Release date: August 22, 2016
Guest: Carola Trolley
Running time: 8:14 minutes
In this second episode of our “Moving people with purpose: Short term business travellers governance” podcast series, Carola Trolley looks at factors – including BEPS - that are affecting the risk associated with short term business travellers, and solutions – including better tracking and cooperative compliance – that allow organizations to mitigate their risk.
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 professionals information they require.
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Brandi: Hi, it’s Brandi Scales of PwC Canada. Thanks for joining us today for the next installment in our “Moving people with purpose” series where we discuss some of the top challenges employers face when managing their short term business travellers. Our podcast today will focus on strategic mobility risk management and how companies can prepare for the heightened risks created by short-term business travellers.
With us today is Carola Trolley, a senior manager in our PwC Global Mobility Services group. Carola specializes in helping companies, and their employees, manage the complex financial, tax and benefit matters associated with global employee mobility.
Brandi: We have been speaking to our clients around the area of short term business travellers for quite some time now. Why the increased focus today?
Carola: That’s a great question and one that we do get asked a lot. Now, there’s is no doubt that we have been talking to companies about the more traditional risks for a while now, and they include tax, social security, immigration and permanent establishment risks. And while the rules haven’t changed per se, we have noticed increased scrutiny by the tax authorities, and it’s primarily driven by the changing landscape created by short term business travellers. So, combined with the media attention on international tax behaviour of multinational companies, it has led to the perception that existing international tax rules are somewhat outdated.
Brandi: We have heard a lot about changing international tax rules lately, especially BEPS. What is BEPS?
Carola: It’s an acronym, and it’s short for base erosion and profit shifting. In a nutshell, governments are concerned that companies are not paying their fair share of tax in all jurisdictions where they have activities, or where value is created. As a result, the OECD (Organisation for Economic Cooperation and Development) has developed an action plan to address these issues. A number of BEPS actions will impact how companies manage - and have to report - on their globally mobile workforce, and these will include managing permanent establishment risks associated with these mobile employees.
Now, interestingly enough, just recently as we’re entering into the second stage of the BEPS project, the OECD has agreed to a new framework that, if approved, would allow all interested countries and jurisdictions to become part of a dialogue, on equal footing. This is an unprecedented move by the OECD in the tax field. The opportunity for countries to participate in the setting-up of international tax standards on BEPS – it’s a big step. If this proposal is endorsed by the G20 finance ministers, we expect a first joint meeting this June or July (2016)
Brandi: That really is great news. How will companies better understand the impact BEPS has on their organization?
Carola: One of the most significant challenges will be for companies to be able to capture where their mobile work force is, and the countries that their employees are travelling to. Many are familiar with the permanent establishment concern; however, this PE issue is often misunderstood. Most of us understand that to have a PE it means my company is generating some sort of revenue in that jurisdiction, but that’s not always the case. What many do not understand is how any employee activity may impact the PE assessment. The key is for companies to ensure that they have a complete understanding of the rules and associated risks created by their mobile workforce, and in particular their short term business travellers. Which also brings up another challenge – communication to employees. Now more than ever, it is imperative that employees know what activities they can and cannot perform in a particular jurisdiction.
Brandi: Many companies are not currently tracking to that level. How would you recommend they get started with the appropriate tracking?
Carola: To start with, I think you need to get buy-in at the top level of your company. The short term business travellers group has not generally been viewed as an HR responsibility, so the first question needs to be who owns it? Is it HR? Corporate? Legal? You need to get those short-term business travellers on the strategic business agenda so that policies and processes can be aligned to the controls you want to have in place.
It’s necessary to define ownership and accountability, and to develop a method of tracking. We can expect to see a lot more countries requiring companies to report on a country-by-country basis, and many will in fact move to a cooperative compliance model going forward.
Brandi: Well there’s another term we have been hearing a lot more about lately - cooperative compliance. Can you please explain to our listeners what this is?
Carola: Yes, of course. As I mentioned previously, the activities by a few international organizations, as has been reported by the media, has led to the perception that some taxpayers are able to take advantage of the outdated international tax rules. Cooperative compliance, is another initiative being led by the OECD which aims to restore trust and confidence in the relationship between taxpayers and tax administrations, and contribute to deliver better compliance, effectiveness and efficiencies. A cooperative compliance program requires commitment from both taxpayers and tax administrations to deal with each other in a transparent and cooperative manner.
Brandi: As a result of these efforts by the OECD, are we seeing countries adopt this model?
Carola: Yes, many countries, tax administrations and companies have already seen the benefits of a cooperative compliance model and as such, are developing approaches based on the principle that businesses that are prepared to be transparent and demonstrate control of their tax function can expect in return less audits and certainty on their tax positions. Cooperative compliance is really a mutually beneficial approach and an effective tax framework.
Brandi: Lately, we’ve been noticing more companies are moving towards shared mobility operations. Do you see this move as beneficial under this changing landscape?
Carola: Absolutely. Whenever you have a shared or centralized mobility team monitoring and reporting, you naturally create consistency and excellence. And, when this is done well, the mobile work force activities can be managed in the best way possible, providing reports and analysis for the global operation. Remember that in any given location, normally it’s the local HR business partner working with the local line manager, and neither one may have a full understanding of all the compliance issues. Having a centralized team involved will ensure the compliance side is being managed.
Where things will still tend to fall through the cracks is those employees that simply travel outside the mobility program. The key is to communicate, and ensure your policies have a process in place to deal with these individuals. Another benefit is also you can free up the local HR groups to better partner with the business more directly.
Brandi: Thanks Carola. This has all been really informative. Any final thoughts you want to leave with our audience?
Carola: Well, bottom line - if everyone only takes away one message here, we need to be doing a better job of tracking our employees, for so many reasons!
Brandi: Great. Thank you, Carola, for joining us here today and providing your insights on BEPS, cooperative compliance, and how these concepts relate to short term business travellers.
Carola: It was my pleasure, Brandi.
Brandi: For any questions, Carola’s contact details are available on our PwC podcast website www.pwc.com/ca/taxtracks.
I encourage our listeners to stay tuned for more upcoming podcasts in this series.
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