international assignment policies and practices survey 2015

1 International Assignment Policies and Practices Survey 2015

GLOBAL MOBILITY SERVICES

International Assignment Policies

and Practices Survey 2015

Swiss Headquartered Companies

kpmg.ch

Contents

04 Introduction

Demographics0712 Tax Equalization

Approaches

The future of assignments to Switzerland1722 Structure of Mobility

Departments

3International Assignment Policies and Practices Survey 2015

Key survey findings in a nutshell

Assignment Policy Types

0610

Assignment Planning 15

Global Payroll Compliance 19

Recruiting and Retaining “Returnees” 25


4International Assignment Policies and Practices Survey 20154 | Section or Brochure name

Introduction


On behalf of KPMG Switzerland’s Global Mobility Services practice, I am delighted to present the results of our annual survey of the policies and practices of Swiss headquartered companies.

The survey questions have been developed in collaboration with former survey participants to ensure that we are addressing the most relevant themes and the hot topics which you would like to benchmark against your peer companies in Switzerland.

This is the ninth consecutive year that we have produced the survey and those of you who are familiar with it will have seen that the questions have evolved over the years, reflecting current trends in global mobility, changes in legislation and regulations, rapidly evolving business needs and a fast pace of change in the global economy.

New topics which have been raised in 2015 include the tighter restrictions on obtaining work permits for Switzerland following the “Stop Mass Immigration” initiative in February 2014 and the challenges presented by “returnees” – Indian or Chinese nationals who have gained valuable international experience outside of their home countries, and who their employers would like to

Judith MitchellPartner

Global Mobility ServicesLausanne

repatriate in order to tap into the rapidly developing markets in those countries.

Recurring topics which global mobility professionals revisit frequently include global income tax and social security compliance, policy development and assignment planning. Although the topics remain constant, the challenges are evolving, and wherever possible in our analysis of the survey results, we have highlighted how solutions to these challenges have changed over the years.

We do hope that this survey will provide you with the necessary insights to help you better manage your global mobility programs. As always, we will appreciate any feedback and input into future survey topics which would be relevant to you.


Mobility departments are constantly having to adapt their assignment policies to keep up with changing business needs. Many companies have increased their number of policy types in order to offer greater flexibility and to meet the needs of a changing workforce. Commuter policies have seen the most noticeable increase in popularity and half of survey participants now report having a formal commuter policy in place.

A strong focus is placed on the cost aspects of assignment planning with almost all companies in our survey reporting that they prepare a full cost estimate prior to the start of each international assignment. However, after the pre-assignment planning phase, over half of survey participants believe that their companies could do better in mapping out the career plan of an assignee during and after an international assignment.

The future of assignments to Switzerland remains uncertain, with implementation of tighter controls on work permits, restriction in quotas and forthcoming legislative changes. Most companies do not yet know whether the changes would have a significant impact on their business, however more than 50% of survey participants have experienced increased difficulties in obtaining work permits in the last 12 months.

Managing global payroll compliance remains one of the most significant challenges in respect of a globally mobile workforce. 60% of companies consider that their processes are adequate for managing their compliance risks, however most indicated that they are still concerned with tracking and reporting all assignee costs, in particular non-cash benefits and reimbursements via expense reports which

KEY SURVEY FINDINGS IN A NUTSHELL...

can easily be overlooked in the global compliance process.

The preferred structure for mobility departments is clearly a highly centralised one. A highly centralised approach ensures global compliance with policy and process as well as equity of treatment for all assignees, regardless of home or host location.

Recruitment and retention of “returnees” is a relatively new topic, but one which is gaining in importance for a number of Swiss headquartered companies. The challenge is not only to provide attractive, cost-effective packages to incentivise these employees to return to their “home” countries, but to retain them once they are there, in the face of intense competition from rival firms.

40%OF COMPANIES NOW COUNT CHINA AS ONE OF THEIR TOP HOST LOCATIONS

‘‘’’


DEMOGRAPHICS

Our survey participants come from a broad range of industries. The size of the assignee populations managed also varies significantly, and different approaches to assignee management can be identified according to the size of the population.

In terms of where the assignees are located, we see a much greater diversity among the countries cited as the top host locations now than we did five years ago. At that time, top host locations were predictably Switzerland, the US and the UK, however in 2015, we are seeing a shift towards Asia, with over 40% of companies now counting China as one of their top three host locations.

How many assignees does your organization have globally?

Less than 10

10 to 50

51 to 100

101 to 200

201 to 500

501 to 1000

Over 1000

The home (sending) locations however, remain relatively constant. Switzerland not surprisingly remains the top home location, closely followed by the US. Despite the significance of China as a host location, only one company listed it as one of its top three home locations. Over the coming years, we could expect that China will grow in importance as a home country. In previous surveys, some companies have already indicated that they are starting to adapt their mobility programs to the needs of this population.

15%

15%

15%

12%

8%

23%

12%


30%4% 11%4% 8%

Construction, Engineering

Financial Services

Food and beverages

Healthcare and Medicine

High Technology

In which industry sector does your company operate?


8% 8% 8% 8% 11%

Industrial Products Other

Retail & Consumer ProductsPharmaceuticalsManufacturing


Whilst most companies have a number of “core” policies in place, there has been a growing trend over the years towards greater diversification of policy types. As a general rule, the larger the company and the more internationally mobile employees it has, the greater number of policies it will have in order to meet different business needs for different types of employees and also for different regions.

One of the policies which has seen the biggest increase in popularity amongst Swiss headquartered companies is the commuter policy, reflecting the growing trend of employees accepting a job in a host location and deciding not to relocate their families. Seven years ago, when asked the question about which types of policies they had in place, less than 10% of companies reported having a formal commuter policy. In 2015, that number has grown to over 50%.

As business needs continue to evolve, mobility professionals have to continuously adapt their mobility strategies to meet those needs. 40% of survey participants indicated that they are in the process of introducing additional policy types or introducing substantial changes to their current suite of policies. Changes being undertaken include a complete overhaul of

current policies, including development of “sub-categories” of their long-term balance sheet approach, development of a commuter policy and introduction of a developmental assignment policy.

Despite the long-term balance sheet approach remaining the most frequently-used policy type, 56% of companies reported that they have recently seen changes in the type of policy most frequently used. These companies generally reported an increase in the number of commuter assignments, as well as an increase in short-term assignments and extended business trips.

40%OF COMPANIES ARE IN THE PROCESS OFINTRODUCING NEW POLICY TYPES

‘‘’’Which of the following assignment policy types

does your company have in place?

95%

57%

95%

52%

100%

85%

14%

61%

9%

Home balance sheet

Host plus policy

Local to local policy

International Commuter policy

Short-term assignment policy

International assignment policy

Global employment company approach

Localization policy

Other


ASSIGNMENT POLICY TYPES


Despite being used significantly less than it was a decade ago, the home balance sheet approach remains one of the most frequently-used assignment types among Swiss headquartered companies. It can also be one of the most costly.

84% of our survey participants reported having a tax equalized assignment policy in place and these companies all limit tax equalization to employment income only. This means that any income tax liability arising on personal income (interest, dividends, rental income etc.) or a spouse’s income is the responsibility of

the employee. Similarly for wealth tax liability, most companies offer no protection, and most assignees are fully responsible for paying any wealth tax liability during their assignments. Given that Switzerland is one of the few countries in the world imposing a wealth tax on all residents and considering that the threshold at which an individual becomes subject to wealth tax is low, it is important that the implications are explained up-front to an individual commencing an assignment to Switzerland as the wealth tax liability may come as an unpleasant surprise. Whilst there may seem to be a relatively low number

Which types of income are subject to tax equalization?

100%

95%

48%

0%

0%

Base salary

Bonus

Equity compensation

Personal income

Spouse’s employment income

How does your company calculate hypothetical taxes?

In house using 3rd party tax calculation software

Taxes calculated by external provider

In house using tax tables published by tax authorities

Other

Does your company prepare an annual reconciliation of hypothetical taxes withheld?

No, hypothetical taxes are always considered to be final

Yes, for all assignees

Yes, depending on the assignee’s home country

Only in certain situations

Other

TAX EQUALIZATION APPROACHES

62%

19%

14%

5% 14%

10%

24%

14%

38%


of companies equalizing any form of equity compensation, it should be noted that there are a number of privately held companies, as well as companies which offer only cash incentives, within the participant group. Most companies which do have equity compensation plans do in fact tax equalize income from those plans.

Administration of a tax equalization policy can be cumbersome and time consuming. Over 60% of survey participants calculate hypothetical taxes in-house, using tax calculation software provided by a third party. The most commonly adopted

approach is to consider that the hypothetical taxes withheld during the year are an assignee’s final liability, and no year-end reconciliation is prepared. Most companies do not allow any form of deductions in calculating hypothetical taxes, other than the standard deductions granted to all taxpayers, such as social security, mandatory pension deductions and deductions for standard business expenses. This approach has not changed significantly over the years we have been conducting this survey, reflecting the tendency to simplify the hypothetical tax process as far as possible.

Does your company have a global policy or practice in place regarding tax equalization and hypothetical tax withholding?

Yes, a global policy is applied consistently to assignees from every country

No global policy is in place

Country-specific policies are in place

Which deductions are granted under your tax equalization policy?

No specific deductions are allo-wed, only standard deductions

Any deductions which are claimed on an assignee’s personal income tax return

Only certain deductions which are specifically allowed under the company’s tax equalization policy

Other

19%

24%

0%

5%

24%In relation to Swiss outbound assignees,

which of the following non-standard deductions

do you grant for hypothetical tax

purposes?

Voluntary contributions to 2nd pillar pension fund

Pillar 3a contributions

Alimony

Interest expenses

Property maintenance expenses

Childcare expenses

Charitable donations

0%

0%

14%

14%

71%

10%

29%

5%

57%


Do you subject your short-term assignees to hypothetical tax withholding?

Yes, always

Depends on the length of the assignment

Reviewed on a case-by-case basis

Other

Most of the companies who responded “other” to this question indicated that they only apply hypothetical withholding if a short-term assignment is expected to last more than six months, or if the assignee becomes subject to taxation in the host country.

14%

24%

29%

33%


ASSIGNMENT PLANNING

One of the key challenges of running a mobility program is to maintain a smooth, efficient and compliant process whilst ensuring that the company’s strategic objectives are met and that the program fulfils its long-term business and people development goals.

An international assignment can represent a significant investment for both the company and the employee who is being sent on the assignment. Having a full overview of the likely cost of the assignment, its objectives, as well as a plan for the employee’s future career path and development within the company can help to put an assignment into perspective and ensure that the company is making the appropriate decisions based on cost, skills and assignee potential.

Our survey participants were almost unanimous in preparing cost estimates prior to every assign-ment, however only in rare cases did a planned assignment not go ahead solely because of cost.

The acceptance of an international assignment generally seems to come with a level of risk and uncertainty about the future. Over two thirds of companies never guarantee a return position to an employee accepting an international assignment. When asked about the percentage of assignees who do actually return to their home location following the end of an international assignment, the answers ranged widely – from those companies who said the information is not even tracked, to those who have a 90% return rate. The most common answer however was a 70% rate of return to the home country, with the remainder generally localizing in the host country. Over half of respondents believed that their companies do not yet have adequate strategies and processes in place for managing the end of an assignment. Some of the respondents note that they believed they could be doing a lot more in terms of planning for repatriation, with a greater focus on an assignee’s future career plans, in order to avoid that an assignee returns to the same role as the one he or she left at the beginning of the assignment.

96%OF COMPANIES

PREPARE ACOST ESTIMATE PRIOR TO EACH INTERNATIONAL ASSIGNMENT

‘‘’’

24%

38%

100%

43%

29%

How do you determine whether an employee should be relocated as an assignee (on home-based package) or as a local employee?

Seniority of the employee

Assignment location

Purpose of the assignment

Cost of the assignment

Other

52% OF PARTICIPANTS BELIEVE

THEIR COMPANIES

DO NOT PROPERLY MANAGE THE END ‘‘’’

OF AN INTERNATIONALASSIGNMENT


Yes No

48%52%

Do you have a clearly-defined business case and documented objectives to justify each international assignment?

When sending an employee on international assign-ment, does your company guarantee a return position in the home country at the end of the assignment?

Yes, always

No, never

Sometimes

What is your approach to localization?

Lump sum transition payment made in year of localization

Lump sum transition payments made over 2 or more years

Step-down approach Case-by- case basis

Immediate transfer to host terms and conditions


12%20%

68%

16%

8%

4%

52%

20%


48%52%

THE FUTURE OF ASSIGNMENTS TO SWITZERLAND

With the approval of the “Stop Mass Immigration” initiative in February 2014, the reduction of work permit quotas announced in November 2014, and the tightening of local immigration authorities’ practices, obtaining work permits for Switzerland is becoming increasingly difficult.

Many large Swiss companies say that it is a challenge to find qualified workers within Switzerland to fill their talent pipelines and the current EU agreement on the free-movement of workers provides a much broader talent pool from which they can recruit. The February 2014 referendum therefore brings uncertainty about the future and concerns about whether they will be able to adequately meet staffing needs once the Swiss Federal Council has turned the results of the referendum into law, which it must do within three years of the referendum.

The reduction in the number of work permits available to non-EU nationals (and to assignees from within the EU) appears to be causing

frustration for a number of our survey participants. Over 50% of companies indicated that work permit applications are taking longer than usual. This may be a result of waiting for the release of a new quarterly quota, but we can also expect that the immigration authorities will subject applications to a higher level of scrutiny than in the past.

Despite the tightening of procedures, almost half of survey participants continue to process all work permit applications in-house. Around 20% of participants reported that they were using third party support more frequently as a result of the changes.

Yes No

Has your company experienced increased difficulties in obtaining work permits over the past 12 months?



60%24%

16%

Do you foresee these changes as having an adverse impact on your company’s business and its ability to appropriately recruit and staff operations in the future?

43%

29%

48%

Has your company made (or is planning to make) any changes to its assignment policies or practices as a result of the tightening of immigration practices?

Reduction in the number of assignments to Switzerland

Only key strategic positions to be considered for assignment to Switzerland

EU nationals transferred on local terms rather than on international assignment

Certain nationalities and/or positions, no longer considered for assignment or transfer to Switzerland

Other

5%

10%


Don‘t know yet

Yes

No


GLOBAL PAYROLL COMPLIANCE

Managing global payroll compliance is probably one of the largest challenges a company can face in respect of its globally mobile workforce. Key to managing compliance as companies expand their geographical reach are strong internal communication, formal global policies and well-documented processes. It is important that both the home and the host countries fully understand which elements of an assignee’s compensation and benefits to report and when to report them.

60% of survey participants consider that their company’s processes are adequate for managing the compliance risks around their globally mobile population.

Approximately 50% of survey participants reported that they have a fully integrated global process in place for reporting assignee compensation. Included in this 50% are the companies with the larger assignee populations, and all of the respondents in the financial services sector. The remainder of the survey participants indicated that compensation collection and reporting is left to the home and host countries without any global overview of process in place. This approach may be

manageable for those companies with smaller assignee populations, and limited geographical scope, but for any company with a sizeable assignee population, such an approach is likely to leave it open to significant risk of under-reporting.

Of specific concern is the reporting of non-cash benefits and in particular those benefits which are reimbursed to employees through expense reports, but which may nevertheless be subject to tax and social security. These items are notoriously difficult to collect and without a thorough understanding of the tax implications by each of the home and host locations, such items may easily go under the radar, only to be picked up during an audit by the tax or social security authorities.

Of the companies that do have a global compensation collection process, the majority use the compensation collected not only to ensure payroll compliance, but also for cost management purposes. Some of our survey participants indicated that they use the data specifically to be able to benchmark assignee costs against those of a local employee, or to analyse actual cost against the cost projection prepared at the start of the assignment.

60%OF SURVEY PARTICIPANTS CONSIDER THAT THEIR COMPANY’S PROCESSES ARE

ADEQUATE FOR MANAGING THE COMPLIANCE RISKSAROUND THEIR GLOBALLY MOBILE POPULATION

‘‘’’



52%

29%

Which are your biggest concerns around compensation collection and payroll compliance?

Correct reporting of non-cash benefits (school fees, housing etc.)

Reporting of host-paid benefits back to the home country for social security purposes

Reporting of equity compensation

Appropriate reporting of assignment-related compensation and benefits after the end of an assignment

Other

86%

43%

5%


How does your company manage its global compensation collection process?

Outsourced to a third party provider

Internally, using third party provider software

Internally, on an ad hoc basis

Other

35%

17%

43%

4%


STRUCTURE OF MOBILITY DEPARTMENTS

A centralized mobility department has become the operating model of choice for most Swiss multinational companies. It is a model which helps to ensure consistent and equitable application of global policies, and also facilitates controls around the compliance process. The majority of survey participants have their mobility teams located in headquarters in Switzerland with some of the companies with larger assignee populations also having regional teams in addition to a Swiss team.

52% 30% 9% 4%

Highly centralized Somewhat centralizedSomewhat

decentralized Highly

decentralized

Interestingly however, a small number of companies reported a move towards a greater level of decentralization. The main driver for this decentralization is to allow more flexibility for the host countries to align decisions to local practices and local business needs. Some companies also reported a reduction in central costs as one of the reasons for a partial decentralization of the mobility function.

How would you describe the structure of your company’s global mobility department?

4%

Other


71%

14%

71%

100%

24%

Which types of activities have you outsourced to a third party provider?

Assignment package calculation

Assignment letters

Relocation coordination

Pre-assignment counselling

Work permit applications and immigration services

Tax counselling

Other

5%

5%

If your company has a centralized approach, what do you see as the main benefit?

In Swiss headquarters

In regional headquarters

In an offshore centre

Other

Where is your mobility team geographically located?

Not applicable, our approach is decentralized

Consistent and equitable treatment amongst all assignees, regardless of host location

Process efficiencies

Allows for implementation of global talent management strategy

Other

26%

6%

15%

53%

13%

65%

9%

9%4%


RECRUITING AND RETAINING “RETURNEES”

When we speak of “returnees” in this section we are referring specifically to Indian or Chinese nationals who have spent a significant amount of time studying and/or working outside of their home countries, and who their employers wish to relocate back to their home countries with the expectation that these individuals will be able to develop the local market in a way that a foreign assignee would not be able to, due to language and cultural barriers.

Whilst only a handful of our survey participants indicated that “returnees” pose a specific challenge to their organizations, this challenge does appear to be becoming more widespread

as more companies seek to expand into emerging markets. In this study, we looked only at Indian and Chinese “returnees” but in future, this could be an issue for nationals of many other emerging markets.

Despite the challenges around this population, none of the survey participants has put in place a specific policy to incentivise and retain “returnees”. Survey participants indicated either that they were applying current mobility policies, or else transferring these employees back to their home countries on local terms.

Many “returnees” have never worked in their country of birth, often having left to complete their higher education and gain an initial work experience. It is not surprising then, that many experience a reverse culture-shock, and struggle to reintegrate into the “home” country environment having become accustomed to the business culture of their former “host” country.

In order to retain their “returnees”, our survey participants indicated that they had to constantly ensure their salaries were competitive, that their jobs remained interesting and that they had clear career prospects. Additional benefits such as children’s education and housing benefits were provided on an infrequent basis.

ONE OF OUR COMPANY’S BIGGEST CHALLENGES IS

MOBILIZING AND RETAINING TALENT IN CHINA‘‘

’’

80%

40%

40%

What are the major challenges your company faces in respect of “returnees”?

0%Cultural reintegration

Children’s’ education

Retaining employees following their return to the home country

High costs

Acceptance of local terms package

20%



Finally, in order to provide a snapshot of the key issues with which Mobility Professionals find themselves confronted in 2015, we asked the question “What is the biggest challenge you foresee in your role as a global mobility professional over the next 12 months”. Below is a sample of the answers, which provides an insight into where Mobility Professionals will be focussing their strategic priorities in 2016.

THE BIGGEST CHALLENGES FACED BY GLOBAL MOBILITY PROFESSIONALS TODAY…

“Compliance as we venture into new geographies and regions”

“Global implementation of our Mobility Policy – some ‘remote’ countries without dedicated HR are running their own show and not applying global policy”

“Better linkage of talent management and recruitment strategy”

“Swiss work permits”

“Management of the repatriation process”

“Increasing tax and regulatory requirements, making assignment of senior roles more difficult”

“Educating people that international transfers come at a cost”

“Looking at ways to reduce costs without impacting the assignees financially”

“Sending Swiss employees to India”

“Keeping up with annual tax changes in each of the countries in which we operate”


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2015 KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

For Further Information

Judith MitchellPartner, Lausanne T: +41 58 249 46 34 E: [email protected]

Brad MaxwellPartner, Zurich T: +41 58 249 29 41 E: [email protected]

Lennaert GaleslootPartner, Zurich T: +41 58 249 36 40 E: [email protected]

www.kpmg.ch

international assignment policies and practices survey 2015

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