I N T E R N A T I O N A L E X E C U T I V E S E R V I C E S T A X

Transcription

1 I N T E R N A T I O N A L E X E C U T I V E S E R V I C E S Taxation Without Representation: U.S. State Tax Considerations and the Globally Mobile Assignee T A X KPMG LLP

2 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. Swiss cooperative. All rights reserved. 2

3 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. Swiss cooperative. All rights reserved. 3

4 Presenter Jeannette Wistner KPMG LLP 20 Pacifica Irvine, CA (949) Swiss cooperative. All rights reserved. 4

5 Agenda The current state of business travel The concept of the stealth assignment Identifying potential exposures Multi-State withholding National outlook Non-resident State Withholding Potential plans Q&A Swiss cooperative. All rights reserved. 5

6 Current State of Business Travel Business travel remains strong Recently a global corporation identified 140,000 individual business trips. Many organizations have developed swat teams of frequent business travelers who are on the road more often than at home Business travel is, for the most part, unregulated Most organizations do not track foreign or domestic business travel for any purpose other than expense reimbursement Most organizations do not utilize a time capture system which contains a location field In a recent poll of KPMG s IES clients, 100% of the responding organizations rated the controls in place around their business travelers as lacking or severely lacking Swiss cooperative. All rights reserved. 6

7 The Concept of the Stealth Assignee Frequent business travel to a specific host location can create an unexpected tax or document exposure Highly compensated employees can create this exposure with a minimal amount of travel Median family income State of NY 2005 $59,686 (source: US Census Bureau) Executive with $1 million in annual compensation reaches this level in 14 work days In many circumstances exposure is created almost immediately Korea $3,000 limit for treaty exemption State of California tax withholding/filing obligation created with first dollar of CA-source income Swiss cooperative. All rights reserved. 7

8 Identifying Potential Exposures Frequent business travel can create two types of exposure Financial Individual level Failure to pay individual income tax Failure to file individual income tax returns Failure to obtain proper work permits/visas Corporate level Failure to report income and/or withhold income tax Failure to withhold/pay social insurance Potential permanent establishment concerns Reputational client specific Swiss cooperative. All rights reserved. 8

9 Managing the Complexities of Multi-State Withholding Swiss cooperative. All rights reserved. 9

10 State Income Tax Withholding The Basics Requirements and obligation of employer Sourcing rule (generally) Income should be sourced to state where employee performs services Non-resident employees traveling to different states should have SIT withheld in those states Treatment of deferred comp/equity compensation generally follows withholding treatment Swiss cooperative. All rights reserved. 10

11 State Income Tax Withholding Some states have de minimis threshholds (NY, GA, etc.) that must be identified and monitored. Ignorance is no defense. What Employers? Need to Know Company officers could be liable for underwithheld amounts. Audits are very aggressive in most states. Most payroll systems are very ineffective in handling. Swiss cooperative. All rights reserved. 11

12 WA Personal Income Tax Withholding As of 01/01/08 MT ND MA VT ME OR ID WY SD MN WI MI CT NY NH CA NV AZ UT NM CO NE KS OK IA MO AR IL IN TN KY OH WV SC PA VA NC RI NJ DE MD DC MS AL GA TX LA FL Personal income tax imposed (41 states) AK Personal income tax not imposed (9 states) HI PR VI Swiss cooperative. All rights reserved. 12

13 Multi-State Withholding What Is The Issue? Employers cannot track employee movement on a daily basis Employers cannot collect and maintain required documentation for proper wage allocation Payroll systems cannot allocate wages correctly to match time spent in multiple states Inconsistent policies and procedures for monitoring a mobile workforce Swiss cooperative. All rights reserved. 13

14 National Outlook Mobile Workforce State Income Tax Fairness and Simplification Act Limitation on state and local withholding Taxed in resident state and non-resident state (if present more than days) Federation of Tax Administrators Uniform Exchange of Information Agreement CT, DE, MD, MA, NJ, NY, RI & VT Gathering information from tax returns Information contributed to Centralized Return Clearinghouse ( CRC ) Can lead to potential audits Swiss cooperative. All rights reserved. 14

15 Multi-State Withholding Risks/Obstacles Potential Risk Associated with Non-Compliance Audit risk Public relations Penalty/interest assessments Barriers to Compliance Time & expense system limitations Third party vendors unable to comply Corporate culture Employee impact Swiss cooperative. All rights reserved. 15

16 Non-Resident SIT Withholding In general, employers are required to withhold SIT on nonresidents of a state if services are or were performed by the employee in that state. Section 114 exception (enacted in 1996 by Public Law ) Exceptions/limitations: De-minimis rules of certain states Telecommuting (Convenience of the Employer doctrine) Reciprocal agreements between states t Exemption certificate allocation Swiss cooperative. All rights reserved. 16

17 WA De-minimis Jurisdictions As of 01/01/08 MT ND MA VT ME OR ID WY SD MN WI MI CT NY NH CA NV AZ UT NM CO NE KS OK IA MO AR IL IN TN KY OH WV SC PA VA NC RI NJ DE MD DC MS AL GA TX LA FL AK HI PR VI Swiss cooperative. All rights reserved. 17

18 Non-Resident SIT Withholding State Exemption Certificates Many states allow for allocation of source income based on past history, future expectations Employer responsibility to know the whereabouts of employees State exemption certificates may allow for allocation for regular and equity compensation Failure to obtain and retain state exemption certificates often an audit issue Swiss cooperative. All rights reserved. 18

19 Non-Resident SIT Withholding Convenience of Employer Doctrine Individuals work from a site other than their main office for their own convenience, rather than employer requirement Various states have sourced income back to primary work state New York Huckaby (unfavorable and precedential) Devers (favorable and not precedential) TSB-M-06(5)I - May 15, 2006 Delaware, Nebraska & Pennsylvania statutory provision Swiss cooperative. All rights reserved. 19

20 Non-Resident SIT Withholding Reciprocity Work state/resident state agreements Specific filing requirements Exemption certificates Swiss cooperative. All rights reserved. 20

21 Varying Approaches to Multi-State Withholding Non-compliance Not complying with nonresident withholding rules regardless of where compensation was sourced as earned. Partial Compliance Establish a system for all or select employees who perform services in specific states to track source income. Full Compliance Building an in-house system to ensure proper withholding and source recognition of earnings in nonresident states. Any approach that does not involve withholding and remitting taxes on all wages earned din nonresident state, t could ldhave an associated dtax exposure, including penalty and interest assessment. Swiss cooperative. All rights reserved. 21

22 Multi-State Withholding What can be done? Evaluation/Assessment Identify states and employees likely to have material multi-state activity Identify records/sources that provide indicators of activity Compliance Policy Design Determine processes to be used for multi-state compliance Communicate policies to employees Determine internal audit procedures Voluntary Disclosure Programs Swiss cooperative. All rights reserved. 22

23 Questions Swiss cooperative. All rights reserved. 23