US companies directly affected by the new coronavirus, COVID-19, are focused on facilitating employee health and business continuity with customers. As businesses respond to the crisis, however, they likely will encounter customs and short-term global mobility and tax implications, which, if not addressed, could escalate into bigger issues.
Typically, employers are seeking to address three near-term trade, people and tax challenges. First, they are developing global mobility solutions. That involves navigating employees and their family members through immigration restrictions, finding ways for employees to work temporarily out of their primary location, and continuing operations remotely in order to service customers in affected regions.
Second, businesses must continue moving their products into and out of affected regions — especially critical when needed medical products are involved. Third, companies are assessing the long-term tax effects from the crisis and are reconsidering their global presence and structure. The goals are to reduce exposure to these types of risks and to maintain uninterrupted business operations.
Address mobility and immigration issues
There are significant immigration challenges for all nationals need to move into and out of areas directly affected by the outbreak. Business leaders should work with their human resources professionals to develop monitoring controls that can track employees' locations, to promote employees' safety, and to help them with potential immigration issues when they return.
After taking steps to protect employees, companies should assess the tax implications that can likely arise — especially if the crisis continues for several more months. Depending on where it temporarily hosts employees, the company — and its employees — may face unintended consequences. These can range from additional required tax filings to taxes related to employee changes of residency. Careful tax planning and monitoring can help identify satisfactory solutions.
Tackle customs challenges
Business leaders may deal with short-term customs issues, such as navigating processes to send goods into affected areas or obtaining appropriate clearances to move manufactured goods out of a country. Additionally, companies that use temporary vendors to replace vendors facing constraints will likely need to monitor tariff and other customs implications. Depending on the regions, the products, types and the suppliers being used, the level of import duty and/or tariff a company may have to pay could vary.
Learnings from the outbreak are likely to factor into a company’s decisions about whether to restructure or relocate some operations.
Look at downstream tax implications
Companies with significant operations in affected areas should think about the broader implications of their business decisions and consider taking the following steps:
Reassess 2020 tax planning based on the impact a disruption of this magnitude could have on operations. Determine whether there is an impact on tax estimates across the board, or if issues are isolated to specific geographies.
Reevaluate the company’s business continuity plan. Does it take into account the possibility of COVID-19 impacts continuing into the remainder of the year?
Evaluate transfer pricing activity related to moving cash into or out of affected countries to pay for crisis-related expenses. Are the company’s transfer pricing models up to date, and do they encompass the current situation? Does the tax team have the capacity to handle any changes in valuation that may occur?
Determine the impact of additional expedited taxes and fees that may result from moving exports and imports through an affected country’s backlogged customs authority.
Consider longer-term tax effects
If the COVID-19 crisis continues for an indefinite period, companies will need to analyze longer-term tax effects on their business. These could include:
Losses due to missing revenue sources within affected areas
Continued restricted movement through those areas, causing longer inventory turns or difficulties in collecting receivables
Additional inspection expenses needed to reopen factories
The risk of changes in the primary tax location based on adjustments to supply chains or employee locations made during the crisis.
Learnings from the outbreak are likely to factor into a company’s decisions about whether to restructure or relocate some operations. Depending on the impact of this crisis, business leaders may want to think about diversifying their geographic risk. Evaluating all the options can put a business in a better position when the next crisis hits.