The multi-faceted implications of working from anywhere (Finance, HR, IT, Legal, Payroll, Taxes, etc.) make it critical to have a multidisciplinary approach to defining priorities and a strategy. Many organizations are assessing their opportunities and risks.
Transfer pricing is of course just one of the many aspects of the working-from-anywhere debate. It is however often a key aspect of multinationals’ tax strategy. Teams managing tax and transfer pricing matters therefore play an important role in informing their organization’s decisions on the topic early on by:
- Assessing opportunities and risks as well as the level of uncertainty involved based on the company’s business and transfer pricing model.
- Evaluating the financial impact of envisaged changes (e.g. profit reallocation between countries with different tax rates).
- Providing input into the business plan around additional resources required to manage the issue in practice (from risk assessment to compliance).
Some companies may altogether decide to refuse flexible working across borders due to the sheer range and complexity of issues compared to the anticipated benefits. Others may decide to start with a smaller number of employees. Because of the “facts and circumstances” nature of transfer pricing, it is hard to define blanket rules. But transfer pricing resources can help businesses and their many supporting teams (such as Finance, HR, IT, Legal, etc.) shape new rules based on their goals and priorities. Suggestions of building blocks include:
- Focus on countries with relative more certainty (e.g. in terms of rules or access to advance agreements).
- Select categories of roles where possible, for example:
- "Auxiliary” in the context of your business to mitigate permanent establishment risk.
- "Supporting”, i.e. sufficiently removed from the generation of profit to mitigate the total tax impact.
- Consider roles that may be remunerated based on new BEPS 2.0. nexus definitions.
- Evaluate planned changes to your business model that may provide an opportunity to review (pockets of) the employee footprint and related transfer pricing consequences.
Then, it is about implementation, implementation, implementation. Again, a multidisciplinary approach is required to mobilize stakeholders and establish policies, processes, and responsibilities. Monitoring (e.g. tracking employee location, reviewing business model and/or legislative changes) should also be implemented. A process for managing critical requests may also be required. Finally, ongoing communication to raise awareness, deploy policies and address questions will also count for a lot of the success (or challenges).