bdo know globally mobile employees: exploring tax ...this report captures the findings of the first...

BDO KNOWLEDGE Tax Webinar Series ‒ Globally Mobile Employees: Exploring Tax “Equalization” and Assignment Benefits Options

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

Globally Mobile Employees: Exploring Tax “Equalization” and Assignment Benefits Options Donna Chamberlain ‒ Principal, Global Employer Services ‒ Expatriate Tax Patty Brickett ‒ Principal, Global Employer Services ‒ Expatriate Tax December 19, 2013


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With You Today

Donna Chamberlain Principal, Global Employer Services ‒ Expatriate Tax BDO USA, LLP 1001 Morehead Square Drive Suite 300 Charlotte, NC 28203 Direct: (704) 887-4218 Fax: (704) 887-4290 [email protected]

Patty Brickett Principal, Global Employer Services ‒ Expatriate Tax BDO USA, LLP 8405 Greensboro Drive Suite 700 McLean, VA 22102 Direct: (703) 752-2782 Fax: (703) 893-2766 [email protected]



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Agenda

Global mobility policy types, trends, benchmarking, etc.

Global mobility employee survey results


Overview of Mobility Concepts and Market Practice

Objective: To maintain parity with home country peers. This has been the classic approach to mobility for the traditional long term assignments. At assignment end, allowances are removed and employee fits back into their home country structure.

The most common approach is the Home Based Balance Sheet Approach (home based pay plus supplementary allowances) Income

Taxes

Goods & Services

Housing

Reserve

Goods & Services

Housing

Income Taxes

Reserve

Goods & Services

Housing

Income Taxes

Reserve

Income Taxes

Goods & Services

Housing

Reserve

Premiums Home–Country

Salary

Home–Country Equivalent Purchasing

Power

Assignment- Location

Cost

Assignment–Location Costs Supplemented by Company


Overview of Mobility Concepts and Market Practice (continued)

Employee pays same tax as at home

Maintain home purchasing power in host location, based on the difference in cost of a defined “basket of goods”

Provides host country housing at no greater cost to employee

Cash allowance to compensate for difference in quality of life

Foreign service and mobility premiums – to compensate for living and working abroad

Tax equalization

Cost of living differential

Housing differential

Quality of living or location allowance

Incentive allowances

Overview of Home Based Balance Sheet


Flexibility and Cost Control are Key Themes

0

20

40

60

Prevalence of each global mobility trend

Data based on Survey of Surveys, a compilation of data from six mobility surveys: two from relocation companies, two from data providers and two from accounting firms over the past two years


Key Market Themes Maximize return on the investment

More assignment types — align programs with value to the organization

Greater program flexibility — provide support as needed

More mobile employees on “local terms” — cost containment

Linkage with career management (protecting your investment)


Different assignment models address different needs, some approaches require more flexibility

Short-term Assignment

Long-term Assignment Career Assignee Permanent Transfer

Summary Temporary assignment from 3-12 mos.

Unaccompanied by family

12 month-5 year assignment away from home country

Family accompanies

Moves from one assignment to another

Family accompanies

Employee moves indefinitely May be employee-initiated May resign from home country

Applies to these

Includes: Project-oriented

• Training assignments

• Short-term skills gaps

Includes: Business expansion Long term skills gaps May be career

development

Includes: Global teams

• Special skills

Includes: Indefinite or permanent

moves • Assignee transitioning to

local employment status • Developmental assignments

C & B Approach

Home country Home country Global/regional plan Local or Local Plus

Base Pay Home Home Global/regional plan Local

Incentive Home Home scheme, host measure

Global scale Local

Benefit Home Home standard International benefits

Local, as possible


Different Assignment Types

Pros • Able to differentiate policy according to

needs and purpose of assignment • May realize cost savings by eliminating

non-essential support • Reduces the need for exceptions,

judgment calls • Provides more consistency among “like”

assignees

Cons • Defining types and differences may be

challenging, e.g., how many are needed to warrant a new type

• Judgment is still required • Flexibility will still be required

Don’t be a fashion victim! Define only those assignments that are truly different and needed to support your business.


Flexibility — Can Produce Cost Savings An illustration

C. DEVELOPMENT A. STRATEGIC MOVES Ongoing Support One-Time Support Ongoing Support One-Time Support • COLA (efficient) • Reduced Host Housing • TEQ and Prep • Education Support (cap) • Home Leave (reduced) • Spousal Allowance

• Property Management • House Hunting Trip • Cultural Training • Language Lessons • Reduced Destination

• Flexible w/in Budget

• COLA (efficient) • Host Housing • Housing Norm Waiver • TEQ and Prep • Education Support • Home Leave • Car Support • Spousal Support

• Relocation Allowance • Property Management • House Hunting • Cultural Training • Language Lessons • Destination Services • Loss on Car

25% Savings vs. Strategic Moves Project Costs Approximately $1.25M

D. EMPLOYEE-INITIATED B. TACTICAL MOVES Ongoing Support One-Time Support Ongoing Support One-Time Support • Tax Preparation • Minimal Host Housing

• Property Management • House Hunting Trip


• COLA (efficient) • Host Housing • TEQ and Prep • Education Support • Home Leave • Car Support, if needed • Spousal Support

• Reduced Relocation Allowance • Property Management • House Hunting • Cultural Training • Language Lessons • Destination Services


50% Savings vs. Strategic Moves 15% Savings vs. Strategic Moves

Valu

e of

Ass

ignm

ent

to t

he E

mpl

oyee

Value of Assignment to the Organization


Permanent Transfers/Localization Must look at home and host combinations

Considerations • How big is the difference in rewards, after tax rewards? • Pension — Will localized employees lose eligibility for retirement benefits or suffer

major reductions? • Will local medical care be available or adequate? • Will local schools be appropriate? • How will immigration status be affected? • Labor laws — Will severance of home contract trigger termination indemnities?

Most successful transitions to local terms occur when employee wants to remain in country.


Local Terms: The best “local” package depends on the home/host combination and your goals

Find the right place on the continuum

Pure Local Hybrid Local Naked Assignee

Local rewards Might retain home retirement and benefits

Assignment allowances cease or are phased out

Local labor law Might be paid based on local rates

May retain home salary

Severs employment at home May be subject to local labor law

May retain home benefits and retirement

Not expected to return home May be temporary or permanent

May retain some supports

Find the right place on the continuum

Most “local” packages fall somewhere in the middle


Pros and Cons of Transfer to Local Terms

Pros • Provides long term staffing in locations

with talent gaps • Generally less expensive than

traditional assignment package • Supports employee perspective of long-

term commitment to new market • Frees HR from ongoing administration

of mobile employee • Transfers to local terms are most

successful when employee is agreeable to transition

• Good option when there is no job at home for repatriating assignee

Cons • Each case must be considered

individually • Proper form of “local terms” should be

determined • Impact on both employee and employer

must be considered • Continuing need for immigration and

tax assistance may mitigate some of the advantages


Why Have a Policy?

Clarifies the reasons for mobility Gets everyone on the same page Helps to contain costs Streamlines administration Makes use of outside vendors more cost effective Facilitates tax planning Provides documented structure that will withstand scrutiny


IPSOS-BDO Global Mobility Survey

This report captures the findings of the first comprehensive, international study into employee mobility of its kind that focuses on the employee’s—not the employer’s—point of view. An international sample of 12,827 employees out of 18,872 adults aged 18–64 in the U.S. and Canada, and age 16-64 in all other countries, were interviewed. Approximately 1,000+ individuals participated on a country by country basis with the exception of Argentina, Indonesia, Mexico, Poland, Saudi Arabia, South Africa, South Korea, Sweden, Russia, and Turkey, where each have a sample 500+. Weighting was then employed to balance demographics and ensure that the sample’s composition reflects that of the adult population according to the most recent country Census data and to provide results intended to approximate the sample universe.


Likelihood to Move to Another Country

20%

21%

24%

32%

34%

25%

North America

Europe

Asia Pacific

Middle East and…

Latin America

TOTAL

% ‘Very likely’ (by region)

21%

22%

23%

23%

25%

28%

28%

25%

Government

Finance

Medical

Education

Commercial

Construction

Telecom

TOTAL

% ‘Very likely’ (by industry)

Imagine there was a full-time job available in another country at least three to five house away by plane for anywhere between two or three years with a minimum 10% increase in your pay and all your moving expenses covered. How likely would you be to consider moving to this new job? One quarter say they would be ‘very likely’ to take the assignment. Considering that an additional 32% are ‘somewhat likely’, an appetite appears to exist for going abroad for work.


Likelihood to Move to Another Country (continued)

20%

20%

22%

34%

Canada

Australia

United Kingdom

United States

Top 4 countries to relocate: ALL

16%

16%

18%

19%

28%

33%

Italy

Canada

France

United States

United Kingdom

Australia

Top 5 countries to relocate: employees from North America

20%

23%

24%

25%

42%

France

Italy

Spain

Canada

United States

Top 5 countries to relocate: employees from Latin America


Likelihood to Move to Another Country (continued)

18%

20%

20%

20%

29%

Canada

United Kingdom

Australia

Switzerland

United States

Top 5 countries to relocate: employees from Europe

16%

16%

18%

19%

28%

Canada

Australia

Singapore

United Kingdom

United States

Top 5 countries to relocate: employees from Asia-Pacific

19%

20%

24%

29%

43%

Canada

Australia

United Arab…

United Kingdom

United States

Top 5 countries to relocate: employees from Middle East and Africa


Incentives to Relocate

Ratings of incentives: % ‘much more likely to take the job’ (All Employees) 45% Q1 A guarantee that you could move back to your current role after 2 years with further

relocation assistance

43% Q2 You/members of your immediate family would each get one round trip airfare per person to either travel back home; or have two round trip tickets for people to come and visit you once a year; or, use the equivalent vale tickets for a destination of your choice

43% Q3 A trip to the country before the assignment so I see what the country is like, paid for by my employer

42% Q4 Paid language training if necessary

42% Q5 Provide immigration assistance for your spouse in order that they could obtain employment

41% Q6 Provide you with education courses to upgrade your skills

41% Q7 A 10% pay raise

38% Q8 Provide paid school tuition for your children

34% Q9 A monthly car allowance


Incentives to Relocate (continued)

Ratings of incentives: % ‘much more likely to take the job’ (All Employees) 34% Q10 Give you another week’s worth of vacation to use however you wish

33% Q11 The country chosen has the same language as my own

32% Q12 Provide relocation consultant for home and school search

31% Q13 A onetime relocation allowance equivalent to 5% of your gross salary to cover incidental household expenses

30% Q14 Provide temporary housing for up to four (4) weeks

29% Q15 If you own a house/condo, would provide a sale or leas agent and would pay the difference in market value if sold at a loss

27% Q16 The country chose is similar in culture to my own

22% Q17 Would cover for loss on sale of auto’s (up to a maximum two auto’s)

18% Q18 Would pay for pet(s) to be shipped to new address


Conclusion

‘Safety nets’, including repatriation and guaranteed employment on return, are the most important incentives for talent to consider international assignments. They are followed closely by incentives that directly address family concerns and comfort or fear of the unknown; and

Enticing talent to consider a move abroad requires more than pay;

The destinations where talent is required and those locations that are most desired do not align on a macro level;

There is an eager minority who are keenly interested in working abroad. They are most likely to be senior executive/decision makers at their work and under the age of 35;

For those that are not interested in international assignments, family is the most notable issue. Finding incentives that will support their family needs, including trailing spouses and children, and their discomfort with the unknown are the most effective ways to entice them.


Questions and Answers


Speaker Biographies


Biography Donna Chamberlain

Donna Chamberlain Principal, Global Employer Services ‒ Expatriate Tax BDO USA, LLP 1001 Morehead Square Drive Suite 300 Charlotte, NC 28203 Direct: (704) 887-4218 Fax: (704) 887-4290 [email protected]

Donna J. Chamberlain is a principal and former International Assignment Senior Tax Director in BDO’s Charlotte office. She has been specializing in compliance and consulting, including tax and compensation planning and policy design for global companies for over 15years. Donna has been with BDO for over 13 years serving such clients as Michelin, NA, Bank of America (formerly NationsBank), SGL Carbon and MeadWestvaco in the Southeast. Her focus is working with professionals across BDO’s global network to help alleviate the uncertainty of tax matters and compensation issues for foreign nationals and expatriates on assignment. Prior to joining BDO, Donna worked for a Big Four accounting firm.


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Biography Patty Brickett

Patty Brickett Principal, Global Employer Services ‒ Expatriate Tax BDO USA, LLP 8405 Greensboro Drive Suite 700 McLean, VA 22102 Direct: (703) 752-2782 Fax: (703) 893-2766 [email protected]

Patty Brickett, an experienced Principal of BDO USA LLP’s (BDO) Specialized Tax Services International Practice, has over 25 years of experience providing international tax and human resources consulting services to multinational corporations and their global executives. Patty works with clients in all industries and in the not for profit community. Her clients range from those just beginning to expand globally, to those with mature international operations. Patty assists clients with the following:

• Tax planning and compliance using Income Tax Treaty Network to minimize exposure

• International compensation delivery • International payroll management and consulting • Tax equalization/tax protection policy development • Analysis of Status of Forces Agreements (SOFA’s), • Technical Cooperation Agreements and other bilateral agreements • U.S. tax withholding and reporting requirements on payments to foreign

entities and individuals including assistance to companies under Audit Permanent Establishment Analysis

• Review of foreign tax obligations created by Business Travelers and development of internal process and procedures to mitigate risk

Prior to joining BDO, Patty was a lead partner in Argy, Wiltse & Robinson P.C.’s International Services practice. She also worked for Arthur Andersen’s International Tax and HR group. In 1991, she was assigned to Cairo, Egypt where she managed their regional expatriate practice. The experience she gained overseas, coupled with her many years of experience in the U.S. has given Patty the depth of knowledge to provide consistent, high quality services to multinational organizations.


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bdo know globally mobile employees: exploring tax ...this report captures the findings of the first...

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