Business travel is on the rise, and it’s putting C-suites at risk of tax violations. According to the Global Business Travel Association, 71 percent of travel buyers say business travel increased at their company in the last year. What many corporate leaders don’t realize is that, as business travel ramps up, they may not be reporting taxes for equity compensation correctly.
This article outlines why equity compensation compliance is so challenging for traveling C-suite executives and what your team can do to help protect both your employees and the company from tax headaches.
Why is equity compensation risky for C-suite business travelers?
Equity compensation tax compliance is difficult for any business traveler, but misreporting these taxes can hit a business especially hard when C-suites are involved. Here’s a deeper look at why equity compensation is so risky when it comes to traveling executives.
Equity compensation increases tax complexity for traveling executives.
From an international perspective, typical tax relief, such as the 183-day rule found in many tax treaties, may not apply to trailing equity compensation. As a result, managing equity for cross-border scenarios is complicated. In fact, equity awards are often taxed at different times, depending on the jurisdiction. For instance, if employees are awarded restricted stock units in the US, they’re expected to pay taxes for those units on the vesting date. Conversely, in other countries, such as Israel, that same employee may only need to pay tax on those units upon sale.
Overall, when C-suites travel across borders, their equity compensation taxes can become complex, which leads to reporting mistakes. And because the compensation levels for these executives are often significant, any errors can result in large, unexpected tax bills, assessment of penalties and interest, increased reputational risk for the company, and frustration for the business leader.
These cross-border compensation challenges can plague international business travelers. Even domestically, tax reporting obligations can vary by state or even city. For instance, if a C-suite executive travels to another state for business, whether one trip or multiple trips, they may be required to report and pay taxes on their equity compensation to both their resident state and the state they travel to conduct business in.
Equity compensation taxes can span long periods.
Another reason equity compensation often causes headaches for business travelers is that it tends to have a long “tail.” That means equity awards may not be reported and taxed until years after they are first awarded. If the employee or company hasn’t kept track of travel during the awards performance period, it may be difficult for them to report the correct amount of compensation and tax in the right location. This could lead to inaccurate payroll results for the executive and the company.
C-suites are easy targets for auditors.
C-suites are the public face of corporations. They’re the ones appearing on TV, ringing the bell on Wall Street, and being listed in SEC reports. This increased public visibility could make it easier for auditors to target your company. High-profile business travelers also present auditors with a golden opportunity to send a message to other companies on the risks of ignoring business travel reporting compliance.
How to protect C-suite business travelers from extra tax risks
If companies want to shield their C-suites from equity compensation tax issues, they need to adopt a proactive stance. Here are three ways to help protect C-suite business travelers from increased equity compensation tax risks.
Keep track of C-suite business travelers’ locations.
It’s impossible to determine an employee’s tax obligations without knowing where they’re working. For that reason, it’s essential to track C-suite executives’ business travel locations and link those movements with their equity compensation. When setting up a process to capture this information, be sure it draws from multiple potential sources. For instance, trips taken on a company-owned aircraft may not appear in the data provided by your standard travel management system.
Set up a cross-departmental travel approval process.
Before C-suite execs embark on a business assignment, make sure all your key departments are aligned and approve of the employee working in that location. As an added precaution, be sure travel isn’t too risky from not just an equity compensation tax standpoint but also for social security, immigration, and duty of care before approving a trip.
Use technology to monitor business travel tax risk.
Global mobility risks reach across departments. These risks may ripple across immigration, payroll, corporate tax, HR, and other departments. Technology can help bridge these departments and automate travel approvals. When possible, it’s wise to use technology to track risk, flag major tax issues, and alert the business to the most risky business events.
Simplify equity compensation tax compliance for C-suites
Corporations can help protect C-suites by reviewing their travel processes, establishing travel approvals, and monitoring business travel while keeping aligned with other stakeholders such as payroll and the stock admin team.
Still feeling overwhelmed by your company’s tax risk? GTN’s equity tax professionals use an advanced mobile equity management solution to help you manage your employees’ equity requirements and reduce business travel risk. Our team works with your leaders to tailor a custom solution to your needs and manage your equity tax obligations.
Want to learn more about how we can reduce tax stress, risks, and financial setbacks for your mobile workforce? Schedule a call to talk about ways we can help you manage mobility taxes.
Don’t wait for an audit to uncover compliance gaps in your equity compensation program.
When employees live or work across multiple jurisdictions, tax reporting can become complex, and mistakes can lead to penalties, reputational harm, and unnecessary costs.
Use our Mobile Equity Compliance Risk Self-Assessment to identify vulnerabilities now, so you can address them before they become costly problems.
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