Webinar Recap: BEPS: Global Tax Framework & How It Applies to Your Globally Mobile Population

January 2018

The world is getting smaller and more connected. While these connections increase the exchange of ideas, goods, and people, they simultaneously create a web of complex international regulations companies must navigate. And, when it comes to the globally mobile workforce, these regulations get personal.

In our recent webinar, BEPS: Global Tax Framework & How It Applies To Your Globally Mobile Population, Chip Morgan, Debra Moses and Mesa Hodson analyzed how changes to the Organisation of Economic Co-operation and Development (OECD)’s international Base Erosion and Profit Shifting (BEPS) framework affects American companies’ global workforce, and how they can successfully adapt.  

We’ve outlined some of the key provisions below, and you can listen to the full webinar here.

The OECD’s BEPS Action Plan

The OECD’s BEPS framework was designed to help combat tax avoidance strategies that exploit the differences in tax regulations from country to country. A number of Actions within the framework will impact how enterprises manage and report on their globally mobile employees, touching on everything from taxation coherence to tax eligibility to transparency. It’s critical that businesses understand the impact of BEPS, and know when and how to involve their tax department and tax and transfer pricing advisors to ensure compliance.

How companies can adapt and maintain BEPS compliance

There are a several steps companies can take when looking to make their global employee mobility practices compliant with BEPS.

Understand where you are today
Adjusting your practices to be BEPS-compliant first requires a thorough understanding of current practices. Evaluate activities of globally mobile employees and current tax strategies to develop a more concrete plan to address risk exposure to expected rule changes. The OECD, and tax authorities around the globe are putting a heightened focus on employment relationships and structures are expected to be examined more closely. These relationships can often drive permanent establishment (PE) determination, employee taxability, transfer pricing implications, and indirect tax applicability, among others. Maintaining and enhancing adequate substance within the employment relationships and structures is going to be critical to manage unanticipated outcomes in the event of an examination by tax authorities.
Plan ahead
To create the structure needed to address future compliance issues, companies should establish processes and procedures to track and monitor globally mobile employees sooner rather than later. Solidify protocols and procedures to track mobile employees, including business travelers, in order to assess associated PE risk and comply with reporting and withholding requirements. Tax authorities are getting tech-savvy, and more jurisdictions are sharing data and information. Companies need to prioritize data transparency and visibility to maintain accurate internal records and meet any information requests from regulators. Knowing exactly where employees are and what activities they are performing will be key in managing the detailed country-by-country (CbC) requirements and associated compliance under BEPS.
Establish specific rules
Country-by-country (CbC) specific rules for mobile employees can ensure compliance with reporting requirements in each jurisdiction where a company does business, thereby minimizing overall risk exposure. However, the new country-based reporting requirements included in BEPS can be quite detailed. In order to successfully mobilize their workforce and mitigate risks, businesses need to be confident they are using the appropriate method of initiating assignments and adhering to the most up-to-date standards. Companies need to take a multidisciplinary approach to establishing these processes and procedures, including the tax, mobility, HR, finance, payroll, and legal departments in creating processes that not only support, but drive, compliance.   

Document effectively
A key element of any compliance plan is ensuring robust assignment and inter-company documentation are in place. This allows companies to both effectively manage their global employees and to quickly respond to increased scrutiny from tax authorities, if necessary. In the event an audit does occur, contemporaneous documentation to support assignments is often the first line of defense to manage global tax risk. Businesses should review mobility documentation for details on assignees’ activities, roles and responsibilities of the home and host entities, and alignment with the commercial reality and actual practice. It’s important that documents clarify de facto or economic employment of the individual while on assignment, as well as lay the basis for cross-charge of costs between international entities in line with established transfer pricing regulations.
Ensure transfer pricing compliance
Assess cost recharge arrangements relative to globally mobile employees to ensure they adhere to transfer pricing guidelines to remain outside any corporate tax requirements in the jurisdictions in which companies do business. Businesses should institute appropriate cross-charging methodology and ensure that entities are adequately compensated. In addition to cross-charge of employee compensation, appropriate allocation for deemed transfer of intellectual property may also be required, adding to the complexity. Taking a holistic approach during the planning process should allow all relevant parties, including any transfer pricing professionals, to work together to navigate these issues.
More information
For more information, including several scenario overviews, listen and download the materials from our recent webinar.