‘Mobility’ is changing and it’s changing fast. Nontraditional types of mobility that do not require a formal relocation to another city or country were already exponentially growing before the global pandemic. Enter COVID and flex / hybrid options, remote work alternatives, and now the newest variance... so-called virtual assignments.
Mobility programs have been the engine of multinational businesses to get the right talent in the right location for decades. That business ‘need’ is becoming even stronger as C-suites pursue a variety of priorities – such as cost reduction, a changing real estate footprint, and expansion. Depending upon the role and mobility objectives, the need now may be satisfied with virtual rather than physical presence.
So-called ‘virtual assignments’ can address some specific business demands right now, while prioritizing a healthy and safe workforce. For example, a company may need project-based talent across borders (for a short-term time period such as six months or less), but perhaps there are concerns about compliance issues such as taxes, labor law, and even immigration, if that person is physically present in the location.
Workforce expectations and strategic talent development also are driving the rise of virtual assignments. A large majority of millennials are anticipating that they can work overseas – a virtual assignment may allow an employee to go abroad while continuing to work for the home country. Another driver is that virtual assignments may allow senior-level employees to have an international career without leaving their home country.
75% of employers are calling remote work a success, while 55% of executives are prepared to expand options for employees to work outside the office, according to a recent PwC remote work survey.
Get out your whiteboard because these assignments may require some unique ‘mapping’ of where the employee is physically located and working, as well as where he/she considers their ‘home’ jurisdiction (where they normally reside.) While working virtually, an employee may be adding value to an employer’s business in another country such as for a foreign subsidiary, layering on a third country and perhaps other business entities.
Favorable benefits generated by a virtual assignment could be overshadowed by tax compliance obligations and reporting that were not expected – not just for the company but the employee as well. This may include payroll obligations, as well as corporate income tax and indirect tax liabilities.
Teaming is critical. While the business and strategic talent reasons for having virtual assignments can lead the way, the Tax function can be an important upfront partner to avoid risk and financial surprises later. Many multinational businesses created a cross-functional team that included Tax to address broader remote work issues – this same approach could work effectively for new modes of ‘mobility’ such as virtual assignments.
Mobility, Tax, and Legal functions will likely need to break new ground by working together to create connected processes and reach shared goals. Generating agile policies for such assignments can involve a unique set of challenges. Similar to remote work, so-called guard rails surrounding where, when, and how virtual assignments can be executed can help mitigate compliance issues.
What jurisdiction is taxing what? Assume employee A may ordinarily reside in the UK and currently is employed by entity X. But she is physically present and working from her home in the United States. Employee A then takes on a virtual assignment to work on contracts or business entered into by Entity X's Australian subsidiary. What taxes may arise and who's responsible?
This enhanced collaboration is likely not a one-time need, but an important foundation for managing disruption going forward. And change is coming. For many companies, operational shifts and digitization will continue to accelerate, resulting in the shuffling of workforce locations and value chain arrangements.
But that’s not all. Layer on that fundamental US and global tax rules may be changing as well – including long standing positions of how income is allocated and taxes are applied across borders. (See PwC’s WNTS Tax Policy Outlook.) All of these moving pieces will make mobility execution more challenging.
The bottom line is that tailored mobility solutions such as virtual assignments can yield a win-win for the company and its talent based upon their business needs. But their success can hinge on collaborative execution across the business and with Tax. Those companies that work across internal silos are primed to embrace change quickly and seamlessly, and reap the benefits for years and even decades to come.