Mobility program managers are continuously having to evolve and adapt to new circumstances, and are doing so now more than ever. Additionally, mobility programs and program managers need to remain flexible as COVID-19 continues to impact the world. Both companies and their employees are adapting to this “new world” and finding a new work-life balance while governments are continuing to make decisions to provide economic stimulus and stabilization.
Traditional mobility programs are set up to address the commonly anticipated issues that arise when relocating an individual from one country to another, with program managers often working with multiple functional areas within their organizations, including payroll, accounting and finance, corporate tax, and human resources. However, in today’s environment, programs are increasingly being asked to handle unanticipated cross-border scenarios for individuals who may have been temporarily relocated or are “stuck” in a location due to COVID-19 mobility restrictions. More than ever, program managers must work with both internal and external functional specialists to create dynamic policies and procedures to address these unique cases.
In the last few weeks, I’ve spoken to several clients on some of these issues and I wanted to share some of their experiences.
Case study 1 – US employee on assignment in China
The first scenario involved an individual who was on assignment in China. His assignment started in late 2019 and was expected to last for two years. As such, shadow payroll had been implemented in China. However, at the end of January 2020, he temporarily relocated back to the US due to COVID-19. After a discussion with the global mobility manager, China and US tax advisors, and a review of the company chargeback policy, we were able to determine the appropriate payroll position for his Chinese and US taxes.
The key takeaway in this situation was communication. By quickly involving the appropriate parties, we were able to determine that Chinese taxes did not need to be paid while the individual was temporarily at home. It is imperative that you work with your mobility tax provider as well as your other strategic vendors to come up with the best way to handle each individual situation. Tax rules are being updated continually to address challenges related to COVID-19 and an appropriate solution will often require input from different functional groups. By working together with your internal teams and external specialists, your organization will be best positioned to solve these unanticipated issues.
Case study 2 – How companies handle stimulus checks for their mobile employees
Another topic of discussion revolved around the recently enacted CARES Act and how companies are handling the stimulus checks for their assignees and transferees. One company made the decision that even though their US inbound assignees are equalized to their Home country, they are allowing individuals to keep any stimulus payment received. Another company decided to review the situation with 2020 tax returns and do a true-up at that time. As more and more countries are announcing stimulus plans, program managers need to review their mobility policies to determine who receives the benefit of individual stimulus payments. Once policy decisions are made, it is critical for companies to maintain consistent lines of communication with impacted employees, so they understand the approach taken and timing of any payment or reconciliation. There is no “one-size-fits-all” approach that can be taken and any policy decision should be made with specific scenarios, company culture, and industry expectations in mind.
Tax regulations are extremely fluid right now so manage expectations for your organization, be patient, and work closely with your service providers to ensure you are kept up to date on current rules and best practices. Maintain flexibility in your mobility policies and revise them as needed to address the rapidly changing tax scenarios that may result from changes to country guidelines or provision of unexpected benefits relating to COVID-19. By working with your mobility tax provider to monitor and assess the changing economic and tax environment, your company will be well positioned to set policies that are most appropriate for your organization and employees.
Case study 3 – The tax impact on future years
The tax impact of COVID-19 will likely be seen in future years as well. Many discussions with our clients have revolved around the fact that the taxation of bonus and equity payments is oftentimes linked to where the services were performed during the earnings period. If an individual was on a three-year assignment and now temporarily relocates back to their Home country for six months, before the three-year assignment is up, this can have an impact on taxation.
Although some countries are taking steps to disregard days of presence or to source income to an employee’s “normal” work location for individuals unexpectedly detained in a location, it is important to confirm the position with your tax services provider. Israel, for example, has indicated they will not follow OECD guidance to disregard days in country, especially if someone had chosen to return to Israel and then were not able to leave due to COVID-19 related travel restrictions. Additional review may be needed to determine the jurisdiction where not only salary is taxed but also deferred compensation such as bonuses or equity payments.
Additional items of consideration, though not an exhaustive list, include:
- Should hypothetical tax calculations be updated due to furlough or salary reduction?
- Should we apply for a certificate of coverage extension because my employee cannot repatriate at this time?
- What are the tax, labor, and immigration issues related to a termination or furlough in the Home or Host location?
While these scenarios might not be new, the way we all need to react to them is. Here are some additional tips and considerations to think about as you work to determine next steps for your mobility program and your mobile employees.
What can you do now?
As we try to come to terms with what this means for our employees, mobility programs, businesses, and economies, one thing is clear—things will be different. However, there are resources and partnerships that can help so rely on your tax provider and utilize the knowledge from your strategic vendors. Situations like we are seeing with COVID-19 highlight the importance of core relationships with your mobility teams and trusted partners and providers; people who will meet you halfway and be flexible in support of your business.
Finally, communicate often with your employees, stakeholders, and other various departments within your organization such as your corporate tax and payroll departments. Any decisions you make about an assignment may impact those departments so make sure you are communicating often with them when decisions need to be made. By working together, we can navigate this dynamic environment and set the stage to forge ahead.