In 2017, the audit of a large, non-US based, financial services company discovered numerous employees working in New York without the right income tax withholding. The company had to pay a $10million settlement and a penalty of $1million.
Meanwhile, a large financial services firm was found liable for the death of an employee on a business trip in Peru. Courts found that the employer had breached the non-delegable Duty of Care that it owed to ensure their employee’s safety. The company paid a multi-million-pound compensation to the victim’s family.
CEOs have voted that damage to reputation is one of their company’s biggest risks. So big, they said in their answers to the KPMG 2017 CEO outlook survey, that it will have the second biggest impact on growth over the next three years. With reputations being negatively influenced by Panama and Paradise Papers, gender pay gap and minimum wage headlines, this risk is very real.
Getting compliance right for travelling employees has never been more important – or more complicated. Be that their tax, visas, health, safety or security.
2017 was a year of huge change – especially when it comes to the obligations and requirements for business travellers. Globalisation lost its footing as the US chose to put ‘America first’, and the UK began tense negotiations to leave the EU. New technologies are flooding the market place, giving authorities new access to companies’ data. And China’s new position as the dominant economy is making predicting the future even harder than before.
Not least because these major political movements haven’t come alone. A global crack down on tax evasion, tax reform, and a shift in public expectations are all adding to the complexity of having employees travel abroad – and the costs, too. As Jane McCormick, KPMG’s Global Head of Tax says, “pressures on national budgets and the political difficulty are likely to lead to an increase in taxes borne by business."
”Richard Fenning, CEO of Control Risks, talks of a ‘different dynamic’ in the world right now. “It is almost as if each time some kind of acute geopolitical drama unfolds, markets pause, catch their breath and then quickly discount the likely impact, and the party continues. Nevertheless, 2018 presents a series of complex issues that will test the mettle of leaders of all persuasions and the optimism of investors."
“The major risk, of course, is that the next world order will be imposed, not agreed. Warning signs abound. The US and North Korea engage in nuclear brinksmanship. Meanwhile, Saudi Arabia and Iran have taken the gloves off in Yemen, and their rivalry will continue to inform regional conflicts.”
Businesses with travelling employees and increasingly complicated compliance obligations need to know what is changing, where, when and how it will affect them.
What is changing?
Simply – a lot.
There will be new compliance requirements to understand, for both travellers and employers. The US and newly Brexited-UK will likely create stringent immigration requirements for business travellers – perhaps even preventing certain travel all together. Tax, and being taxed accurately, will become more complicated.
Being compliant will be more important than ever. Technology is shining a new light on companies’ activities, as authorities use digitised data to scrutinise tax and immigration compliance minutely. This isn’t happening in a silo, either. By 2018, over 100 countries will be sharing information under initiatives such as OECD’s Automatic Exchange of Information, Country by Country reporting, and the EU Exchange of Social Security Information. All this information will paint a detailed picture of the movements and activities of employees across the world – sometimes, even more detailed than the picture employers see.
That means it’s not enough to just know where employees are, and you have to do more than help them manage compliance obligations when they cross a border. From May 2018, the General Data Protection Regulation (GDPR) will take effect in Europe – meaning employers will be expected to also monitor the personal data they hold in their systems far more carefully.
What is the risk?
Getting compliance wrong carries two huge risks – financial and reputational. It can cost you money and the support of your customers.
Especially as the general public is paying more attention to who is paying their tax and protecting their people more than ever before. Every time a company executive is named in the press for tax evasion, or is detained at borders for non-compliance, or indeed fails to protect their business travellers appropriately, the public’s trust slips.
The stakes for companies are rising beyond press headlines and financial penalties. A number of countries have introduced new standards for companies that enforce criminal sanctions for not managing the compliance activities, not just of their own employees but of customers, corporate vendors and contractors that perform services on their behalf. The UK, Australia and Luxembourg seem to be leading the charge. In some cases, these new laws are also being enacted such that they extend into business operations in other countries.
Some are of the opinion that the OECD countries are closely watching the application of the UK’s Corporate Criminal Offence legislation before introducing similar rules in their country. We are not sure yet how aggressively HMRC will pursue companies who don’t comply with their global business traveller obligations under Corporate Criminal Offence. It is important to know that employees, contractors and vendors evading tax, both in the UK and elsewhere, could fall within the scope.
What is the response?
Across the world and throughout all industries, the interest in business traveller compliance policies and procedures is rising. Many businesses have been struck by ‘perfection paralysis’. When they cannot find one comprehensive solution for monitoring and reporting on their business travellers, they stand still. With no perfect off-the-shelf solution available, often no solution is implemented at all.
Yet, there are opportunities to build the solution you want. Tax authorities are making efforts to be more open to discussing how business traveller compliance can be managed by employers. And as they seek formal input from the industry, there is a unique chance to collaborate. KPMG is currently helping many clients work with the authorities, and encouraging others to make the most of this opportunity wherever they can.
What else do you need?
Given the geopolitical landscape, and the changing attitudes of authorities, the time to develop compliance policies for your travelling employees is now.
Our 'Workers on the Move' whitepaper, written by KPMG, International SOS Foundation and the Federation of European Risk Management Associations (FERMA), provides more information about the risks to your employees. Click here for your copy.
KPMG, International SOS and Control Risks are always available if you would like to discuss how we can help you and your business to manage all of these compliance risks.
About the Author
Marc Burrows, Head of Global Mobility Services at KPMG