Even with the best intentions, traveling employees can put their companies and themselves at risk. In the future, these risks can only intensify as businesses become more global and technological advances make new travel and remote work options possible.
As the world grows more connected and travel gets easier, organizations are finding it harder to monitor where their employees are going, what they are doing and how long they are staying. And with tax and immigration authorities sharing more data and analyzing it more closely, the risks – both financial and reputational – are growing more severe.
In fact, compliance risks spanning income tax, corporate tax, social security, employment law and immigration can arise even when an employee visits a foreign location for as little as one day.
In the past, information on business travel for compliance was primarily self-reported by companies. Now tax and immigration authorities have more information at their disposal. They are becoming increasingly adept at detecting non-compliance by analyzing data they obtain from, among other things, digitalized financial and tax disclosures, payroll reporting, country-by-country tax reports, and agreements for automatic sharing of tax information. There have even been examples of authorities using social media to obtain details of traveling employees and using this to assess, for example, that the employee had created a permanent establishment for their company in the country they were visiting.
With audit activity rising globally, the consequences of not actively managing these risks can include not only additional taxes, fines and penalties but also legal sanctions, border detainments and loss of licenses to operate in particular countries. Employee engagement, talent development and corporate reputation can also be affected.
The CEO being detained at the border or not paying their taxes is a high-impact headline. With the media and general public paying more attention to the tax practices of global companies, companies that make high-profile missteps in the areas of tax, social security or immigration can suffer significant damage to their brands.
In the near term, a number of developments are stimulating more business travel for financial services companies and expanding the risks HR, Tax and Global Mobility teams need to manage.
For example, in Europe, the United Kingdom's exit from the European Union could profoundly affect British nationals traveling across the EU and EU nationals traveling to the UK from an immigration and social security perspective. While Brexit's details are still being negotiated, UK financial services companies could lose their passporting rights and no longer be able to conduct business cross-border in the EU or European Economic Area.
Many companies in the industry are planning how they will relocate staff and units to Dublin, Paris, Frankfurt or other EU cities so they can continue serving European markets. For UK financial services companies, the volume of employee movement prompted by Brexit over the next 12 to 18 months could be unprecedented.
Despite new risks and challenges, business travel seems set to increase, as businesses move their workers to drive business opportunities. Just over half (53 percent) of CEOs surveyed plan to increase penetration of existing markets, and one in five have plans to expand into new global markets.
New challenges, new approaches: Employee travel for global companies is being affected by Brexit, China’s Belt and Road Initiative (BRI) or new limits on foreign workers in the US and other countries. Tax, HR and Global Mobility teams need to adopt new approaches to effectively manage the global workforce of the future.
Think beyond short-term relocations: Unlike business travel within Europe and North America, freedom of travel is more restricted in many BRI countries, tax and immigration policies are more diverse, and distances are greater. These factors reduce opportunities for short-term relocation and commuter arrangements, and organizations will be challenged to develop other solutions (e.g. outsourcing, remote working).
Plan for contingencies: Historically, requests for visas and work permits were rarely rejected. Foreign-based multinationals are now finding it more difficult to secure entry into other countries, including the US. Even when they are granted, work visas are also subject to more delays than previously, which can create business problems in time-sensitive situations. Given this new uncertainty, traveling employees, business managers and their HR teams need to step up their planning for other contingencies.
Consider innovative relocation arrangements: The unprecedented movement of people and business units sparked by Brexit is expected to create a fierce war for talent. UK financial services companies setting up operations in the EU are challenged to design ever more attractive packages to encourage key employees and their families to relocate, which may include covering the costs of schooling, housing and flights. Brexit committees should also consider the duration of relocation agreements and whether there are plans to train up employees in new locations to take over from UK assignees in 2 or 3 years.
Factor in rising business travel costs: Business travel between traditional locations such as the UK and the US occurs in well-established 'travel lanes' that are amply served with flights, accommodations and other amenities. Brexit will require business travel to less equipped destinations like Luxembourg and Dublin. Pressure on limited airline tickets, hotels and other travel infrastructure in these locations is expected to increase costs accordingly.
Set up a company-wide system to track employee travel: Now that tax authorities have access to a wider range of data, companies need to ensure they have the same visibility and access that tax authorities do. However, many Asian businesses have not yet invested systems to track their employees' cross-border movements and ensure compliance with tax and other requirements. Many large Western-based multinationals have had systems for monitoring employee travel for some time. However, they may not have processes in place to manage their downstream compliance requirements, and their legacy systems may not produce data with high enough quality to meet tax authorities' evolving demands.
Addressing all the payroll, tax compliance and immigration issues associated with business travel and setting up an operational structure can seem daunting – but it doesn't need to be. Many organizations implement business traveler programs through a phased approach. It's also a good practice to set an overarching global policy with some flexibility for local implementation. As the cross-border business environment evolves, it's important for operating models within global organizations to evolve accordingly.
With ongoing continuous travel, remote working and virtual workplaces, even the best employee tracking system is unlikely to capture all employee movement or anticipate every scenario. To ensure tax and immigration law compliance, Tax, HR and Global Mobility teams need to go beyond managing logistics for business travel on request. They need to focus on strategy, developing employee travel policies that are clear comprehensive but have built-in flexibility for managing different risks in different situations and locations.
Global Mobility teams can also help embed these policies and raise awareness of business travel risks by developing training programs, codes of conduct and guidance, and by regularly communicating with business unit leaders, line managers and others who supervise the company's business travel and employee relocation programs.
In summary, whilst continuously managing regulatory risk, financial services institutions face short-term challenges to make the most of opportunities whilst addressing rising compliance risks as tax and immigration authorities get better at sharing and analyzing data for enforcement.
While action needs to be taken to address these risks, this also presents an opportunity to disrupt the traditional approaches to managing mobility. At a time when Tax, HR and Global Mobility teams have the attention of their senior leadership, they should not miss the chance to reconsider why their organization moves people, how they move people and the ways they can keep their mobile employees connected and compliant while on the road.