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Feature Tax as a factor of executive mobility Upward and outwardly mobile Global business leaders need to be mobile, but this brings real costs, not least in terms of potentially higher personal taxes. Employers also need to manage their risks from increased mobility. 33% Percentage of companies that have at least one percent of their workforce on an assignment away from home. • By Nigel Gibson Summary A growing number of business executives are spending much of their time in jobs away from home, as business becomes more globalized. Employers need to address the tax and financial challenges this presents. Despite worries about the strength of the world economy the number of employees working in a foreign country on a long-term contract has also remained buoyant. Indeed, it has hardly been affected by the dark days of 2008. What does this mean? First, it suggests that companies realize the benefits of deploying people with the skills and experience required in promising, new markets. Second, it means that firms are more efficiently managing a number of considerations best coordinated centrally - from unequal rates of tax to domestic pensions and complicated systems of social security – which can deter executives from accepting an assignment, long or short, in another country. Michael Dickmann, Professor of International Human Resource Management at the UK’s Cranfield University, and the author of Global Careers, a new book on the subject, explains that global careers are becoming increasingly important. “This is because we all know that the world is becoming a smaller place in one sense. We all see the rising multinationals from developing countries. We know that they operate much more globally, but even small organizations nowadays have global issues to master.” Assignment challenges Having worked with many well-known multinationals, Dickmann and his co-author, Yehuda Baruch, are under no illusions about the need for change. Although more companies now Credit: Uwe Noelke employ more people on assignments in more places around the world, there are no easy solutions to the problems it creates. “What it means for organizations is that they have to start thinking about different patterns of international work and to understand their individuals better, as well as the tensions in the whole process,” says Dickmann. Chief among which obstacles is tax. Moving from a country with a high rate to one where they pay little or no tax may seem straightforward to an employee. But expecting executives to move between destinations with markedly different rates of tax, not to mention social security and other changes, can lead to strife, disillusion and, sometimes, even defections. To overcome these problems, some 85% of multinational companies adopt what is known as tax equalization. This aims to create a level base, so that all mobile executives feel part of the same team. Chris Debner, Senior Manager for Human Capital at Ernst & Young in Zurich, explains: “If you go abroad with a company, the amount of tax you pay is equalized in such a way that you do not lose out. There is often something called a net promise which means that, as an employee, you do not suffer from a higher rate of tax and neither benefit from a lower one. Especially in financial services the amount of tax that needs to be paid is a factor in how mobile some executives are prepared to be.” Taxing alternatives There are two other main ways to manage an employee’s liability when on a foreign assignment, which are hardly used anymore. One is tax protection, under which the employee is subsidized if they pay more tax than at home, yet enjoys a windfall if the posting is to a destination with a lower rate. The second is laissez-faire, in 16 T Magazine Issue 07 Ernst & Young
Credit: Xxxxxx / NameVorname Estonia Feature Matthew Ozburn __ Deutsche Bank’s US-born director of Human Resources International has spent many years living in Europe, the US and Japan, helping him assess the challenges that multinational executives face. Ernst & Young Issue 06 T Magazine 17
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