Challenges facing a global workforce

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1 Challenges facing a global workforce February 2014

2 Outline Introduction Business Tax Income tax and social security Immigration Slide 2

3 Business Tax Slide 3

4 Short term assignments and business trips overseas First question is can assignments or business trips have a business impact? YES, for example, creation of a permanent establishment but The but is dependent upon the territory involved and also whether the period spent overseas is short So the second question is how do you define short? Slide 4

5 Consequences of creating a PE overseas All world-wide partners must file individual tax returns in the overseas country May also have to: register its presence locally (assuming there are no restrictions on it being able to operate in that particular country) pay local taxes (in addition to income tax on its activities overseas) register and account for local equivalent of VAT comply with local employment law operate the local equivalent of PAYE of payments to the employee SO CONSEQUENCES CAN BE ONEROUS! Slide 5

6 What is a Permanent establishment The essential characteristics are: a) a fixed place of business b) a degree of permanence c) where business activities are carried on. However, no universal definition. Different countries have their own interpretations and each DTA should be considered individually Slide 6

7 Fixed place of business In general: covers any premises/facilities used for carrying on the business of the enterprise whether or not they are: used exclusively for that purpose owned or rented by enterprise. Could include: a permanently used area in a client s office a room in a hotel which a firm regularly rents Slide 7

8 Degree of permanence OECD model agreement indicates that six months might be acceptable However: some countries have much shorter periods - Russia, India, US are all tricky jurisdictions; other influencers: the number of other employees in that country for short periods during the same year; whether the employee on the short period will be working on a project in the country which itself will be long Slide 8

9 Risk based approach Differentiate between: (a) international business travellers/project workers (b) secondments from one entity in country X to another in country Y Slide 9

10 International business travellers/project workers - Where staff/partners will spend fewer than 30 days* in a different territory, no review of PE risk needed - Where staff/partners will spend over 30 days but fewer than 6 months in a different territory, PE risk is likely to remain low, but needs to be assessed. - Where staff/partners will spend over 6 months in a different territory, PE risk is likely to be high, and needs to be managed. * a day is where one or more staff/partners from territory X spend a day all together working in territory Y on the same project. The above is based on looking at individual contracts/projects separately. Slide 10

11 Secondments - Where staff/partners are seconded for up to 6 months, but remain on the home payroll/partnership and continue to make profits for the home firm, the risk of a PE exists but is low. - For 6 to 12 months of the conditions above the risk of a PE is medium to high. -For over 12 months of the conditions above the risk is high/very high. Slide 11

12 Possible solutions a) Second the employee to an associated local firm b) If the employee is working overseas at the request of a client second the employee to the client: the client assumes the role of an employer during the period of secondment, albeit that the employee remains on the payroll of the firm c) Use a special purpose vehicle Slide 12

13 (a) Secondment to a client Likely to be the simpler of the two options Client pays fees directly to the firm The firm does not have a PE in the overseas country and so no local tax filing obligations However, there may be withholding tax issues which need to be considered Slide 13

14 (b) Secondment to an associated local firm Similar arrangements to those where the employee is seconded to the client However, in this case the client pays the fee to the associated firm There would have to be appropriate arrangements to ensure that the profit was ultimately allocated to the right partners Slide 14

15 (c) Special purpose vehicle Might be too costly to set up for an isolated secondment However, could be worthwhile if there are likely to be a number of difficult secondments over the next few years Need to consider: the type of vehicle likely to be a company ownership both legal and beneficial any regulatory issues the procedures for extracting profits Slide 15

16 Firm procedures All partners should understand the potential issues and consequences on partners if these are ignored All overseas assignments to high risk countries should be referred to the firm s central team for authorisation Establish controls which automatically flag-up any individual working or travelling overseas to ensure such visits are known and authorised Efficient monitoring to identify any short assignments which could become long Slide 16

17 Income tax and social security Slide 17

18 General income tax concepts for mobile employees When employees work cross border this has tax and social security implications The use of double tax treaties between countries can alleviate the requirement for payroll withholding, provided the conditions are met Where conditions are not met or where there is no double tax treaty in place a tax obligation can occur Slide 18

19 Typical short term business visitors Short Term Assignees employees on formal international assignments, generally for 3 12 months Business Travellers employees travelling frequently to countries outside their home country on regular business trips Project Workers employees assigned to work on specific projects of variable lengths in countries outside their home country Multi-state Commuters employees living in one state, or country but travelling to and working in a second state, or country on a regular basis (e.g. weekly) Partners partners where their role is regional or international and requires them to spend time in multiple locations Slide 19

20 What is a Short Term Business Visitor (STBV) for tax purposes? Strictly anyone who is working cross border for even 1 day From a UK stand point it is anyone working in the UK for even 1 day if the duties are considered as more than just incidental. What are incidental duties? Duties which serve no independent purpose but are merely duties undertaken in furtherance of a particular task i.e. Duties which allow the individual to undertake normal work abroad, e.g. training, reporting If work is undertaken in the UK which is of the same or similar importance to the work done overseas then it will not merely be incidental and will be subject to UK tax. Slide 20

21 Coming from a DTA country An employee will be exempt from tax in the UK if they meet the following three tests (i.e. they should only be taxable in the home country): (a) The individual must spend less than 183 days in the UK in a fiscal year or continuous period of 365 days; AND (b) Remuneration must be paid by an employer who is not a resident of the host country; AND (c) Remuneration must not be borne by a fixed base or permanent establishment in the host country. Slide 21

22 Condition (a): 183 day rule When counting days for this test: Must include any time spent in the UK May refer to hours/minutes if necessary Days of arrival and departure are included for treaty purposes Some treaties look at this calculation across fiscal years (e.g. UK/Italy DTA), others look at a continuous period of 365 days (e.g. UK/US DTA). Slide 22

23 Condition (b): Remuneration must be paid by an employer who is not a resident of the host country A local employment contract in the UK, will automatically fail this test. Also, should consider who benefits from the assignee s work? (who is the economic employer?) - If the UK entity is benefiting from the services of the assignee, then for treaty purposes, that entity could be deemed to be the assignee s employer. - But, not all countries apply the concept of economic employer (the UK does). Slide 23

24 Condition (c):which entity is bearing the costs? Remuneration must not be borne by a Permanent Establishment or a fixed base in the host country of the home country entity Slide 24

25 What are the UK tax and reporting implications? Start Is the employee: -Treaty Resident in the home country AND In UK no more than 183 days in relevant treaty period? No Taxable on earnings in respect of UK workdays and if in the UK more than 183 days in tax year, on earnings received in the UK in respect of non-uk duties UK entity must account for PAYE from day 1 * Treaty resident means that the individual is resident in a country with which the UK has a double tax treaty. No Yes Are earnings and/ or benefits partially or fully borne in UK? Yes Employee may subsequently be able to claim partial treaty exemption if not all costs recharged and the UK entity and does not act as the employer for practical purposes UK entity must account for PAYE from day 1 unless the tax inspector agrees otherwise. In most cases employee cannot be included under the STBV arrangement Short Term Business Visitors Agreement Appendix 4 Slide 25

26 What is an Appendix 4 agreement? Monitoring short-termers / business visitors Only if Double Tax Treaty Relief applies Costs are not recharged or economically employed End of year reporting requirement (31 May) depends on days spent in UK No need to operate PAYE No requirement to complete Form P86/P85/Tax Returns Slide 26

27 What s changed recently? UK resident individuals can now be included on a STBV agreement Previously individuals who were resident in the UK but treaty resident outside the UK did not qualify however they can now be included although they will need evidence of their residency outside the UK Greater amount of dual residents due to SRT Increased risk of not having a formal App4 agreement in place Previously agreement was not strictly necessary provided controls in place HMRC have indicated more focus on employers without an agreement Introduction of SRT and RTI increases risk of getting things wrong Potentially if no agreement is in place then PAYE should be applied from day 1 Slide 27

28 What s changed? New reporting category for visitors with days in the UK Non-US citizens or Green Card holders require a statement from overseas tax authority confirming residence during UK period Submission to HMRC by 31 May following the end of the overseas tax year. New reporting category and application process for visitors with days in the UK Application required as soon as it is anticipated they will be present for more than 150 days. Include statement explaining basis for treaty claim Certificate also required as above Slide 28

29 Social Security Totalisation agreements EU legislation 52 week exemptions in the UK Slide 29

30 Short Term Business Visitors Where to start? 1 Typically identified through a review of current state followed by a future state process design and implementation. Process solutions Current state assessment Future state processes 2 3 Normally a questionnaire driven approach supporting risk assessment based on expected travel. This is of most relevance for immigration. To be successful this approach requires a high degree of governance, process and education. A data driven approach which often requires data cleansing and interrogation. The data will normally be assessed against tax and social security logic to highlight current or potential risks. Pre travel assessment Pre travel questionnaire Automated pre travel assessment Line management/stakeholder education Data processing Travel/calendar data Expenses data Security pass/reception data Transfer pricing reports Slide 30

31 What do you need to do? Allocating responsibility within the firm for STBVs Notification structure put in place Tracking system established Reporting to HMRC co-ordinated Buy-in from the business units will be vital so communication and training will be needed Slide 31

32 Immigration Slide 32

33 Immigration Trends Tightened borders response to low employment / national security Mobility tracking where are your people? Quotas Government data sharing and alignment with tax regimes Economic turmoil Immigration Trends Compliance regimes increased costs and potential penalties Public opinion Self-regulation e-borders Political awareness has become an essential knowledge for mobility functions 33

34 Immigration issues for law firms Malaysia tightens grip on foreign law firms Malaysia confirms fly in fly out to be lifted 34

35 Mapping legal activities to immigration routes general global trends Work permit exempt/business visitor Contentious (arbitration, court hearings, mediation) Fact-finding (narrow interpretation) No direct sales to public Business meetings (meet & greet/pitch) One-off in nature No productive work Limited periods Work authorisation required Negotiating M&A deal/transactions/ventures Drafting advice/contracts/preparing legal documentation Witness statements and gathering evidence (eg: class action)? Length due diligence followed by report? This assessment is critical in ensuring immigration compliance before travel 35

36 The Risks Commercial impact on business Illegal working Reputation Impact to self Breach of contract 36

37 Immigration Considerations - criteria Sponsor Remuneration thresholds (low cost countries / exchange rates) Quotas Foreign registration with local bar Cooling off Personal tax/corporate tax alignment Practical issues timings, documentation, alternative options? 37

38 Ensuring maintenance of A-rating at Compliance Visit Record Keeping Clear Audit Trail Check migrant population annually Keep records of expiry dates Reporting Changes in employment and absent workers on SMS HR policies to reflect reporting duties Compliance Eligibility to work Thorough recruitment process meet Tier 2 requirements to assign CoS Ensure procedures comply with illegal immigration legislation Employ migrants with right immigration permission Conduct right to work checks Slide 38

39 Practical tips Review all HR systems and processes to ensure they meet Home Office requirements Robust policies to ensure employers comply with strict sponsor duties Regularly test your systems to ensure that you have robust processes in place to comply with Licence compliance Slide 39

40 Questions? This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

RED EXPAT. Moving employees from Spain to the United Kingdom. Pablo Álvarez y María Teresa López 20 th September 2016

RED EXPAT. Moving employees from Spain to the United Kingdom. Pablo Álvarez y María Teresa López 20 th September 2016 RED EXPAT Moving employees from Spain to the United Kingdom Pablo Álvarez y María Teresa López 20 th September 2016 Agenda Introduction UK / Spanish Tax Systems The Example Assignment to the UK Local transfer