Attitudes to tax planning vary considerably, both at the individual and corporate level. Organisations usually have a policy which drives their approach. This may be influenced by a number of factors: its nature, the degree of competitiveness in its markets and its effect on margins, as well as its geographic spread. Some Group Tax Managers are by nature conservative, others keenly interested in taking corporate advantage of the legal local tax opportunities – or grey areas – which exist. HR managers themselves will vary in their individual approach, and will also be sensitive to the fact that assignment arrangements will affect the individual, not just the corporation.
So how should HR departments determine their own policy? Clearly, understanding the corporate policy and the factors that drive it is helpful, but also to be aware of the planning opportunities below that exist to improve assignment tax planning:
Assuming the employer uses a tax-equalisation approach (i.e. that which underpins the build-up method) then some forms of tax planning really should be part of the HR armoury. These include the use of well-established concessions designed for, or applicable to, secondments.
Two other common ones to consider are paying benefits-in-kind in lieu of cash payments and the timing of the assignment.
In some countries the direct payment of certain expenses by an employer is considered a benefit-in-kind; in many countries certain benefits-in-kind may not be fully taxable to the employee, the common ones are housing, cars and school fees. In some countries the employer can receive beneficial tax treatment.
The start and end date of an assignment may significantly impact the tax and administrative cost of the assignment. In some countries tax treaties may provide benefits if the assignee is in the country less than 183 days in a tax year. For example countries using a calendar tax year, to take advantage of the treaty an assignment should start after 1st July and end before 30th June.
As a broad generalisation, we can work with HR departments to identify planning opportunities which will minimise global tax and social security liabilities. Structure tax-efficient remuneration packages to maximise the benefits. If you have any questions regarding these missed opportunities please call us today to discuss how you can take advantage of these benefits!
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