-End Settlement is calculated will be determined on a case-by-case basis. This approach ensures that the international assignee receives equitable treatment under NYU s Tax Protection Policy by eliminating any distorted results which may occur if standard calculations are performed. 7

8 Localization of an International Assignee For an international assignee that localizes with the host location during an assignment year, the manner in which the final Year-End Settlement is calculated will be determined on a case-by-case basis. This approach ensures that the international assignee receives equitable treatment under NYU s Tax Protection Policy by eliminating any distorted results which may occur if standard calculations are performed. 8

9 POLICY PROVISIONS Timing of Payments All tax protection payments made pursuant to this policy will be made by the end of the assignee s tax year following the tax year in which the assignee remits his/her taxes. See Appendix A, which addresses the timing of tax protection payments in accordance with the U.S. Internal Revenue Code Section 409A. Tax Audits or Litigation A change in tax liability resulting from a tax audit for a year during which the assignee or former assignee received tax protection benefits under this policy may also require a revision to the tax protection settlement for that year. The assignee who received a tax protection payment is required to advise NYU promptly if a taxing authority notifies the assignee of a potential change in tax liability (e.g., notice of audit) or if the assignee files an amended return. The assignee is liable for additional taxes, penalties and interest in connection with the assignee s failure to meet his/her tax responsibilities. In unusual cases, as for example where an employer or tax preparer made an error that did not result from mis-information or omissions from the assignee, the employer or tax preparer may be responsible for the penalties and interest, but not for the tax that would have been owed in any event (except to the extent that the corrected tax liability impacts the calculation of tax protection benefits available under this policy). Employment Termination and Tax Protection If the assignee s employment with NYU is terminated, he/she will receive the tax protection benefits set forth in this policy with respect to applicable NYU income relating to his/her employment and termination of employment. The former assignee will be subject to the provisions of this policy with respect to such benefits (e.g., the process for yearend tax protection settlements, the assignee s obligation to notify NYU immediately if there is a change in tax liability with respect to any tax for which the assignee received a tax protection payment) even though the assignee s employment with NYU has terminated. Any tax obligations in the home and host countries, if applicable, that relate to Non-NYU income earned after termination are entirely the responsibility of the assignee. Interpretation, Exceptions and Amendments to Policy NYU s Executive Vice President for Finance and Information Technology is responsible for the review and approval of all requests for any exception to NYU s tax protection benefits under this policy. Where exceptions are made, NYU will advise NYU s designated tax service provider as appropriate. Items not specifically addressed in this policy will be reviewed on a case by case basis by NYU s Executive Vice President for Finance and Information Technology to ensure compliance with home and host country tax laws and regulations. NYU s Tax Compliance and Protection Policy may be amended in whole or in part or otherwise modified or rescinded at the sole discretion of NYU for any reason including but not limited to changes in tax law. 9

10 APPENDIX A: INTERNAL REVENUE CODE SECTION 409A In the American Jobs creation Act of 2004, the U.S. Congress added statutory provision Section 409A, to the Internal Revenue Code that governs nonqualified deferred compensation plans. Section 409A is generally effective for compensation earned and vested after December 31, Global Mobility programs with tax policies were included in the regulations under this code section. The following language addresses the timing of tax payments as necessary under Section 409A and applies to both U.S. inbound and outbound moves. Tax Reimbursements and Hypothetical Tax Settlements Payment Deadline Tax reimbursements and hypothetical tax settlements related to compensation, to the extent that they do not exceed either: (a) the excess of the expatriate s foreign income taxes on such compensation over U.S Federal, state, and local income taxes on that compensation, or (b) the excess of the expatriate s U.S. Federal, state, and local income taxes on such compensation over foreign income taxes on that compensation, together with any additional income taxes imposed on the expatriate due to the reimbursement or settlement will be paid by the end of the second tax year following the later of: 1) the tax year in which the expatriate s U.S. Federal income tax return is required to be filed (including any extensions) for the year to which the compensation subject to such reimbursements and settlements relate, or 2) the tax year in which the expatriate s foreign income tax return or payment is required to be filed or made for the tax year to which the compensation subject to such reimbursements and settlements relate. If a tax reimbursement on compensation is made that is not covered by the above definition, such reimbursement, together with any additional taxes imposed on the expatriate due to the reimbursement, will be paid by the end of the expatriate s tax year following the tax year in which the taxes are remitted. Tax reimbursements related to an audit, litigation, or similar proceeding, together with any additional taxes imposed due to the reimbursement, will be made by the end of the expatriate s tax year following the tax year in which the taxes that were subject to the audit or litigation are remitted, or if no taxes are remitted, by the end of the expatriate s tax year following the year in which the audit or litigation is completed or there is a final and non-appealable settlement or other resolution of the litigation. Policy Definitions N/A Related Policies N/A 10