Issues for globally mobile employees affected by COVID-19 travel restrictions
As we are all seeing, the COVID-19 pandemic is having a far reaching impact on the global population. The restrictions on travel in particular could result in unforeseen and unplanned issues for globally mobile employees, some of which we have highlighted below:
- Because of travel restrictions, US expats may be forced to come back to the US “temporarily”. If they remain in the US for more than a month, companies may want to consider starting actual withholding again instead of continuing hypothetical tax withholding in tax equalised cases.
- Further to the above, companies should consider whether the work expats are doing in the US causes a US Permanent Establishment for the foreign company they are working for.
- In similar circumstances, a detained assignee can accidentally exceed 183 days in a country when not intending to and cause residency in that country, and thereby become subjected to all of the issues that come with that residency.
- If businesses are sending people home, companies may want to consider additional home leave allowances covered under tax policies for travel, and possibly equalise or gross-up the additional tax caused.
- Additionally, costs to evacuate employees and house them while unable to work in their assignment country could be a taxable benefit in kind. Company policies should be reviewed to determine if these costs are tax protected.
- We are seeing cases where employees working from home, or in neighboring country arrangements, are inadvertently causing tax obligations and withholding requirements in other locations that were not expected. Is the company responsible for withholding and reporting in those jurisdictions? Is there a Permanent Establishment risk to the company?
- If there is a chance of the employee not meeting the Bona Fide Residence or Physical Presence Tests to qualify for the foreign earned income exclusion under US tax law, you can remind them that if they (or the company) are paying foreign taxes on their income, the foreign tax credit is usually a viable fallback position, so it is unlikely they will pay double tax at the federal level. There is, however, a chance they will pay more tax at the state level, depending on their state tax residency.
- We have experienced cases in the past where the IRS, and other country/state tax authorities, release guidance addressing many of these items – like they did for recent hurricanes, for example. We will keep you apprised of any assignment-related tax notices/rulings and guidance we see released in the near future.