Did you know your business travelers could be liable for double income tax while they’re working in another country? Did you know it’s possible to inadvertently expose the company to a corporate tax liability by engaging in certain types of business while traveling?
Chances are, neither your travel managers nor your business travelers are thinking of the potential tax implications for business travel. Yet, technically, if one of your employees spends a week in another country (or state) they owe income taxes to that entity under the Pay-As-You-Earn type taxes for the amount of time they’re there.
However, you may be aware that many countries agree to suspend taxation of each other’s citizens up to a specified amount of time - usually 183 days in a tax year. Nonetheless, there are stipulations around who is paying for travel and business expenses that is contingent upon where the business is located and other considerations.
There are also stateside domestic policies. If your employees travel through or to different states, they may owe state income taxes. Individual income tax liabilities can get cumbersome, yet there’s also the matter of the actual business activities conducted during travel. Those activities can entail certain tax implications. According to Business Travel News, negotiating or concluding contracts on behalf of a US-based company, by a United States based citizen, can expose the business to a tax liability in certain countries.
The intersection of tax and travel has gone overlooked in many organizations. This crossroad can expose the company to potentially millions of dollars in penalties due to missed reporting and withholdings.
How Do You Protect Your Travelers and the Organization?
It’s a good idea to start with a conversation between your travel manager and your tax team. The tax team may not be aware of how much help the travel manager can offer in terms of travel records; and vice versa – the travel manager may not realize all the tax implications of business travel.
The travel manager will want to review recent and past travel history to see where travelers typically go on business and determine the necessary requirements. How often is your traveler there? Does he or she require a work visa or is a passport sufficient? Are there mechanisms in place to alert your traveler if his or her visa is about to expire? How do you record the purpose of a business trip?
Traveler tracking is an important component of ensuring compliance. You will be able to track how long your employee stays in a location and if they incurred tax liability while there. Plus, when you know where travelers are and how to reach them, you’re also fulfilling your duty-of-care role.
Some companies address these concerns by instituting policies, such as offering GPS tracking, encouraging employees to book all trips through their Travel Management Company and/or offering a one-touch check in with a manager once or twice a day. There are companies that have employees fill in online calendars while others rely on data from travel bookings.
Concur offers an app that assesses the immigration and tax compliance concerns for upcoming trips. This makes it easy to address any paperwork that needs filing.
At first, you may use a hybrid approach as you figure out the type of data you truly need and the best way to obtain it. Data from travel bookings is a great start. Your tax team can review it and assess the situation.
As more tax authorities exercise their rights to collect taxes from business travelers, your organization and your travelers could be in for an expensive surprise if found to be non-compliant.
When you review your travel policy, do you include information on tax compliance while traveling and how to manage it? Have you addressed the questions on how to manage traveler tracking?
How will you begin to address tax compliance with your business travelers? Let us know your plan in the comments below!