Year-End Payroll Reporting for Permanent Transfers

When it comes to global payroll compliance, many organizations have a solid grasp on reporting for traditional expatriate assignments, covering items like tax reimbursements and Host country housing. But what about permanent transfers? Are third party relocation-related payments being reviewed for taxability in the destination country? And does switching payroll to the transfer location mean the Home country is fully off the hook for reporting obligations?

While some countries allow certain moving expenses and relocation allowances to be paid in a tax-free manner, that doesn’t necessarily mean there are no reporting requirements for these benefits. For international transferees, assumptions can lead to compliance gaps and payroll risks.

In this article, we explore the key considerations of year-end payroll reporting for permanent transfers, highlighting nuances, compliance pitfalls, and proactive steps mobility, payroll, and HR managers can take to help support a smooth, compliant transition into the new year.

Supporting payroll reporting compliance for permanent transfers

Payroll reporting for permanent transfers presents unique challenges that differ from traditional assignment structures. As employees move from one country’s payroll to another, determining where and how to report taxable relocation benefits becomes complex. Missteps can result in under- or over-reporting, payroll tax discrepancies, and potential audit exposure.

To help maintain compliance and reduce risk, mobility, payroll, and HR teams should focus on the following key actions:

Develop a taxability matrix.

Create a matrix for each country where you have permanent transfers (to and/or from). The matrix should include all relocation or transfer-related benefits that could apply based on your company’s relocation policy and an indication of their taxability.

Calculate tax gross ups.

Identify whether there are corresponding tax gross up requirements. This should be done once the moving expenses and relocation allowances have been determined to be taxable.

Calculate tax withholdings on lump-sum payments.

Lump-sum relocation allowances are often provided to permanent transfers to help cover miscellaneous move-related expenses. These payments are typically made on a “gross” basis, meaning the transferee is responsible for any tax withholding on the amount. Determining the correct tax to withhold can be challenging. Many companies address this either through Home country payroll or by outsourcing to their relocation management company (RMC).

However, it’s important to recognize that both approaches carry risks and require careful review and implementation.

Home payroll: Some companies have the local payroll department in the Home country pay the lump-sum relocation allowance to the transferee. In this way, the amount of withholding can be determined at the time of payment by the company’s payroll department.

However, it is important to check the taxability of the lump-sum payment in the transfer country if that country has so-called forward attribution rules (as there may then be a mismatch between the location of the withholding and the location where the employee will ultimately have a tax liability).  

Outsourced: Other companies have their RMC pay the lump-sum relocation allowance directly to the employee. In these cases, it’s important for the mobility payroll team to coordinate with the company’s tax provider to confirm the correct tax withholding for payments made outside the US.

While many RMCs are well equipped to manage US gross ups, handling non-US payments may require additional coordination. HR and mobility teams should confirm the RMC’s capabilities and, where needed, collaborate with their tax provider to help maintain compliance with destination country payroll reporting requirements.

Identify trailing reporting obligations.

Permanent transfers sometimes receive payments after moving to the Host location that were earned during the period worked in their Home location. Common examples include bonus payments and equity compensation. The company may have a payroll reporting requirement for these payments in both the transferee’s Home and Host countries. Here is a possible solution to help manage this requirement:

Provide tax preparation services for at least one year in the Home and Host country. Many permanent transfers are removed from their Home country payroll system at the time of the transfer. Therefore, trailing payments are reported in the transfer country payroll. Unless the transferee is authorized for tax services in years subsequent to the transfer, it is unlikely these trailing payments are reviewed to determine if a portion should be reported on their Home country payroll or on a Home country tax return.

Have a process to track trailing compensation and determine appropriate reporting and withholding in the Home and Host locations. Even when underwithholding of tax can be corrected on the Home country tax return, there are still limitations.

• In some cases, the transferee is not authorized for tax services for years after the transfer year, or they have declined mobility tax services.
• It may not be possible to address all employment tax requirements through the filing of an individual tax return. For example, there typically is no mechanism to correct underwithholding for FICA tax purposes in the US, resulting in a compliance gap and potential payroll audit exposure.
• Transferees often face cash flow issues if trailing bonuses and equity compensation are reported 100% on the new Host location payroll. They can face issues obtaining funds from overwithholding in the Host location that are needed to fund the trailing liability in the former Home location. Timing differences between when Host and Home country tax returns are filed further aggravate such issues. This can lead to penalties and interest for the transferee if they don’t have sufficient funds on hand to pay the Home country trailing liability.
• As noted, while relocation management companies provide US tax gross up and reporting instructions to clients for the reporting of taxable relocation benefits, the same often cannot be said for taxable relocation benefits that are reportable outside the US. Work with your tax services provider to confirm that relocation benefits are reported in the Host country based on local tax law.

Reducing risk and increasing employee satisfaction

Permanent transfers can be an efficient way to meet global business needs, but they also bring added complexity to payroll compliance. Careful planning and consistent review processes are essential to prevent reporting errors and protect both the organization and its employees.

A proactive approach, supported by clear communication between HR, mobility, payroll, and tax teams, helps mitigate risk, maintains compliance, and creates a smoother experience for employees during their transition. By addressing the key action items outlined above, companies can confidently close out the year knowing they’ve met their global reporting obligations.

If your organization needs guidance in managing the payroll and tax implications of permanent transfers, GTN can help you navigate these requirements and establish a compliant, efficient process that supports your global mobility strategy.

Schedule a call with our team.