The COVID crisis has left many of us facing new challenges. We have embraced different ways of approaching our working routines and priorities. After the initial doubts and operational hurdles, many companies have found new rhythms and innovative ways of keeping their employees connected. So much so that companies and their employees are reviewing whether working from home or anywhere could become the new norm.
There are many ramifications linked to this new reality, however. One of these is companies’ tax model and footprint, which, for international businesses, is connected to transfer pricing. The physical location and contribution of employees to profit has been a cornerstone of calculating a multinational’s tax base based on transfer pricing principles. The latest OECD proposals (BEPS 2.0.) are certainly shaking things up by extending taxation beyond pure physical location for some multinationals. But while the international tax world is moving faster than ever, the role of location is – well – not yet remote.
Let’s take an example. A Swiss headquarter plans on hiring several Group Senior Directors across key functions. Previously, the roles were based in Switzerland. Now, the individuals would be working for a significant portion of their time from their home countries elsewhere in Europe. Questions that will need addressing from a transfer pricing perspective include:
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:
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:
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).