Keeping Pace with Compliance: Extended Business Travelers
As organizations continue to globalize, investment in business travel is rising. At the same time, regulatory pressures are increasing and governments around the world are stepping up law enforcement on travelers.
According to the Global Business Travel Association (GBTA) Foundation, the amount of money companies spend on business travel (approximately $1.2T) has more than doubled over the last 15 years. China has now taken the United States’ place as the leading market for global business travel spend; the GBTA estimates the number of business travelers in the U.S. alone is estimated at 488 million. A noteworthy part of global business travel is considered extended business travel.
Extended Business Travel (EBT) is an umbrella term that includes both frequent business travelers, those who travel for business to different countries on a frequent basis, and extended business travelers, those who travel for business to another country for an extended period of time and not on a short-term assignment. Companies are looking to reduce their reliance on traditional assignment types. In some cases, EBT is a creative way to respond to business opportunities and needs that arise in other countries.
Although EBT has been around for a long time, generally speaking global mobility functions are not monitoring them as closely as long and short term assignments to make sure the proper measures are in place to ensure compliance. Advancements in technology are allowing many countries to become much better at enforcement. Immigration and tax authorities are also utilizing technological advancements to readily pass information about travelers between borders. Immigration systems at the border are often now directly linked to local taxing authorities. As a result, tax authorities are much better at tracking movement and activities of travelers coming into their country, identifying compliance and withholding obligations.
These trends have increased the urgency around managing unique risks associated with the EBT population and as a result, companies need to ensure they have a strategy for mitigation.
Business travelers can give rise to a number of different tax compliance issues. Depending on the locations and the traveler, there can be both personal and corporate tax liabilities at stake. Travelers can unknowingly trigger individual tax obligations in the form of income or social security taxes. Incurring corporate tax obligations poses significant risk as well. For example, social taxes and payroll withholdings may be required. If the company is not actively managing or tracking this activity, penalties and interest could start to accrue resulting in a significant financial impact.
In addition, some countries have developed stricter guidelines around what defines a Permanent Establishment (PE). Even if a company does not have a physical business in a particular country, they may be deemed to have a PE because of the business travelers who are conducting business on behalf of the company. A single business traveler could inadvertently generate PE, resulting in a serious corporate income tax filing requirement and business tax liability for the company.
The complexity of monitoring tax liabilities has increased as well. In the past, it may have been reasonably adequate for companies to track only the number of days an employee worked in a specific country. In today’s compliance landscape, that is no longer sufficient. Now, organizations should track and take other variables into consideration, such as the number of visits to a particular country in a given time period, total compensation, the type of work performed, among others.
Tax compliance for business travelers does not only apply to international travelers but is a concern for domestic business travelers as well. For example, in the United States, days worked in another state away from an individual’s home state will likely result in tax reporting liability and/or a corresponding withholding requirement by the company.
In addition to tax risk, business travelers also may pose immigration risk. By not obtaining proper documents required for the specific activity an employee is tasked with in the destination country, an employee could put themselves and their employer at risk for fines, penalties and travel restrictions. Companies have a responsibility to obtain the appropriate permissions to ensure their workforce can legitimately be present in a country and conduct business for their employer.
Technology advancements, such as electronic passports and biometric gates, for example, have increased scrutiny of individual travelers globally. Travelers entering a country numerous times, within a specific period of time, even if each entry is only for a short period, can raise red flags. To ensure companies have the data they need to properly manage potential immigration risk, they should have a system in place to track who is traveling, why, where, when, and for how long.
Duty of Care
Security concerns are another important reason why a company should have a process in place to monitor the movement of their employees. Companies are generally responsible for managing risk and providing a safe work environment, including business travelers as well. Tracking employee travel data is vital so companies can warn, protect and assist employees in the event a security incident occurs.
In many companies it is not clear which department should be monitoring business travelers and managing the associated risks. Mobility may be involved due to their expertise on cross-border immigration and tax. Ultimately there are many departments such as Human Resources, Tax, Mobility, Finance, the business and the business travelers themselves that will need to be involved in creating and implementing a holistic process.
Instituting global policies and a centralized system are essential for managing business travelers and mitigating the risks associated with them. Ultimately any solution will need to be customizable and provide the right amount of guidance to companies. While introducing a new solution or improving on a current one could mean an additional investment for the company, the risk and potential cost associated with non-compliance can be far greater.
Learn more about BGRS’s Business Travel Risk Assessment solutions, click here.