The global tax landscape is undergoing significant transformation, driven by a rapidly changing world. Shifting political administrations in the United States and beyond, escalating trade disputes, the pressing need to bolster government budgets, the phased adoption of a global minimum tax, and other critical factors are all contributing to this evolution.
The Organisation for Economic Co-operation and Development’s (OECD) Tax Policy Reforms 2024 report underscores this shift. Tax reductions introduced during the pandemic are now slowing—or even reversing—as governments pivot to strategies aimed at boosting domestic revenue. A notable trend highlighted in the report is the end of corporate income tax rate cuts, with more jurisdictions raising rates than lowering them in the past year.
To dive deeper into these emerging tax trends, we spoke with Alessandra Leite, director of tax services at Newland Chase, and Nino Nelissen, director at EMG. Below is a summary of their insights on how these changes are impacting global talent mobility.
A Disconnect Between Remote Work and Taxation Policy
Leite and Nelissen flag a disconnect between evolving work patterns and global tax policy and its impact on corporate risk. The freedom some organizations continue to allow their employees when it comes to remote work, says Nelissen, “does not match with the traditional concepts that we see in international taxation, and this mismatch created significant issues in practice—risks for double taxation, risks for creation of permanent establishments, risks for undesired changes, social security systems that apply, etc.” Nelissen, however, sees some progress on that front. Legislators are gradually adapting tax policy to clarify “voids and duplications that arose because of changing working patterns,” he says, citing the Framework Agreement within the EU as an example.
Leite, too, sees the risks associated with the disconnect of work patterns and tax policy. She notes how tax authorities are becoming more vigilant when it comes to ensuring tax compliance through the use of technology to track cross-border movements and identify potential tax liabilities. Tax authorities are also boosting scrutiny of permanent establishment risks, tax residency, and double taxation.
Evolving work patterns, especially in relation to remote work, have brought with them a new set of challenges for companies and relocated employees. Nelissen believes that the more flexibility allowed to employees, the greater the risks. “You need to know what’s going on in an organization—who is where, doing what, for how long, and who’s paying for it,” he says. The answers determine the action required.
What Impact Will Global Tax Policy Changes Have?
Leite says that international tax reforms, by their very nature, reinforce the need to double down on compliance. Changes may influence corporate mobility strategies, possibly “leading companies to reevaluate assignments to low-tax areas unless there's a strong business need,” she says.
Companies may also turn more to local hiring to reduce costs and risks. “Overall, tax reforms lead companies to balance compliance, cost-efficiency, and sustainability,” Leite says.
Common Tax Risks and Mitigation Strategies
In Nelissen’s view, the top tax risks in global talent mobility arise from failing to do one’s homework regarding foreign destinations before relocation. “Looking at taxes before a move is tax planning,” he says, whereas “looking into the regulations after a move is damage control.”
Another risk arises from the failure to maintain a balance between the various aspects of mobility. “All too often we see that an optimal immigration advice, an optimal housing solution, or any other ‘optimization’ creates a situation that makes tax planning impossible. And vice versa,” says Nelissen. “From a service provider perspective, it is saddening to see that too many service providers do not oversee consequences beyond their area of expertise.”
Communication is at the heart of yet another risk. Nelissen gives the example of a company that offered a lease car that was still under contract to a CEO who was on assignment and on shadow payroll. If the company processing the shadow payroll of this benefit is not notified, a tax audit may turn it up. “Having the right information and making sure the right information is with the proper stakeholder remains key,” Nelissen says.
Leite offers a list of specific risks to look out for, along with mitigation techniques:
- Permanent establishment risk: Mitigation involves clear guidelines for what mobile employees can do abroad and tracking time spent in each jurisdiction.
- Dual tax residency: Mitigation can be accomplished through tax equalization or tax protection policies, ensuring that employees are covered.
- Poorly structured compensation policies: Companies must ensure that benefits align with the host country’s local tax and reporting requirements.
- Failure to comply with Social Security obligations: Mitigation through Social Security agreements, where available.
Emerging markets are growth opportunities but, as Leite notes, they also come with risks, including less stable and transparent tax policies. Add to that the potential for economic instability, protective employment laws, bureaucracy, fluctuations in exchange rates, and high inflation. Leite says that companies should consider employing local advisers and counsel to manage the visa and work permit process in emerging markets.
Tech’s Role in Mitigating Risks
While it may be tempting to rely on technology to reduce human error, it should also be remembered that technology is only as strong as its weakest link. In this case, that means the data it has access to.
As Nelissen says, “the input determines the output.” He adds, “Automation as such is not a guarantee for being compliant. Systems must be aligned and must ask the right questions.”
Keeping a Pulse on a Shifting Landscape
The changes put in motion by the pandemic continue to reverberate. Some of those changes have direct impacts on organizational talent mobility, both domestic and international. Shifts in tax law are inevitable, as are changes in economic conditions and other factors that influence international assignments, even without a pandemic to spur them. But the evolution in work patterns directly brought on by the pandemic has led to unique challenges, as Leite and Nelissen acknowledge. Meeting those challenges are key to avoiding any surprises at tax time.