ME PoV Summer 2017 issue
Managing risk in an evolving landscape
As organizations become more global, traditional mobility types are becoming rarer—employees are increasingly expected to take on global or regional roles, travelling to emerging markets and being required to fulfill short-term project needs. This expanded global footprint, together with an ever-increasing interdependence between tax and immigration, gives rise to a complex array of tax, immigration and payroll risks for both the organization and the employee.
The global nature of work
The way in which businesses operate today has evolved significantly from how they operated ten years ago. Organizations increasingly need to be digitally agile—businesses can no longer continue to operate in rigid hierarchical structures, but need to work in networks of teams that cross functions, service lines and, in many cases, jurisdictions.
Within this context, individuals are frequently expected to take on regional or global roles, with oversight not only of the teams or markets in which they are based, but also within other jurisdictions in their region and beyond. This is particularly relevant within the Middle East given the relative size of the region and the number of countries it encompasses. It is feasible that an individual based in the United Arab Emirates (UAE) will have a remit over the wider Gulf Cooperation Council (GCC) region, if not further afield into jurisdictions as diverse as Iraq, Iran or Afghanistan. Inevitably, individuals are required to travel and spend time in those other jurisdictions.
An evolving risk landscape
The nature of business travel is inherently ad hoc. Such travel is often not predictable, and is driven by the needs of the business—frequently and with little prior notice, making it challenging for organizations to manage the complex array of exposures that can be created from a tax, social security and immigration perspective.
At an organizational level, corporate income taxes and withholding taxes can be triggered for the business as a result of individuals spending time and performing work in another location. These taxes can come as an unwelcome surprise to commercial teams where tax has not been factored into the price of a contract. Similarly, for the employee, travelling to, and working in other jurisdictions can expose that individual to personal income tax and social security in those other jurisdictions.
Increased border security, owing to the current geopolitical climate, together with initiatives to protect the local national workforce, have also placed an increased emphasis on immigration compliance. The scope of activities that may be performed compliantly as a business traveler is generally limited, and will vary from country to country. While it may be acceptable to travel to a country for a few days to attend meetings, spending significant amounts of time working on a specific project in a country is likely to raise a red flag from an immigration perspective. Such risks will increase where the individual is routinely traveling to that country to perform various tasks.
So how do organizations approach managing business travel?
Many businesses face internal limitations such as a shortage of resources or technology to help proactively manage or monitor business travel, or a lack of accountability within the organization as to who owns the risk. It can also be difficult to obtain the buy-in of employees or business owners to engage with human resources or mobility teams to inform them of any planned (or completed) trips, particularly where there is an urgent commercial need for the individual to travel.
For those businesses that are in the early stages of identifying risks with respect to business travelers, the task may seem daunting, and the easiest course of action is to do nothing. However, as the interdependence between tax and immigration, as well as exchange of information between competent authorities, increases, this approach may no longer be acceptable for the majority of multinationals.
As a first step, businesses can seek to identify where risks have been created already, and look to quantify potential exposures as well as introduce risk mitigation measures. Technology solutions can help in this respect. Data analytics can be used to identify key traffic lanes and to determine where action should be taken. An analysis of data provided by the company’s travel provider, or a review of employee expense reports, can be a valuable first source of information. With this initial perspective, the business can understand the size of the issue and consider appropriate remedial action.
Having identified where risks may already have been created, the business can look to define the employee population for which action is reasonable on a proactive basis—be it through formalization of employment arrangements for individuals who are spending significant time in a given jurisdiction, or consideration of where a formal legal entity registration would be appropriate. This initial work can in turn form the basis of a policy and process map to manage business travel on an ongoing basis, as well as assigning ownership and accountability for travel to the relevant business owners.
Educating employees and business owners on the risks that can be created as a result of business travel, and getting their commitment to engage with relevant stakeholders is critical. Pre-travel assessment tools can also be used to determine in advance whether a proposed trip is likely to give rise to any compliance considerations. For example, an individual can input details of their planned trip and intended activities, and receive a live assessment of any immigration considerations to be aware of prior to departure. Such a pre-travel assessment can be incorporated into a formal approval process which takes place before the trip is actually finalized.
In addition to maintaining compliance, obtaining a clearer view of the organization’s approach to business travel can provide additional value added to the organization. Travel often accounts for a substantial portion of the overall expenditure of the business, and therefore a review of an organization’s approach to business travel can be incorporated with a cost management exercise, and in turn lead to opportunities for savings.
Above all, communication is key. The types of risks created by business travelers are not restricted to one function within the business—while responsibility for corporate income taxes may sit within the organization’s tax or finance team, compliance with employee taxes and immigration will typically fall to human resources or mobility to manage. Coordination between these teams, together with business owners within the organization, will be fundamental to successfully managing any organization’s business travel policy.
by Jayne Stokes, Director, Global Employer Services Leader, Deloitte, Middle East