Expatriates and Tax Equalization Presenter Mindy Mayo mindy

Expatriates and Tax Equalization Presenter Mindy Mayo mindy. mayo@ryan. com 1

Introduction of Speaker Mindy Mayo-Director Human Capital Tax Practice Ryan LLC

Agenda • US Payroll Tax Treatment of Expatriates • International Assignments • Tax Equalization • Expatriate Complications • Compensation Issues • Additional Complexities • Best Practices Discussion

U. S. Payroll and the Treatment of Expatriates • Federal employment tax treatment – FICA, FUTA – FIT • State payroll tax treatment – UI – SIT • Areas of IRS interest – Tax preparation fees – Relocation

International Assignments When an employee is a taxpayer in one country, but works in another, they may be subject to different taxation from if one had worked in one's home country, or even to double taxation, even taking account of tax treaties between countries. Tax equalization is the offsetting of any such difference so that working abroad is tax neutral for the worker. It is also known as hypo tax, from "hypothetical" – the worker pays taxes as if they were still resident in their home country. Tax equalization most often arises in international assignments of workers in multinational corporations.

Tax Equalization • The principles behind a "tax equalization policy" is that the employee will not need to suffer neither a financial hardship nor experiencing a financial windfall, all being the result of the tax consequences of an international assignment. • The employee should pay no more or no less tax than he would have paid had he never left his former home. Hence, the company should be paying all related worldwide effective taxes for the assignee (using assignee withheld tax (hypothetical tax)). • Such a policy will put the assignee in a tax neutral position during the assignment.

Tax Equalization • What will be included in the equalization? • • Salary alone Spouses salary Bonuses and incentive payments All other outside income

Expatriate Complications • If you have an expat, the following questions may arise: • Does your payroll company process in the new jurisdiction? • What are the in-country rules? • • Can you run your own payroll? Do you need a local provider? What are their rules around employee benefits? What items are included in compensation? • Do you run a shadow payroll? • What do you need to report in the US? • What do you report to the state versus the IRS? • What items are included in compensation?

Compensation Issues • Central administration of stock plans by parent company • Only domestic payroll feeds • Compliance requirements • Tax withholding & reporting • Employer social taxes • Legal requirements • • • Corporate tax deductions Locally qualifying plans Mobile employees Time zone, currency and language issues Staying up to date

Additional Complexities • Difficulties in communication due to • Time zone • Language • Who is going to answer employee questions? • Currency issues • Are there cash disbursement restrictions? • How will funds be disbursed to employees? • Local currency: check/wire • Through payroll • Cost to employee • What exchange rate should be used? • Mobile Employees

Discussion • Is there such a thing as a one-stop-shop for international payroll? • In house tax equalization versus outsourced tax equalization? • How far do you go to accommodate the employees? • What do you do when you enter a new country? • How do you get country specific data? 11

Thank you Please remember to complete your evaluation of this session 12