This year, the audit of a large non-US based financial services company discovered numerous employees working in New York without the right income tax withholding. The company had to pay a $10million settlement and a penalty of $1million.
At the same time, CEOs have voted that damage to reputation is one of their company’s biggest risks. So big, they said in their answers to the KPMG 2017 CEO outlook survey, that it will have the second biggest impact on growth over the next 3 years. With scandals like the Panama and Paradise Papers fresh in the public’s mind, this risk is very real.
Getting tax compliance right for travelling employees has never been more important – or more complicated.
2017 has been the year of huge change – especially when it comes to the obligations and requirements for business travellers. Globalisation lost its footing as the US chose to put ‘America first’, and the UK began tense negotiations to leave the EU. New technologies are flooding the market place, giving authorities new access to companies’ data. And China’s new position as the dominant economy is making predicting the future even harder than before.
Ian Bremmer, President and Founder of the Eurasia Group believes this is the most volatile the geopolitical environment has ever been. “While corporates understand that these changes are coming,” he says, “they don't really know how to hedge against them, how to address them, how to invest into them”.
Not least because these major political movements haven’t come alone. A global crackdown on tax evasion, tax reform, and a shift in public expectations are all adding to the complexity of having employees travel abroad – and the costs, too. As Jane McCormick, Global Head of Tax, KPMG International says, “pressures on national budgets and the political difficulty are likely to lead to an increase in taxes borne by business.”
So businesses with travelling employees and increasingly complicated tax obligations need to know what is changing, where, when, and how it will affect them.
Simply – a lot.
There’ll be new compliance requirements to understand, for both travellers and employers. The US and newly Brexited-UK will likely create stringent immigration requirements for business travellers – perhaps even preventing certain travel all together. Tax, and being taxed accurately, will become more complicated.
And being compliant will be more important than ever. Technology is shining a new light on companies’ activities, as authorities use digitised data to scrutinise tax and immigration compliance minutely.
This isn’t happening in a silo, either. By 2018, over 100 countries will be sharing information under initiatives such as OECD’s Automatic Exchange of Information, Country by Country reporting, and the EU Exchange of Social Security Information. All this information will paint a detailed picture of the movements and activities of employees across the world – sometimes, even more detailed than the picture employers see.
That means it’s not enough to just know where employees are, and you have to do more than help them manage compliance obligations when they cross a border. From May 2018, the General Data Protection Regulation will begin – meaning employers will be expected to also monitor the personal data they hold in their systems far more carefully.
Getting tax compliance wrong carries two huge risks – financial and reputational. It can cost you money and the support of your customers.
Especially as the general public is paying more attention to who’s paying their tax than ever before. Every time a company executive is named in the press for tax evasion, or is detained at borders for non-compliance, the public’s trust slips.
And for UK businesses, there’s the new Corporate Criminal Offence of failing to prevent tax evasion to consider. This law came into force in September 2017, and comes with not just criminal charges, but unlimited fines and sanctions against the company as well.
We’re not sure yet how aggressively HMRC will pursue companies who don’t comply with their global business traveller obligations under Corporate Criminal Offence. But it’s important to know that employees evading tax, both in the UK and elsewhere, could fall within the scope.
Across the world and throughout all industries, the interest in business traveller compliance policies and procedures is rising.
But many businesses have been struck by ‘perfection paralysis’. When they can’t find one comprehensive solution for monitoring and reporting on their business travellers, they stand still. With no perfect off-the-shelf solution available, often no solution is implemented at all.
Yet, there’s opportunities to build the solution you want. Tax authorities are making efforts to be more open to discussing how business traveller compliance can be managed by employers. And as they seek formal input from the industry, there’s a unique chance to collaborate. We’re currently helping many of our clients work with the authorities, and are encouraging others to make the most of this opportunity wherever they can.
Given the geopolitical landscape, and the changing attitudes of authorities, the time to develop compliance policies for your travelling employees is now.
Our whitepaper, which we wrote with International SOS and FERMA, ‘Workers on the Move’ will give you more information about the risks to your employees. We’re always available if you’d like to discuss how we can help you and your business to manage these risks.