Short-term Assignments: Tax and HR Policy Considerations September 15, 2016 Presented by Mark Tirpak and Ted Hess

Agenda Defining Short Term Assignments Host Location Treaty relief Social tax considerations Short Term vs Business Traveler

STAs (Travel Away from Home) Assignment of 1 year or less Tax home does not shift Based on intent Consider documentation Tax treatment changes when intent changes Per diem payments Housing, Meals & Incidentals, Transportation Payments for family members Payments in excess of nontaxable Per Diem Watch for extended assignments

Adjustments to Compensation “Away from Home” Benefits available Per diems and temporary lodging Does employee qualify? Identify and document “tax home” Is employee maintaining home in Home location Intent One year or less Extension of assignment Payment of other items – host tax Inbound to U.S.

Host Location Per diem treatment Treaty utilization Domestic law Withholding requirements - Canada

Treaty Relief U.S. Model Income Tax Convention Article 15 – Dependent Personal Services, Paragraph 2 …remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the taxable year concerned; The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and The remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

Treaty Considerations Understanding the definitions within the treaty is critical! The U.S. did not add comments to the OECD commentary on Article 15 of the 2010 Model OECD treaty. An “economic employer” interpretation of the term “employer” rather than a U.S. legal definition could apply. Watch out for actual or deemed corporate permanent establishments!

Social Tax Considerations Certificate of coverage Duration Payroll implications if no totalization agreement

Short Term vs Business Traveler Is there a difference?

Factors that influence risks What are the travelers doing? How long is the travel? Who is the employer/ beneficiary of work performed? What is the corporate structure? What level is the person who is travelling? Where is the person going?

Risks inherent with business travelers Business traveler risks Permanent establishment risk Regulatory Compliance Business reputation risk Unhappy employee population Budgetary risk Risk of prosecution Employment law risk Many different factors to consider Some are risks to the individuals Most are risks to the organization

Advanced border technology What has changed and how do authorities go about identifying business travelers? Advanced border technology Immigration and tax authorities are sharing information Countries are sharing information to scrutinize immigration status Authorities are using more sophisticated tracking and reporting systems to collect the information By conducting analysis authorities are linking corporate deduction to individual filings Organizations have access to better information Data can be shared more readily from travel providers, expense reporting, and inter-organization departments Costly remediation

Why are authorities increasingly focusing on business travelers? The global economic climate Increased sensitivity about protecting domestic labor market Governments want to increase revenue From employers: unforeseen triggering of a permanent establishment From individuals: may be obliged to file/ remit taxes in multiple jurisdictions Business travelers present an untapped source of revenue Because they can!

Deportation of employees Damage to business reputation Consequences The consequences of not managing risks created by business travelers are severe: Fines Deportation of employees Damage to business reputation Lost business opportunities

Policy (and other) considerations May seem simpler than a long-term, traditional expatriate assignment Employee : “I (we) can go anywhere / handle anything for a year!” Employer : “We don’t have to do/spend as much!” Reality may be more complex Employee: “Is it worth it…?” Employer: “Where do we draw the line…?

Policy (and other) considerations Employee: “Is it worth it…?” If taking my family is either not practical or not allowed? Can I/we handle an unaccompanied assignment? If my family is allowed to acccompany me – what about the disruption to my spouse’s work? My children’s education, activities, etc.? To leave a “safe” role behind? Will it be waiting for me when the assignment is over?

Policy (and other) considerations Employer: “Where do we draw the line…?” Do we provide the same benefits we provide to long-term assignees? What makes a 10-month assignment assignment different (“easier”) than a 14 month assignment?

Policy (and other) considerations No Easy Answers; Questions to Consider: Why a short-term assignment? How likely is it to be extended? What situations call for it? Has the business done the cost-benefit of frequent travel vs assignment? Do your policies make STAs seem less costly? Are they really?

Contact Details Mark Tirpak Ted Hess Managing Director Independent Consultant GTN South tchess616@gmail.com The Woodlands, TX Phone: 713.244.5020 Mobile: 281.386.4080 Email: mtirpak@gtn.com