Business Adviser

Are you managing tax risk for your business travelers?

By Jim Yager
Partner, Tax and leader of International Executive Services, KPMG Enterprise, Toronto

By Tom Nicopoulos
Partner, Tax, KPMG Enterprise, Toronto

As part of your global expansion plans, your company may be sending employees on short or long-term assignments to countries all around the world. When your company is weighing the costs and benefits of such assignments, it’s important to be aware of the different tax implications in each country you send people to, both for your employees and for your company.

Managing the risk of tax exposure in all the countries where you send your employees and ensuring you comply with all the relevant requirements can help make your international assignments as cost-effective as possible and help you avoid unpleasant surprises such as increased corporate and personal income taxes and penalties for non-compliance.

Companies sending business travelers around the world may have to consider these tax issues, among others:

• Keeping track of employees’ travel to determine their income tax and social security tax obligations in home and foreign countries
• Meeting the company’s payroll tax reporting and withholding obligations including income tax and social security tax.
• Dealing with the risk of creating a “permanent establishment” in the foreign country and other corporate tax issues
• Managing exposure to indirect taxes incurred on employees’ costs and services they provide.

Are you exposed to risk?

While accounting and human resources (HR) departments may be involved in structuring formal international assignments, they may not be involved with international business travellers. Many companies have these “stealth employees”, including the business owners themselves and senior management, who travel across international borders for business purposes without the knowledge of their accounting or HR departments.

These international business travellers can unintentionally create corporate tax exposure in the host country by creating a permanent establishment or state tax nexus. They may also subject their employers to payroll reporting and withholding requirements. Even if business travellers can claim a tax exemption under an income tax treaty, they may still be required to file tax returns to comply with the law.

Companies who don’t know their tax liability exposure arising from international business travel may have significant unrecorded liabilities.

Companies with international business travellers should consider developing an international business travel program to help quantify and limit their tax exposure and meet their tax compliance requirements in all the countries their employees visit. Your KPMG Enterprise adviser can meet with you to help you manage your tax exposure as you venture into new markets.

Jim Yager is a tax partner and leader of International Executive Services with KPMG Enterprise in Toronto

Tom Nicopoulos is a tax partner with KPMG Enterprise in Toronto