In a world where technology means we can work from practically anywhere with Wi-Fi, is there an approaching storm heading towards Global Mobility when business managers agree to more flexible working arrangements that end up being cross border?
How does GM deal with the conflicting tightening restrictions that tax and immigration compliance present when more of us are asking for flexibility in our working location? And what potential issues are companies leaving themselves open to from an employment law perspective?
Having worked from home at least one day a week since having children I know that there are huge amounts that can be achieved when working from home. The reduction in office disruptions when a tight deadline is looming is great and the ability to shut your laptop and be ‘home’ is a fantastic way to help the work life balance.
All the benefits aside how does it work when someone’s ‘home’ is in a different country to the office?
I once heard a horror story of an IT analyst working from home for a firm in the USA. He’d been working at home for a couple of years and it wasn’t until a new manager came on board and asked which days the IT analyst came into the office. ‘Oh no he doesn’t come into the office – he always works from home’ came the reply. ‘Where’s home?’ the manager asked. No-one seemed to know so the manager spoke to the IT analyst directly. The answer came back ‘Switzerland – we moved here when my wife’s company sent her on assignment’. Needless to say, there ended up being one un-budgeted costly tax bill that the company had to pick up. Perhaps unsurprisingly, the company let him go shortly after that!
What are some of the risks?
The three main, potentially most costly, areas of risk for the organisation are tax compliance, immigration compliance and employment law.
How long will the employee be working in another location? Depending on the jurisdiction there may be certain periods of time an employee can work without having to pay tax in that location (depending on the work they will be doing). If this is possible they can remain taxed in the country of employment.
What type of work will they be doing in that location? Is the work adding value to the organisation in the country they are employed in or is it adding value for the organisation in another location?
Does the organisation have offices in those locations? If the organisation does not have offices in that location, and the work the employee undertakes gives rise to income or creates value in that location, then it can create a permanent establishment (PE) risk for the organisation. This may result in a corporate tax liability.
Carol Mynott from PwC confirmed it is important to: ‘Know where your people are, and what they’re doing while they’re there’.
According to the recent PwC Managing Mobility survey, some organisations struggle to get a handle on how many of their people are working internationally at any one time.
Carol also highlighted that ‘digitalisation and analytics are making this issue much more visible and transparent to tax authorities around the world. They’re also paying close attention to business travellers. HMRC, for example, centralised its STBV (short term business visitor) team last year. Authorities in many jurisdictions are carrying out more audits of STBVs. At a recent Business Traveller event we held in London, we heard that around 25% of large employers have received a PE challenge in the past year.
It’s no longer possible to ignore the tracking and reporting of business travellers.’ This applies to both those travelling on business and those working from home across borders.
Many of the questions that need to be asked from a tax perspective about someone working from home in a different jurisdiction are similar to those that need to be asked from an immigration perspective.
However, the answers will dictate whether a visa or work permit is required for that employee.
Ben Sheldrick from Magrath Sheldrick LLP Solicitors highlights that “Wherever a person works, whether at home or otherwise, he or she must be work authorised under the relevant immigration regulations of the country in which the work takes place. In most cases one may assume that an individual is a national or holder of permanent residence in the place they call “home”. However, this may not be the case if, for example, they have relocated to the home country of their spouse or partner or if they have elected to live in a new country. Employers who allow or are blind to their staff working without lawful permission in a foreign jurisdiction may face serious legal sanctions or reputational damage, which could impact on their ability to do business in that country. It is imperative therefore to know where your employees are working and whether they have the appropriate permission to do so.
If it transpires that a work authorisation and residence permit is required, this will incur administration, legal process and costs – which may not always be a welcome development.”
Employment Law Risk
There are still health and safety obligations for employees even if they are working from home. Organisations may need to conduct a workplace risk assessment and ensure their liability insurance includes those working from home.
Legal rights and obligations are still largely dependent on country and it is important when it comes to redundancy and dismissals that the contract is clear both on place of work and which office location the employee reports into.
Annabel Mace, Partner at Squire Patton Boggs, an Expat Academy training partner advises:
“It’s important to ensure that the employee’s contract of employment makes adequate provision for home working and any necessary policies or procedures are followed through in practice. This might include taking additional appropriate measures to protect your organisation’s confidential information and personal data and specifying whether the employee is subject to additional requirements to comply with any special planning or insurance arrangements.
Of particular importance is deciding what arrangements should be made for the management and supervision of homeworkers from the outset which will vary depending on the nature of their role and how their performance is usually measured. A ‘laissez-faire’ approach may make it more difficult to introduce timely performance management or disciplinary measures at a later date if the arrangement is not working out.”
With technology creating the issue perhaps we should be looking to technology to give us the answer. With so many employees having company mobile phones, is the answer to include an app that allows the company to monitor the employee location whilst on business or working from home in another location? Although it may feel a bit like big brother is watching, many of the apps only drill down to the country or state (where applicable). It would allow organisations to track tax and immigration thresholds and also review employee locations should an emergency situation arise in country.
As this issue becomes more frequent, is it time for a policy update to those working from home in different locations?
To reduce the effects of this approaching storm it may be worth taking a proactive step to generate awareness amongst business managers via the intranet or internal comms channels so they come to Global Mobility first. The cross border remote working arrangement can then be planned rather than the tax and immigration authorities being the first to highlight the issue with unbudgeted and costly penalties and fines.
As a member of Expat Academy not only is there our network of corporate members to lean on and work with on your latest hot topic at our Network Huddles but we also have great Training Partners and Network Sponsors who would be happy to discuss the more technical or unusual scenarios the business may present across your desk. Don’t hesitate to get in touch to find out more about how we could help.