KPMG s 2018 H.R. 1 Tax Cuts and Jobs Act Survey Report

Transcription

1 KPMG s 2018 H.R. 1 Tax Cuts and Jobs Act Survey Report Potential impacts on global mobility programs Global Mobility Services April 2018

2 Contents Page no. Introduction 3 Survey objectives and methodology 4 Key findings 5 Findings 6 Market commentary 31 Ideas to consider 34 Demographics 39 Contacts 43 Appendix 44 2

3 Introduction As a result of the recent signing of the Tax Cuts and Jobs Act (H.R. 1) into law by President Trump, U.S. domestic Human Resources and Global Mobility professionals now face a number of potential program changes and key decisions affecting their organization s tax reimbursement, cross-border assignment, and relocation policies. It should be noted that the United States continues to be a top leading assignment country location for inbound assignments from abroad, along with U.S. global organizations having large volumes of outbound employees sent abroad from the United States on temporary work assignments and indefinite transfers. In KPMG's 2017 Global Assignment Policy and Practices Survey results of nearly 200 organizations, the United States leads as a sending- and receiving-country location. KPMG LLP s (KPMG) H.R. 1 Survey conducted by our Tax Global Mobility Services practice focuses on the views of human resources, global mobility, tax, and relocation professionals regarding their responses to the potential implications of H.R. 1 particular to overall program costs, relocation moving expenses, compensation reporting, and payroll impacts. This survey report summarizes the findings of 100 cross-industry professionals their views and insights into how their organizations are now responding to the recent tax law changes from a policy and practices perspective. 3

4 Survey objectives and methodology Objectives Better understand how organizations are responding to the potential impacts of H.R. 1 on key areas associated with global mobility programs, including but not limited to: Global mobility program costs Global mobility policy relocation and moving expenses Tax reimbursement policy Compensation and benefits Payroll and compensation reporting. Benchmark respondents against the aggregate of cross-industry participants to identify leading policy change trends, current challenges, and issues of concern and obtaining insights to future practices now being considered. Methodology Adaptive Web-based survey conducted in February 2018 Total respondents: Approximately 115 cross-industry participating organizations Statistics Respondents represented over 24 different industries Majority of respondents were at the managerial level in organizations with average 10,000 to 25,000 employees. 4

5 Key findings Most survey respondents do not have a lump-sum relocation policy tied to moving expenses, and most are not planning to implement one. Most respondents plan to continue fully managed relocation support services for international assignees. Most survey respondents have stated that they will gross up moving expenses for household goods (HHG) shipments, HHG s storage, and final move travel expenses with very few implementing any policy changes. Of those respondents who are looking to implement policy changes, most are looking to place more restrictions on HHG s shipments (e.g., consideration for furniture rental in the host country location versus HHG s shipment). Most survey respondents are planning to gross up relocation expenses at the new supplemental rates, with new marginal rates being the second most common choice. Most respondents are not sure yet if they will update their tax reimbursement (equalization) policies to reflect new tax law changes. Just over a third of respondents are planning to perform a review of assignment cost projections (CPs) run in 2017 or earlier on a case-by-case basis and adjust associated CPs and accruals. 5

6 Findings 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG 6

7 Does your global mobility program include a long-term (or standard balance sheet ) international assignment policy (1 3+ years)? 78% Yes 22% No n=115 7

8 Under your long-term international assignment policy, are the following benefits/allowances offered to assignees as core policy provisions? Household/Personal goods shipment to the host country location 97% 3% Home country household/personal goods storage 72% 28% Housing/lodging en route to the host country assignment location (assignment start/end of assignment) 95% 5% Final move airfare to the host country assignment location (assignment start/end of assignment) 100% Host country appliances (e.g., kitchen and laundry) allowance 36% 64% In lieu of household/personal goods shipments, a furniture rental allowance may be offered. 58% 42% n=88 Yes No 8

9 In addition to your traditional long-term policy, does your organization already have a lump-sum policy as part of your global mobility policy suite? 29% Yes* 54% 12% No Not sure *Do you anticipate increased use of your lump-sum policy? 5% Not applicable 33 55% 45% Total Are you planning to implement a lump-sum policy? 61 13% 87% n=114 Yes No 9

10 Of your U.S. outbound assignee population, how many are long term (or standard balance sheet ) international assignees (1 3+ years)? 57% Less than 10 26% 10 to 50 8% 51 to 100 3% 101 to 200 6% 201 to 500 n=112 10

11 With the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under your long-term international assignment policy (or equivalent), does your organization plan to: 51% 9% 3% Continue fully managed relocation support to approved assignees/transferees Move to a full or partial lump sum (relocation allowance) depending on employee level or other business factors Move to a full lump-sum approach for all employee levels 38% We have not decided on our policy approach yet 4% Other (please specify*) 5% Not applicable n=103 *Additional details can be found in the appendix on page

12 How are you treating the taxability of moving expenses for assignments initiated in 2017 with the costs being paid in 2018? 14% 41% 36% 9% As the assignment was initiated in 2017, we are treating the moving expenses based on the guidelines in IRS Publication 521 regardless of when the costs are paid. Since the moving expenses are being paid in 2018, we are following the new rules outlined in U.S. H.R. 1. Our organization has not made a decision yet on this type of scenario. Other (please specify*) n=114 *Additional details can be found on page

13 How are you treating the taxability of moving expenses for assignments initiated in 2017 with the costs being paid in 2018? (continued) Other We built an accrual for moving services rendered in 2017 but not paid until Therefore, we will apply 2017 tax law for those accrued expenses. If they moved in 2017, we are applying the new rule but grossing up the benefits that would have been treated as nontaxable. If they moved in 2018, we are applying the new taxation to everyone. Moving expenses events occurring in 2017 will be treated under IRS Publication 521. For those initiated in 2017 but occurring in 2018, they will be treated under the new rules outlined in U.S. HR 1. Based on the date of move, not the date of invoice. HHG moves that were completed in 2017 and where we have not received the bill have been accrued for. All remaining expenses that were not completed will be treated under the new guidelines. No expenses of this type incurred in If the invoice relates to actual activity/expenses incurred in 2017 but just not billed until early 2018, then we are not applying. If the expense is incurred in 2018 for a move initiated in 2017, then we will follow the new rules. Reimbursing the costs. Paying taxes b/c tax equalized. Date of service/when the move occurs is being followed; not date of invoice. 13

14 For assignments initiated in 2017, how is your organization defining the initiation date? 31% 25% 13% The date authorization of assignment services is sent to a relocation management company The date the household goods provider commences services The date the assignment letter is signed 25% 6% Our organization has not defined the initiation date. Other n=16 14

15 Starting in 2018, if your organization will continue to pay for or reimburse moving expenses, will you gross up the payment (assist with the assignee s/transferee s tax liability) under policy for: Household/personal goods shipments (assignment start/end of assignment) Home country household/personal goods storage 82% 12% 6% 64% 16% 20% Housing/lodging en route to the host country assignment location (assignment start/end of assignment) 76% 13% 11% Final move airfare to the host country assignment location (assignment start/end of assignment) 81% 11% 8% n=110 Yes No Not applicable 15

16 Is your organization considering implementing any policy changes in 2018 as response to your organization's decision to gross up the payments for moving expenses? Household/personal shipments (e.g. implement additional limits/restrictions to container size) 20% 67% 13% Final move airfare to the host country assignment location (assignment start/end of assignment) (e.g., restrict class of travel service to economy) 13% 71% 16% Home country household goods storage 15% 61% 24% n=106 Yes No Not applicable 16

17 Policy changes organizations are considering for household/personal shipments (e.g., implement additional limits/restrictions to container size).* 13% 8% 4% 4% 4% 4% Update policy verbiage Reimburse via payroll Adjust gross up rates from marginal to flat Lump sum 21% Reduce shipment size Rental furniture in lieu of shipment 38% 4% To be deteremined None Additional restrictions on shipents *Additional details can be found in the appendix on pages 46 and

18 Policy changes organizations are considering for home country household goods storage.* Donation program to reduce shipment and storage 6% 6% 6% 6% Lump sum 12% 18% 6% 40% Increase storage To be determined Limit storage Gross up Reimburse via payroll No changes *Additional details can be found in the appendix on page

19 Policy changes organizations are considering for final move airfare to the host country assignment location.* Economy only 14% 7% 7% Change to premium economy To be determined No change 20% 32% Policy verbiage update Gross up cost 7% Reimburse or impute via payroll 13% *Additional details can be found in the appendix on page

20 As a result of the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under long-term international assignment policy (or equivalent), does your organization plan to: 17% 57% Move to supporting furnished accommodations or furniture rental in the host country location and limiting household/ personal goods shipments. Offer both household/personal goods shipments and furniture rental in the host country location under policy (i.e., depending on whether an assignee is moving into furnished or unfurnished housing). 26% Other (please specify*) n=101 *Additional details can be found on page

21 As a result of the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under long-term international assignment policy (or equivalent), does your organization plan to: (continued)* 17% 4% 4% 9% Lump sum Undecided 22% Not applicable To be determined No change Requires more analysis 43% *Additional details can be found in the appendix on pages 50 and

22 Starting in 2018, if your organization will continue to pay for or reimburse moving expenses and gross up the payments, what level of tax assistance or methodology will you apply: 43% 28% Gross up at the new supplemental rates (22 percent or 37 percent) Gross up at new marginal rates 4% Use an alternative gross up rate amount (please specify*) 10% Other (please specify**) 15% n=102 Not applicable *Responses (54 percent): Estimated effective tax rate, new withholding rates, and limit by level were leading approaches **Responses: Undecided; still under review; will seek advice of our tax partner; effective rate based upon final return, and for equalized assignees, the costs will be covered with the TEQ 22

23 With regard to assignment cost projections (CPs) and accruals for U.S. outbound long-term assignees, does your organization plan to: 20% 3% 33% 20% Perform a comprehensive review and adjust all assignee CPs and associated assignment cost accruals as needed Perform a review for only highly compensated assignees Perform a review on a case-by-case basis and adjust associated assignee CPs and accruals Not take any action at this time 17% Not sure 6% Not applicable n=103 23

24 Do you plan to review and update your tax equalization policy to reflect new tax law changes as may be needed (i.e. update limitations being placed on itemized deductions and elimination of personal exemptions)? 22% Yes (please specify*) 20% No 48% Not sure 10% Not applicable n=103 *Additional details can be found in the appendix on page

25 Do you plan to update hypothetical withholdings for U.S. outbound assignees? 15% 4% 31% Yes, immediately We are planning an off-cycle update for all affected assignees (please specify the date in mm/dd/yyyy format*). During the 2018 annual review/merit increase period 5% We are not planning an update. 31% Not sure yet 5% 9% Other (please specify*) Not applicable n=100 *Additional details can be found on page

26 Do you plan to update hypothetical withholdings for U.S. outbound assignees? (continued) We are planning an off-cycle update for all affected assignees (please specify the date in mm/dd/yyyy format) 05/01/ /01/ /31/ /01/2018 Other VIP review only KPMG will perform annual hypo tax update. We do not have any U.S. outbound assignees at the moment Currently under review We will implement the third-party data provider tax tables once received on a going-forward basis. 26

27 Are you planning to communicate associated U.S. H.R. 1 tax law changes to your U.S. outbound assignees regarding the specific change impacts on compensation and taxation? 24% Yes (please specify*) 18% No 48% Not sure yet 4% Other (please specify*) 6% Not applicable n=100 *Additional details can be found on page

28 Are you planning to communicate associated U.S. H.R. 1 tax law changes to your U.S. outbound assignees regarding the specific change impacts on compensation and taxation? (continued) Tax provider completed 4% 12% 16% Tax law changes Communicate impact 20% 12% Communicating via internal method FAQ 8% Communicating hypo changes Communicate summary of changes 12% 16% In progress 28

29 Will your organization offer additional tax advice (and pay associated fees) to U.S. outbound assignees through your designated tax services provider regarding the potential effects of the new tax law changes? 11% Yes, for all assignees, as requested 3% Yes, but for senior-level assignees only 28% Yes, but on a case-by-case basis 29% No 23% Not sure yet 2% Other (please specify*) 3% n=99 Not applicable *Response: Will be discussing but no changes made and we don't have any U.S. outbound assignees at the moment. 29

30 Overall, what are your key concerns* and principal challenges with U.S. H.R. 1 and your global mobility program? 3% Support 10% Communication 45% 7% 6% 6% Program impact Risk mitigation Not applicable Tax Cost 22% *Additional details can be found in the appendix on pages

31 Market commentary 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG 31

32 Market commentary As a result of U.S. H.R. 1, global mobility professionals view the largest challenges of this legislation are focused around addressing its tax implications (22 percent) and the potential for additional program costs 1 (45 percent) on their programs. My fear is that the assignees cost centers will view the tax impact to them as very negative and not consider the tax impacts to the corporation. It's going to take some education for all management. The fact that we are now going to be grossing up the cost for household goods and shipment costs for the move, my concern is that not all employees understand how gross up works. Though we, the employer, are paying the taxes, it is reportable income to the employee for W2 purposes. A clear majority of participants have stated that they will continue to pay for or reimburse moving expenses and will gross up the payment (assist with the assignee's/transferee's tax liability) under policy. 1 H.R. 1 could have significant implications for assignment costs, averaging $14,500 and often much higher per assignee/transferee for moving/storing of household/personal goods and final move travel expenses. (Worldwide ERC surveys) In addition, gross-up costs could be quite significant, easily representing 50 percent of the cost or more, depending on the gross-up method used. 32

33 Market commentary (continued) Tax services providers can support/supporting global mobility and relocation professionals, as needed, in supporting discussions with key stakeholders, such as finance and payroll groups, regarding H.R. 1 change impacts to assignment cost projections, accruals, hypothetical withholdings, and wage reporting. Some survey respondents are also concerned with communicating prospective program impacts to key stakeholders (10 percent). Getting HR to understand the impact on both domestic and international assignment costs so that they can communicate to their business leaders around existing moves/assignees as well as new assignments being considered. A consistent theme expressed by the majority of respondents is to continue fully managed relocation support and reimbursement of associated expenses under assignment and relocation policy. However, tax reform may also create new opportunities for global mobility professionals to streamline administration and reduce program costs through creative policy approaches. One idea highlighted would be through the use of a furniture donation program to encourage relocating employees to reduce their household goods shipment volume and storage size. As more socially minded employees (millennials) are taking advantage of career development opportunities through international assignments, having a social responsibility aspect aligned with global mobility programs will also resonate with millennials. 33

34 Ideas to consider 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG 34

35 Ideas to consider Streamlining administration: Lump-sum policy approach for moving expenses One key change under H.R. 1 that will impact global mobility programs is the repeal of moving expense deduction and exclusion. Costs previously excluded by employers from taxable income associated with shipment of household goods, storage expenses, and final move travel expenses became taxable for relocating employees effective January 1, As a result of TCJA, some employers may now consider moving to a full or partial lump-sum policy approach for moving expenses. On one hand, the lack of a tax deduction could help to simplify program administration for employers. It may be feasible to simply provide employees with a moving allowance and forgo the requirement that assignees/transferees account for their moving expenses. However, organizations need to keep in mind that for international moves, the United States only reflects one part of the bigger picture and need to ensure that global mobility policies address assignee and business needs as well as tax considerations domestically and globally for home and host country parings to further determine taxability impacts. 35

36 Ideas to consider (continued) Policy benchmarks and change considerations Further to a lump-sum approach, KPMG suggests that there are also associated pros and cons of a self-managed versus fully/partially managed move. Overall, KPMG would recommend that several key factors and decision points should be reviewed and discussed when considering a policy change to best support the organization s program goals: Maintain a policy approach consistent with the organization s overarching compensation methodology (i.e., balance sheet) and tax reimbursement policy. Employer- versus employee-initiated assignments/transfers Employee level/position: lump-sum versus fully managed relocation Single or accompanied status Supporting business goals and assignment success Employee satisfaction and retention Overall duty of care considerations. Payroll and compensation reporting Considering payroll and compensation reporting, it will be important for organizations to discuss how moving expenses will be captured and reported going forward. Organizations should ensure that pay codes are set up appropriately and that moving expenses are accounted for and properly grossed up per relocation policy decisions. 36

37 Ideas to consider (continued) Global tax reimbursement policy updates Tax equalization policies reference itemized deductions and personal exemptions. KPMG recommends reviewing and updating current policies to reflect H.R. 1 changes and hypothetical withholding adjusted. The suspension of the foreign real property tax deduction may increase assignment costs for U.S. taxpayers who have previously been allowed the deduction: For example, in the case of an inbound U.S. assignee under a tax equalized program where the employer is responsible for all U.S. taxes. Typically, our recommendation is not to permit assignees to purchase a home in the host country, which can negatively restrict mobility based on a number of factors including detrimental tax impacts to the employer and/or assignee. Under prior law, a non-resident short-term business traveler whose only source of taxable income was U.S.-source compensation not in excess of the personal exemption amount was not required to file a U.S. income tax return. Repeal (suspension) of the personal exemption may require more nonresident aliens to file U.S. tax returns (e.g., short-term business visitors). 37

38 Ideas to consider (continued) Compensation and benefits fringe benefits with limited deductions meals Meals provided for the convenience of the employer or through an employer-operated eating facility that qualified as a de minimus fringe benefit are now limited to 50 percent and then nondeductible after 2025: This change will impact global mobility programs for certain industries, such as typically found in mining and oil and gas/energy, for example, for assignees living in camp housing with commissary arrangements. 38

39 Demographics 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG 39

40 Demographics Respondent level 43% 23% 10% 9% 11% 3% Associate/Analyst Senior Associate Manager Director Vice President C-Suite Employees worldwide 21% 18% 17% 11% 12% 13% 6% 2% Less than to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 25,000 25,001 to 50,000 50,001 to 100,000 More than 100,000 40

41 Demographics (continued) Respondent department Tax 23% Payroll 6% Human Resources 23% Global Mobility 36% Finance 4% Compensation/Benefits 8% Revenue (in millions) More than $7,500 42% $2,501 to $7,500 23% $501 to $2,500 26% $250 to $500 3% Less than $250 6% 41

42 Demographics (continued) Industry Technology 14% Consulting/Professional Services 8% Healthcare and Medicine 8% Manufacturing 8% Retail and Consumer Products 8% Financial Services Banking 7% Engineering 5% Food and Beverage 5% Energy Oil & Gas 5% Financial Services Insurance 4% Financial Services Other 4% Industrial Products (including Chemicals) 4% Other 4% Industry Construction 2% Defense 2% Transportation (Passenger and Freight) 2% Agriculture, Forestry, and Fishing 2% Energy Other 2% Mining 2% Pharmaceuticals 2% Academic and Educational 1% Entertainment and Media 1% Government (National and Local) 1% Not-for-profit and Voluntary (including Religious) 1% Telecommunications 1% Automotive 2% 42

43 Contact us If you would like to discuss the results of the Survey, please feel free to contact any of the GMS professionals listed below or contact your local KPMG adviser: Achim Mossmann Principal T: E: Terrance Richardson Principal T: E: Robert Rothery Director T: E: Glen Collins Senior Manager T: E: 43

44 Appendix 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG 44

45 Appendix Other With the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under your long-term international assignment policy (or equivalent), does your organization plan to: We are continuing current support but will monitor and adjust over the course of the next year. Allowance for rental fee in host country No change has been explored for the tax-equalized assignees. We are working with programs on potential solutions for expats that are not tax equalized and do not receive any sort of gross-up. In flight, remain as is; future move(s) policy approach remains under discussion. 45

46 Appendix (continued) Please specify the policy changes your organization is considering for household/personal shipments (e.g., implement additional limits/restrictions to container size). Have not yet decided; may limit container size/weight, etc. Reimbursement for cost through payroll Under study Limit to rental furniture in host country instead of household shipment We may decide to gross up, but that policy is not sustainable for growth in expats. Still under consideration No changes proposed for tax equalized assignees. For nonequalized assignees, potential solutions are providing a gross-up, creating a cap on the amount of relo expenses (to mitigate the tax for the assignee), or providing a cash allowance that the expatriates manage (again this would be the tax cost to the assignee lower). Still to be determined We will probably put additional restrictions in place, which include reducing shipment sizes Implementing more restrictive household goods shipment limits on the U.S. domestic side. 46

47 Appendix (continued) Please specify the policy changes your organization is considering for household/personal shipments (e.g., implement additional limits/restrictions to container size). (continued) Changing gross-up rate from flat to marginal The policy change would simply reflect appropriate language to ensure our relocating employees understand that these items will be grossed up. Thinking of offering a lump sum Currently under review Limit container size; encourage use of furnished rentals We are considering further restrictions to container size but have not made any definitive decisions. We do not have many international assignments, so updating the policy is not a high priority for us. 47

48 Appendix (continued) Please specify the policy changes your organization is considering for home country household goods storage. Limit size/weight Reimbursement for cost through payroll We will limit the amount of storage we will cover, which we currently do not do. We are looking over all changes and are still considering our options. Full gross-up We are considering further restrictions but have not made any definitive decisions. We do not have many international assignments, so updating the policy is not a high priority for us. Changing gross-up rate from flat to marginal We are looking at potential policy changes to significantly reduce or eliminate storage costs. We may also look at things used under domestic programs like the donation program to encourage relocating employees to reduce HHG and storage. 48

49 Appendix (continued) Please specify the policy changes your organization is considering for final move airfare to the host country assignment location. Still to be determined Economy Reimbursement for cost through payroll Under study We will pay the airfare and include it in their income. Still under consideration Full gross-up We already have restricted class of travel to be consistent with our general travel policy and are not considering further restrictions at the moment. The policy change would simply reflect appropriate language to ensure our relocating employees understand that these items will be grossed up. Thinking of changing class of fare to premium economy Changing gross-up rate from flat to marginal 49

50 Appendix (continued) As a result of the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under long-term international assignment policy (or equivalent), does your organization plan to: Other Considering offering rental furniture in lieu of shipment, but undecided This has not yet been determined. Planning on lump-sum policy No changes; the tax reform is simply the cost of doing business. We have not made any definitive decisions. Have not decided N/A; assignments are typically long term; thus, we allow the shipping of HHG. This would require some cost analysis to determine what would be more feasible and less impactful from an expense perspective. No change at this time Not sure yet Still to be determined 50

51 Appendix (continued) Other As a result of the suspension of the exclusion for employer-provided moving expense reimbursements under U.S. H.R. 1 beginning in 2018, for U.S. outbound assignees under long-term international assignment policy (or equivalent), does your organization plan to (continued): No change to current policy Still under review Not looking to make significant changes to HHG policy. Typically, finding furnished accommodation can be challenging in many countries and you are just shifting shipment to storage costs. We do not see any benefit at this time for our population. No decision yet Under discussion 51

52 Appendix (continued) Do you plan to review and update your tax equalization policy to reflect new tax law changes as may be needed (i.e., update limitations being placed on itemized deductions and elimination of personal exemptions)? Yes Update language for deductions and exemptions Updating hypo tax to include new deductions We have not decided on the changes. All new deductions/changes will be carried into the TEQ policy. Within the next year Work in progress Update all items affected by the new tax law We are reviewing current hypo tax calculation formula and assessing if we should shift from a percentage to actual or standard deduction of estimated income. We will conduct a full analysis of our TEQ policy in Revise method to determine itemized deductions General review for all tax law changes 52

53 Appendix (continued) Do you plan to review and update your tax equalization policy to reflect new tax law changes as may be needed (i.e., update limitations being placed on itemized deductions and elimination of personal exemptions)? (continued) Yes In process of creating policy Already reviewed and no changes needed. We do not believe we need to make any changes because we use a global tax policy that is not so specific that changes will be required. However, we will do a review to check this. We will move to provide a tax assistance limit by level. To discuss with KPMG Limiting deductions and eliminating personal exceptions per tax reform Up for standard review regardless of tax reform Add a U.S. appendix that addresses U.S. tax-specific items 53

54 Appendix (continued) Yes Are you planning to communicate associated U.S. H.R. 1 tax law changes to your U.S. outbound assignees regarding the specific change impacts on compensation and taxation? Still reviewing how we will proceed with this Webinar for affected employees Tax provider will provide this service Timing/process for updating hypo tax withholdings Timing and process of updating hypo tax Will advise timing of hypo review and reminder if any other costs will now be visible in their comp for 2018 We ed them with an update on how this will affect their return to the United States. Communicate law change and possible impact Communication via our newsletter Portal updates 54

55 Appendix (continued) Yes Are you planning to communicate associated U.S. H.R. 1 tax law changes to your U.S. outbound assignees regarding the specific change impacts on compensation and taxation? (continued) Hypothetical tax withholding calculations Development of FAQs and general communication; detailed feedback to questions by tax consultants as needed Advised of change to hypo tax due to law If any impact is passed on to the employee, yes Provide high-level summary Tax provider completed Based on merit increase and tax law changes We would ask our third party to do this. In early February Info on tax changes 55

56 Appendix (continued) Overall, what are your key concerns and principal challenges with U.S. H.R. 1 and your global mobility program? Ensuring that we address and communicate appropriately with our policies, stakeholders, etc. in a timely manner Quantifying cost impact Managing additional cost and determining how to offset that cost in other ways Increase program costs Offering the support to our employees at the level we were before the change Additional cost to company Continuing to provide the level of service we currently offer assignees while taking into consideration the impact from a cost perspective (i.e., provide an HHGs shipment and other items versus moving to lump sum) Since I anticipate maintaining a balance sheet approach for our small number of long-term assignees, the main concern will be the higher tax and related cost to the Company from keeping the assignee whole. The biggest concern for the company is how this will impact cost, so we are trying to get a better understanding by having our tax service provider prepare cost estimates for us. Also, we are researching what are some potential issues with moving to a lump-sum approach and what are possible solutions. 56

57 Appendix (continued) Overall, what are your key concerns and principal challenges with U.S. H.R. 1 and your global mobility program? (continued) The business will be concerned with the increased costs of international assignments and may look to reduce/eliminate some benefits to reduce overall costs. Additional costs and maintain a competitive recruitment program Understanding the specific impacts to our programs as they stand and the opportunities for savings Understanding the impact to employer costs for our company My concern is that moving towards a lump-sum policy with less support, will create more issues. Taxability to the employee The accumulation of all final move expenses as there have been multiple processes for reimbursement as the expenses would have been tax free in the past, now we have to track down the reimbursements to include them as taxable income and come up with an appropriate way to manage going forward (U.S. inbounds mostly). The base broadening is reducing some of the headline tax benefits of the TCJA. Communicating with the business and the local teams; filing immigration paperwork Gross-up taxes on moving expenses without true-up calculation for all employees 57

58 Appendix (continued) Overall, what are your key concerns and principal challenges with U.S. H.R. 1 and your global mobility program? (continued) Risk mitigation and education to all constituents We need to make a determination on gross-up versus no gross-up for all the changes. From a policy perspective, we do not anticipate any changes. The overall cost impact to U.S. outbound assignments and U.S. domestic relocations is a concern. For expats that are tax equalized, there is little concern from the employees as they will not be out of pocket for the change. This will have an impact on programs that are picking up the costs. For expats that are not tax equalized and do not receive a gross-up, programs are working to come up with a solution that will help the employee but that will also be acceptable to the customer. The increased costs due to gross-ups and the temporary nature of the tax reform components As we only have one outbound U.S. employee, currently, we are not as concerned about rewriting our policies right away but will be dealing with the changes with this employee. Mitigating costs Increased cost to the company due to gross-ups Overall total cost increases to operating budget Increased taxes to the company due to relocation costs being taxable 58

59 Appendix (continued) Overall, what are your key concerns and principal challenges with U.S. H.R. 1 and your global mobility program? (continued) Making sure we correctly report this income; U.S. expat/inpat population is not significant portion of overall assignee population to change policy Increased relocation costs Since the program is run and overseen by our EU-based home office, it is difficult to get them to understand the implications of the law changes since our company is worldwide. Trying to get them to change policy for only, as they see it, one small component is challenging. We understand the tax law changes and the potential increased costs on the program; however, at this moment we are not making any changes and will assess later in the year. Ideally, we want to eliminate any personal financial impact to our EEs due to the tax law changes. Establishing a process with our non-u.s. locations that allows us to correctly collect moving expense data for U.S. reporting purposes that was previously not required Increased overall program costs causes organizations to try to decrease packages versus increasing costs Creating a greater gap between our U.S. and Canadian employees from a total compensation perspective, overall pay equity, and retention of both groups 59

60 Appendix (continued) Overall, what are your key concerns and principal challenges with U.S. H.R. 1 and your global mobility program? (continued) Increased costs for transferring employees Impact from a tax equalization perspective The fact that we are now going to be grossing up the cost for household goods and shipment costs for the move, my concern is that not all employees understand how gross-up works. Though we, the employer, are paying the taxes, it is reportable income to the employee for W2 purposes. Understanding of the implications and education of key stakeholders, that is, management, HR, payroll, and assignees Getting HR to understand the impact on both domestic and international assignment costs so that they can communicate to their business leaders around existing moves/assignees, as well as new assignments being considered Employees being taxed Additional expense to the company Escalating cost impacts to higher leaders Effective communication to our assignees My fear is that the assignees cost centers will view the tax impact to them as very negative and not consider the tax impacts to the corporation. It is going to take some education for all management. 60

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