As the subject of permanent establishment (PE) becomes more controversial amid the ever-changing rules, multinationals (MNEs) should have a proactive partnership relationship with their global mobility service provider, whether in-sourced or outsourced.
Global mobility generally reports through the HR function, thus a silo approach may result without the proactive ability of the tax function to create a cohesive team. The concepts of legal employer, economic employer, intercompany allocations, foreign reporting relationships, contractual arrangements, intercompany agreements, etc. all need to be vetted and challenged for every assignment that may have adverse consequences for the employee and/or the company.
Countries are taking a more aggressive PE approach, thus a standard assignment template and / or agreement may not work in today’s post-BEPS world. India, for example, has very specific rules that dictate a PE without special attention to the control and payment arrangements of the assignment. Assessments may take years to resolve requiring additional cost and time, including the necessity of external advisors.
The organizational structure of significant functions that may cause consequences for a MNE’s tax organization should be reviewed, possibly adding dotted line relationships for global mobility, customs, external communications, etc. At the very least, these related functions should be discussing these potential issues on a regular basis, while forming a mini-university for learning.
As the subject suggests, the organizational structure and reporting relationships should not follow the same-as-last-year approach due to the BEPS evolution around the world.
Global mobility will face, directly and indirectly, various challenges resulting from OECD’s BEPS proposals. PwC’s Insights provide a concise summary of these proposals, included for reference:
Treaty changes, either bilaterally or via the Multilateral Instrument, will affect key issues and risks, including permanent establishment (PE).
Unilateral changes, several of which have been enacted, should be reviewed with a focus on global mobility functions.
The transparency initiative will encourage tax authorities to aggressively pursue PE and treaty based rules.
What is the impact of the change for PE dependent/independent test.
Responsibilities of senior executives, sales representatives and regionally based employees will need to be reviewed for the new rules.
People functions re: controlling risk should receive separate review.
Intercompany agreements (i.e. legal form) should be compared to practical substance responsibilities to evidence conformity, as analyses will use legal agreements as only a first step to understand the transactions and potential consequences.
Post BEPS, it is imperative that global mobility’s function and responsibilities should be reviewed, from a tax risk awareness perspective as well as internal governance controls. To the extent that global mobility is not closely collaborated with the tax function, the ways of working and reporting should be reviewed to address this new world of international tax transparency and the emphasis on multinationals paying their fair share of tax, however construed.
Cooperative compliance is an initiative that is being used more regularly to further efforts by tax administrations for tax transparency. (Refer to 13 June, 2013 post: OECD: A Framework for Co-operative Compliance)
The referenced PwC Tax Policy Bulletin highlights the use of this popular technique for Global Mobility compliance and Best Practices. The Bulletin provides a primer for processes of global mobility compliance and integration of a cooperative compliance approach, including the relevant benefits and risks.
Many countries have the potential to immediately negotiate an agreement to streamline mobile employee compliance.
There is an opportunity to minimize/control risks due to global talent shifts, short-term business travelers / assignees, targeted tax audits, administrative complexity, Permanent Establishment (PE) exposure, etc.
Tax control framework methodologies should be in place for review by tax authorities to review internal processes.
This initiative should be in synergy with the global / regional / country tax strategy for alignment.
This important initiative should be supported by tax expertise for the global mobility function via internal and/or external resources. Accordingly, the impetus of tax transparency, complexity and corporate accountability may provide perfect timing to review the organizational structure of the global mobility function and inherent tax expertise provided, resulting in a Best Practice methodology as part of the global tax risk framework.
Apart from Permanent Establishment (PE) risk, among others, I want to focus on the integration of International Tax and Global Mobility, with the following thoughts:
Are the International Tax and Global Mobility functions aligned to address tax risks and opportunities? Are there regular meetings, information sharing and discussions of strategies, risks and opportunities?
Are PE and related tax risks explained and discussed with Global Mobility in recurring training programs?
Are International Tax personnel familiar with legal vs. economic employer concepts and other related mobility risks?
Should there be dotted line and/or direct reporting structures?
Are there red flags/alerts upon assignments/transfers of Regional/Global Sales personnel to ensure PE is not created?
Are the legal entities to which personnel are assigned in existence?
Should someone with international tax expertise be placed on the Global Mobility Team to minimize potential risks?
How is Global Mobility aware of new trends, risks and opportunities, especially re: international tax?
Is Secondment and utilization of Double Tax Treaty benefits aligned?
How are assignments to new markets executed? Is International Tax involved in the beginning prior to execution?
Are there specific contacts in Legal, International Tax and Global Mobility to communicate potential issues?
Are there cross-functional training programs to highlight new issues, discuss risk gaps and Best Practices?