Business Travellers - Stars in the Night Sky
On a clear night, have you ever cast your eyes skyward to count the stars?
For many organisations, business travellers are rather like the stars in the night sky. You know they're out there. You can see them. And the more you look, the more you see.
Identifying your business travellers and understanding the tax, social security and regulatory issues that surround them, has never been so important. But being compliant with the rules in this area can seem like a task of cosmic proportions.
Through the use of technology and supporting advisory services, KPMG has helped a number of companies to do just this. To hear about our services and how KPMG can help your organisation, click here.
Why address your business traveller issues?
Tax Authorities around the globe are increasingly looking at how organisations deal with their short-term business travellers and there is an emerging trend of increased audit activity in this area.
How a company deals with their business travellers is important from a corporate governance standpoint. In the UK, it gets a mention in the new Senior Accounting Officer rules.
What are the tax, social security and regulatory issues?
Let's start with income tax. Where a Double Taxation Treaty (DTA) exists between an employee's home or resident country and the country visited, the employee is typically exempted for visits of up to 183 days in total within a fiscal year, calendar year, or any 12-month period.
There is, however, a potential tension between this and requirements to withhold taxes.
Note that in the UK, strictly speaking this withholding is mandatory from day one of a visit, except where your organisation has a Short-term Business Visitor Agreement (Appendix IV) in place with HMRC.
Where no DTA exists, there is no de minimis limit and a potential requirement for tax to be withheld from day one of any visit.
The impact of recharging employee costs and the possible 'Economic Employer' principles also need to be understood when assessing any tax obligations in a visited location.
Finally, be aware that even if there is no withholding requirement, there may still be a tax return filing one and where withholding has occurred the filing of a tax return may be the only way to recover the taxes.
Regarding Social Security, for trips within the European Union the EU regulations apply, and a Certificate of Coverage (E101) may be the appropriate course of action for certain trips over a certain length. There are also the multi-state worker and third-country national rules to consider.
For countries where a Totalisation Agreement is in place, again a Certificate of Coverage may be possible to keep the employee within their home social security system.
Also, watch out for specific country legislation, such as the UK's 52-week exemption.
Clearly immigration aspects of crossing borders to do work are complex and becoming more onerous. Based on the employee's nationality, the activities being performed and the length of stay, does the employee require a business visa or work authorisation?
Finally, bear in mind that your business travellers can have an impact on the corporate tax position of your company. Particularly, has a Permanent Establishment been created in a jurisdiction as a result of frequent travel and/or the activities performed?
How to tackle the issue - some useful tips
As you go boldly on your path towards compliance, consider the following:
- Decide on whether you want to deal with travellers before they travel, or afterwards. If immigration is your priority, visa requirements will typically need to be addressed pre-travel.
- Can you use your corporate travel agent data? If you have a single global provider, this could well be the best source of travel information. If not, you may need to get the information direct from your employees or via other systems, such as timesheets, expense records, swipe-cards or reception desk logs.
- Look outwards. If you're within the tax function, it is worth involving HR, Immigration and Risk & Security when deciding how to tackle this issue.
- Look up. Make sure you have buy-in from senior members within your business.
- Ownership. Identify an owner for the process.
- Travel clearing centre. Decide whether you are going to have a dedicated clearing centre to deal with any issues. If not, where will this responsibility reside.
- Big Bang? Decide on whether you will tackle your global population or certain locations at a time. For many companies, the latter is more feasible and helps control risks.
- Embrace technology. With large volumes of information, different data sources and a number of different stakeholders, technology really can make a huge difference.
- What's your risk-level? Your risk-disposition will impact how you tackle this issue and what thresholds you set for deciding when action is required.
- Be prepared. Identifying issues is one thing, but make sure you have the processes in place to deal with the compliance work that arises.
If you would like to discuss any of the points raised or would like some help looking further at this issue, please contact Ian Hopkinson.