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Understanding your employer obligations for cross-border executives

Employer obligations for cross-border executives

Ablean Saoud, Terry Hoban, and Liam Delahunty outline some considerations for Australian companies with executives based overseas.


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The changing nature of employment and the need to source from a global talent pool of candidates has led to a number of Australian head-quartered companies allowing their executives to be based outside of Australia. Such arrangements are often driven by the strategic needs of the business as well as the personal circumstances of the executive.

These type of cross-border arrangements lead to challenges for both the employer and the employee to comply with tax reporting and withholding obligations in both locations for the executive. Without careful planning, this arrangement can leave the executive with a large personal tax bill and could be an administrative nightmare for the organisation.

Take for example an executive based in the United States.

On the US side the Internal Revenue Service (IRS) requires full reporting and withholding on all remuneration paid to US citizens, or individuals who are tax residents in the US.

At the same time the Australian Taxation Office (ATO) mandates employers to withhold and remit Australian Pay As You Go (PAYG) each month on workdays spent in Australia by non-resident employees who are working for the benefit of the Australian entity.

There are certain forms and processes across Australia and the US which need to be implemented via payroll in order to vary the mandatory income tax withholding across the two jurisdictions ensuring the employee and employer are not hit with penalties and interest. In addition, careful planning across other employer and employee obligations need to be worked through such as state-level taxes and social security taxes. Differences in the two jurisdictions in the taxation of superannuation and fringe benefits; as well as employee share scheme income, also needs to be considered and pro-actively managed.

Furthermore, corporate tax issues need to be considered, particularly whether travelling executives trigger one or more foreign permanent establishments for the Australian company. This would trigger a tax return filing obligation and an income tax liability in the foreign jurisdictions based on an arm's length profit allocation. Triggering a permanent establishment is typically a scenario most groups would not seek to end up in.

Whilst these challenges can all be managed with upfront planning, this is one more additional factor that any Australian board needs to consider in agreeing to allow an executive to be based overseas.

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