Editor’s Note: Managing local taxation continues to be a challenge for many large employers. We welcome guest contributor Marlene Zobayan from our partner Rutlen Associates LLC to share results from their recent survey on tax compliance practices for their mobile workforces.
According to the UN 2017 International Migration Report, the percentage of global migrants in the total global population increased to 3.4% in 2017 from 2.8% in 2000. A migrant is anyone living in a country which is not the country they were born in. These percentages may seem small, however given the resultant numbers, the number of international migrants worldwide has grown faster than the world’s population. In 2018 alone, according to the 2019 International Migration and Displacement Trends and Policies Report to the G20, more than 10 million people migrated to or between G20 countries (of which the U.S. is one).
I personally have seen dramatic change over the almost three decades of my career in international taxation and employee benefits. At the start of my career, my clients were mid and large size public companies whose mobile employee populations were traditional expatriates on generous expatriate compensation packages. This is no longer the case with many companies having significant mobile employee populations prior to going public. Technology developments, including laptops and cell phones, have allowed a lot of employees to do their jobs from anywhere and increasingly, employees are moving based on lifestyle choices. Companies with the need to retain talent are accommodating employee requests to do so.
However, the tax and legal framework for mobile employees has not evolved as quickly as the technology which enables employee mobility. Companies have to address many possible challenges including immigration law, labor law, corporate and personal tax laws as well as business licensing requirements to move an employee across borders. Even moving within the U.S. between states can generate some of these regulatory obligations. Companies often find it challenging to keep up with their responsibilities.
New Survey Shows Companies More Compliant Globally than in U.S. with Local Taxation
In March 2019, Rutlen Associates undertook a survey to assess the tax compliance practices of companies for their mobile employee populations. The majority of the survey respondents have an employee population of over 1,000 employees, with one-third of the respondents having a global population of over 10,000 employees.
The key question was whether companies are allocating income across jurisdictions for the purposes of payroll compliance. The results are shown in the graph below for all companies as well as those companies who have a professional services division, i.e., a department whose employees work at client sites, possibly in another U.S. state or country, usually consulting or implementing technology. Professional services employees typically complete timesheets for billing purposes, which may also indicate where they have worked. As expected, those companies with a professional services division were more compliant with the mobile employee payroll tax compliance rules than their counterparts. Companies in general were more compliant for their globally mobile employees than domestically mobile employees, presumably because global mobility requires more employer involvement such as application for work visas. In addition, companies were more compliant for transfers and assignees than they were for travelers. Just over one-quarter of respondents tracked executive mobility for the purposes of allocating income, almost one-third for companies with a professional services division, these numbers are higher than for those respondents tracking sales staff.
When asked what level of compliance the company is at, almost one-third of respondents thought they were between 70-80% compliance. However, 86% of companies plan to improve compliance over time with 46% having a current initiative to do so.
About the author
Marlene Zobayan is a partner at Rutlen Associates LLC. She has over twenty years of international tax and benefits experience, including global equity plans, mobile employee taxation, global compensation and benefits. She is a regular speaker and author on global stock plan and rewards issues. Prior to joining Rutlen Associates, Marlene was the practice leader on the West Coast for Deloitte Tax’s Global Rewards group and managed their news alerts for global equity plan changes. Marlene has a Physics degree from Oxford University; she is a member of the U.K. Association of Tax Technicians, a US Enrolled Agent and Certified Equity Professional. She sits on the Curriculum Committee of the Certified Equity Professional Institute.