The Organisation for Economic Co-Operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) action plan is set to add yet more complexity to our already fast changing and politically fraught tax landscape. With each action there are numerous factors and deadlines to consider. Whilst attention is focused on ensuring your business is ready to meet the challenges of BEPS, care will also need to be given to your globally mobile workforce, in particular what impact their travel, activities and costs could have on the actions that you will need to meet.
There are a number of BEPS actions which will impact your globally mobile workforce. This concerns any employees who work on a cross border basis and is not limited to traditional expatriates. It may also include short term business travellers, project workers, sales representatives, senior executives and employees with regional or global remits.
- Whether your employees could create a permanent establishment or a dependent agent PE overseas, and in some circumstances, quicker than expected.
- Whether your overseas activities and operating models have substance and the impact this will have on both your domestic and international workforce in that particular location.
- Whether you have the appropriate processes and procedures in place to track your globally mobile employees and short term business visitors in each relevant location for employee reporting purposes under the country by country reporting requirements.
- Whether your existing transfer pricing arrangements and inter-company secondment agreements should be reviewed and updated to ensure these reflect the value of the services and activities performed by the international assignees.
- Whether secondments are appropriately priced especially where skilled workers moving between jurisdictions might be taking intellectual property (ie intangibles) with them.
To gain a better understanding of the areas of your organisation that you may need to address it is useful to consider the below questions:
- Do you know what significant activities in relation to the conclusion of contracts in an overseas territory might give rise to a permanent establishment (PE)?
- Do you have processes to review and manage any PE risk that could be created by your globally mobile employees? Are these still fit for purpose?
- Have you educated the business and employees on the activities performed overseas which might increase the PE risk?
- Have you reviewed your transfer pricing arrangements as it applies to your globally mobile employees?
- Do your inter-company secondment agreements properly reflect the services performed and remunerate each entity accordingly?
- Are your international secondments appropriately priced especially where employees are taking intellectual property with them?
- Does your operating model have sufficient substance in each tax jurisdiction? What impact will this have on both your domestic and globally mobile workforce?
- Does your operating model reflect what actually happens in practice. Should this be reviewed under the new landscape?
- Does your assignment documentation correctly reflect what your employees are doing overseas?
- Do you know where your key employees and senior executives are located at any one time?
- Do you have processes to track groups of employees such as short term business visitors or sales representatives including how long they are spending in each country and what they are doing?
- If you have an existing process or system in place to track employees, does it flag up issues and risks at the right time?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.