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KPMG: Thinking beyond borders - management of extended business travelers

With increasingly international operations and patchy global distribution of managerial talent, many companies are relying more and more heavily on managers who are prepared to travel abroad for extended periods.

But this is not a risk-free option, according to Madalina Racovitan, Director in KPMG in Romania's Tax Department and Head of International Executive Services. Racovitan says that the greatest risks for companies are the tax compliance, social security and immigration requirements associated with extended business trips - employees working abroad for more than 30 days but less than 180 days.

As Racovitan adds "most companies which have expatriate staff working in Romania, and Romanian companies which send their staff to other countries know that their employee will probably have to pay tax in the country of assignment if he or she stays for 183 days or more. However, most do not realise that there can be many tax implications related to shorter stays too."

As Daniela Oprescu, Senior Manager in KPMG in Romania's International Executive Services practice continues: "companies also tend to think that the only issues when their employees go abroad are personal income tax and immigration formalities. In reality, there can be many other implications related even to short postings. For example, the simple presence of an employee in a country where the company does not have an office may unwittingly lead to the creation of a Permanent Establishment in that country. This means that the local tax authorities often deem that profits attributable to the activities of the Permanent Establishment are taxable locally. Romania has recently tightened its rules on Permanent Establishments and the tax authorities are particularly vigilant on this issue."

As Racovitan adds: "Transfer Pricing can also cause pitfalls. For example if the business traveler carries out work abroad for a local branch of his or her home company, the tax authorities will want to make sure that the local branch remunerates the employee's home office correctly for his or her services. This means applying an accurate market price, and not distorting the contract fee as a device to move profit artificially within the group from a high tax to a low tax country. Again, the Romanian tax authorities have recently paid a lot more attention to transfer pricing, and legislation has been made considerably stricter in the last few years."

Racovitan continues; "physical presence of employees in foreign countries can also expose employers to indirect taxes on the costs incurred while the employee is abroad, or on the services provided by the employee to the foreign client or branch." "Business managers may decide to extend business trips for their employees without even realizing the income tax, social security and immigration ramifications. Often with no formal tracking system in place, the employee goes unnoticed, flying under the radar, until a problem arises as these business trips have not been formalized in the same manner as an assignment." she adds.

As Oprescu points out: "KPMG's research in a recent global survey has shown that 90 percent of companies over a broad section of countries have extended business travelers. Many do not have a formal process in place to monitor this activity and so do not take appropriate steps to comply with relevant tax legislation or assess risks related to potential non-compliance. About a fifth typically only find out about the company's extended business travelers when the business trip turns into a formal assignment, while another fifth say they generally find out when the business traveler requests more money. Virtually all of those surveyed said that they are ‘somewhat concerned' or ‘extremely concerned' about the possibility that extended business travelers will create a compliance risk for the company."

To help deal with some of these problems, KPMG's International Executive Services (IES) practice has produced three new publications. "Thinking Beyond Borders - Management of Extended Business Travelers" covers the world in three editions, one focusing on Europe the Middle East and Africa, one on the Americas and one on Asia-Pacific.These new publications provide an overview of the implications of extended business travel to many countries around the world. They are designed to help companies identify compliance matters including:

• Income tax compliance

• Reporting and withholding obligations on companies

• Corporate tax considerations such as the creation of a permanent establishment

• Social Security obligations

• Immigration requirements - work permit and visa requirements

• Non-deductible costs for assignees - for a number of countries this may include contributions by an employer to overseas countries' pension funds.

• Tracking individuals' time spent in each country.

"This set of publications will help companies develop an approach which is tailored to their particular organization." concludes Racovitan. "They also explain more about KPMG's online tools which can help companies monitor their employees' extended business travel more effectively as well as coordinate the payroll process better. In addition to these tools, KPMG in Romania's International Executive Services practice can assist with a wide range of issues relating to the tax, immigration and social security implications of both short term trips and longer term assignments." The most recent study of trends in this area of business travel was carried out by KPMG's IES practice late last year. The Short Term Assignment and Extended Business Traveler Survey compiled responses from 183 companies, covering technology, manufacturing and financial services.

The survey results indicated that:

• Ninety three percent of companies had extended business travelers;

• For those companies that do not have a formal process in place, 22 percent of the survey respondents indicated that they typically find out about their company's extended business travelers when the business trip turns into a formal assignment or when the business traveler requests more money or services;

• Eighty seven percent of companies are ‘somewhat concerned' or ‘extremely concerned' that extended business travelers create a compliance risk for the company.

Sursa: http://www.actmedia.eu

Tags: business extended companies employee countries country formal about their assignment services international travelers abroad racovitan compliance kpmg immigration

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