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Remote working is not a new trend. But it has accelerated during the COVID-19 crisis and is expected to continue. Employees expect more flexibility and may even be willing to accept pay cuts in exchange. Some companies have drawn the line at offering this flexibility across borders due to the numerous ramifications. Many are reviewing how to make it work to attract and retain top talent and benefit from more flexibility in their operating model.
Important transfer pricing considerations arise in connection with working remotely across borders (read previous blog: TP at heart of compliant remote working across borders). One of them is planning, i.e. ensuring profit outcomes follow business evolutions. In this blog I focus on how transfer pricing planning can support businesses in their international remote working initiatives under current and future business models.
Currently we see a lot of companies address specific requests from individual employees to work remotely from a different country on a permanent basis. This could for example be an employee who was temporarily “dislodged” during the crisis and wants to make his/her new arrangement permanent. Other employees want to relocate to a different country for personal reasons. Transfer pricing planning helps assess the profit implications of such requests.
Companies are also designing policies to manage large-scale requests under existing business models and coming up with initially permissible cases for international remote working. Transfer pricing will help consider roles in terms of their profit generation. Simply put, changing employee location might mean changing company profits and tax bill. Transfer pricing planning can contribute to these policy discussions by indicating:
Recent press releases have shown the soul-searching that companies are going through as to what operating model to adopt. Until now decisions have been quite company-driven. Companies chose their footprint and brought people to roles. But very quickly choices are becoming employee-driven, and in the future international remote working may no longer be optional. So the focus may be less about bringing the right employees to roles and rather about bringing roles to the right employees.
Going forward it may not be so easy to determine which function will be carried out in which entity. It will be more about which talent is needed for value creation. As a result business models may shift more fundamentally. Senior roles – that attract more profit in transfer pricing models – may be particularly impacted by this talent question. But not only: for example, shared service centers in a central cost efficient location may give way to remote service centers.
Transfer pricing can help review changes in the business and shape the proposed operating and tax model to best support business objectives.
Discover more: Working anywhere, together - Transfer Pricing (Factsheet, PDF)