Albert Einstein is often cited as the smartest human ever known, but even he was not infallible. The original inspiration for the absent minded professor, he was known to ask Princeton cab drivers to take him to “Einstein’s House”, because he couldn’t remember his own address.
And WB Yeats, one of the greatest writers of the last century, wasn’t always deemed so – his application for professorship was rejected by Trinity College Dublin, due to the fact he had misspelled the word “professor”.
Sometimes even the most intelligent people can make mistakes. This concept is widely known amongst HR and Payroll professionals – no matter how senior the employee, no matter how large their salary – even the smartest can make the simplest errors.
Often this manifests when it comes to remuneration. Incredibly smart people, mathematically gifted financiers, engineers and IT specialists, can suddenly develop mental blocks when it comes to basic concepts like tax equalisation, double taxation and in particular, why that large tax refund that has just issued to their bank account doesn’t belong to them.
Back to Einstein. Absent minded he may have been, but he got a lot right too. “A clever person solves a problem. A wise person avoids it”.
This is where the pre-assignment Employee Tax Briefings come in. Easily the most acrimonious disputes witnessed between a company and employee revolved around the repayment of a tax refund which is clearly due back to the company. Disputes that could have been avoided had a 30 minute, independent tax briefing occurred at the start of an assignment.
There are a few key areas to be covered in each briefing. The best approach is methodical, working through each topic and inviting questions during the discussion.
- Obtain the Assignment Letter and any calculations in advance.
- Start by explaining who you are, what your role is, why the process is being undertaken & what the desired result is.
- Stress that the goal is compliance, to protect both the company and the employee.
- Then ask the individual to explain their personal circumstances and the terms of the assignment.
In general, the employee will be primarily concerned with their home country tax position:
- Will they remain taxable?
- How will their take home pay be affected?
- What happens when they return?
Much of the treatment will depend on the internal policies of the company, such as tax equalisation and tax protection, so it naturally follows that this is covered next. Follow this with a discussion of the treatment of other sources of income, anything non-employment related. Close off on domestic affairs by addressing Social Security position. The host country tax position can be left till last, as usually the impact will be borne by the company via a shadow payroll, which the employee will quickly forget about.
Any action points arising should be addressed in writing afterwards.
Outsourcing your Global Mobility or International Payroll function allows the tax briefing to be delivered by a professional, perceived as both an expert and a neutral party. This facilitates questions and ensures accurate and clear advice is given.
A standardised document should be provided, summarising the company’s international assignment policies and a glossary of terms used – this will be the touchstone for future queries and the first line of defence in potential disputes.
Business is all about managing expectations, and expectations are best managed through effective communication.
Most of the tax impacts of undertaking a foreign assignment are readily understood; if correct time and effort is dedicated to explaining them. Equalisation, hypo tax, DTAs and residency follow clear and easily digestible logic.
In addition, compliance with company policy is greatly enhanced where co-operation is promised “up front” by the employee, where the requirements have been adequately justified and where the opportunity to have questions answered was provided.
The main function of the briefing should be:
- To give reassurance to the employee that the company is looking after them and their affairs
- That they are being kept complaint and legal
- In particular, that their Social Security position has been considered and is correct.
Briefings are a positive, pro-active and beneficial tool to help bond the employee during what can be a challenging time abroad. Getting off on the right foot through provision of detailed advice will help to ease the transition.
Listen to Albert. Be wise. Avoid the problem.
Barry Flanagan is a Senior Tax and Payroll Manager with Immedis. If you would like more information about Global Mobility Tax, Expatriate Payroll or Tax Briefings, contact us on firstname.lastname@example.org and a member of our team will be in touch.