Release date: March 12, 2014
Guest: Edmond Kwan
Running time: 08:02 minutes
In the second episode of our “Top global mobility issues facing tax directors” series, Edmond Kwan discusses the importance of companies being aware of the travel patterns of their mobile employees.
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You’re listening to another episode of PwC’s Tax Tracks at www.pwc.com/ca/taxtracks. This series looks at the most pressing technical and management issues affecting today’s busiest tax directors.
Chantal: Hi, it’s Chantal McCalla of PwC Canada and today we are here to discuss frequent business travellers. With us today is Edmond Kwan, a senior manager in our PwC Human Resource Services tax group. Edmond specializes in international assignments and expatriate tax management at PwC.
Edmond: Thanks, Chantal – it’s great to be here.
Chantal: Edmond, can you give us a high level introduction as to why companies should be concerned by the activities of their business traveller population?
Edmond: Sure, Chantal. As the Canadian government proactively tries to attract more business investments into Canada, foreign companies who wish to conduct business here are often sending a number of employees from their home countries to perform employment duties here in Canada. This leads to foreign employers now being subject to Canadian payroll withholding and reporting requirements.
As the tax landscape has changed significantly in recent years, the Canada Revenue Agency has been more proactive and aggressive in their approach with respect to frequent business travel. PwC is now seeing more audit activity concerning the compliance for even short-term business travellers into Canada, which is resulting in stricter enforcement of the legislation and the assessment of tax, penalties and interest on non-compliant companies.
So, in layman’s terms, as a result of the increased cross-border activity, companies today simply cannot afford to ignore their frequent business travellers.
Chantal: OK, in that case, when it comes to business travellers, what key questions should companies be asking?
Edmond: Well, first and foremost, the company really needs to understand who’s travelling, where they are travelling, and how often. Unfortunately, this is the most difficult question for companies to answer. PwC does have a number of tools to help companies gather this data in order for management to analyze what are the risks involved, how significant they are in each and every jurisdiction, and compare this to the level of governance the company is willing to be compliant with. Now, once these questions have been fully considered, companies will then be in a better position to start developing the policies and the procedures to help them monitor and manage their business traveller population. This will in turn significantly reduce their risks overall.
Chantal: That’s great, Edmond. Can you now provide us with a brief explanation of the compliance requirements for companies?
Edmond: Sure! The critical issue that companies need to understand from a business traveller’s perspective is that under Canada’s domestic tax laws, employers are required to withhold and remit tax from the first day an employee physically works in Canada. Many companies are under the guise that no action is required if an employee can apply for tax treaty benefits. This is really not the case and is the reason why it’s so important to be aware of who your business travellers are and the patterns related to their travel.
Chantal: Well considering there is no de minimus related to workdays, it certainly sounds like this can become a compliance issue rather quickly. You mentioned tax treaty benefits. If we use Canada and the U.S. as an example, how does the U.S.-Canada tax treaty impact the obligation to withhold Canadian taxes for an employee travelling from, let’s say, the U.S. into Canada?
Edmond: Chantal, that’s a great question! From a withholding perspective, many companies who send their employees to work in Canada often do not realize that the obligation to withhold Canadian taxes does not actually change as a result of the U.S.-Canada tax treaty or under any other treaty that Canada has with other countries.
The obligation to withhold applies to all situations where an individual physically performs employment duties in Canada. The key issue for companies to understand is that whether the non-resident individual is subject to Canadian tax or not pursuant to a tax treaty is separate from the employer’s obligation to withhold Canadian tax on remuneration paid to employees physically working in Canada.
Chantal: So, Edmond, if I understand correctly, companies have a requirement to withhold income taxes and remit those taxes to the CRA even though the individual may qualify to claim tax treaty benefits to exempt that income from taxation in Canada. This seems punitive if there are no actual taxes due to Canada at the end of the day. Is there anything a company can do to mitigate the withholding tax obligation?
Edmond: Yes, companies can apply for a waiver to reduce taxes at source if it is known that the individual will qualify for tax treaty benefits. If these waivers are approved by the CRA, companies do not need to withhold and remit income tax for the period that is stipulated on the waiver.
What’s important to note, however, is that the approved waiver does not actually mean that the company does not have to report the Canadian source income earned by the individual for the duties performed in Canada. In fact, although no income tax remittance may be required, a T4 slip must still be produced and submitted to the Canada Revenue Agency.
For a more in-depth discussion about the waiver process, I would recommend listeners to tune into Episode 51 of our Commuter Series that was published in December 2012.
Chantal: Thanks, Edmond. Are there any other issues tax directors should consider when it comes to frequent business travellers?
Edmond: Yes, there are a few that come to mind:
Chantal: Well, there certainly sounds like there are a lot of things to consider when it comes to the frequent business traveller. In fact, what I am hearing is that this is really a shared responsibility between corporate tax departments and the HR function, and keeping those lines of communication open is critical to ensuring that a company is compliant on all facets in respect of the frequent business traveller. Thanks, Edmond. I appreciate your time today.
Edmond: Thanks, Chantal – it has been a pleasure.
Chantal: For any questions, Edmond’s contact details are available on our PwC podcast website www.pwc.com/ca/taxtracks.
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Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.