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Sending Assignees Abroad: Assignment Tax Programs are the Ticket to an Organized Departure

CompassGUIDES - Jan 2006

By Diana Matwichuk, Assignment Planning Specialist

Prior to departure on an international assignment, a great deal of time is devoted by assignees to worrying about their assignment taxation. Typically, this is a mystery to them, and they are keenly aware that it could adversely affect their pocketbook. The single-most effective way of assisting assignees through this preparation is with an Assignment Tax Program, which clearly lays out policies and provides answers to their individual questions.

According to Canadian Employee Relocation Council (“CERC”) 2005 Employee Relocation Policy Survey – Domestic, Cross-Border & International relocations, 70% of organizations have a written tax policy, and 93% report that with their formal relocation policy, the most important goal is cost containment. Assignment tax savings contribute significantly to overall containment of costs, and a pro-active and organized approach can increase the magnitude of these savings to both the assignee and the corporation.

In the same survey, 2/3 of respondents also indicated that they would be changing parts of their policy in the next two years. Assignment Tax Programs are not always adequate or a fit with the needs of international business units, and communication of that policy is often not widespread.

Initial Assignee Concerns and Issues

At CompassTAX, we regularly receive questions at our Online Assignee Tax HelpDesk which indicate that assignees are not aware of their corporation’s Assignment Tax Program, or that none exists. Many of these questions are of a general nature: “Help – I’m relocating internationally, what should I do?”

Issues such as residency, availability of tax credits, non-resident rental property reporting compliance, and blending of Canadian and foreign taxation are common concerns. All of these should be addressed in an Assignment Tax Program, and be made readily available to assignees, so that they receive guidance from the outset and throughout the assignment planning process.

For example, an assignee heading to the United States on a rotational assignment may be entitled to a reduction of withholding tax as a result of eligibility for tax credits. We regularly handle this type of application. However, what if that employee chats about the reduction with co-workers on location cross-border and they realize what they are missing out on? For the sake of equitability, the company is forced to scramble to obtain the same savings for their other rotational workers, whereas this could have all been arranged and communicated well in advance of the start of the assignment.

Implications for the Company

Without an Assignment Tax Program, companies expose themselves to the risk of stressed assignees, loss of productivity while assignees try to figure out assignment tax on their own, and increased frustration levels leading to decreased morale. Both the corporation and the assignee can miss out on significant tax savings. Raised awareness of local tax authorities, due to tax penalties and interest, can result in a tainted reputation in the host country.

Assignment Tax Programs, if they exist, are often lacking in clarity. The confusion among assignees which ensues ultimately increases the overall cost of the assignment as they seek out answers on their own.

How an Assignment Tax Program can help

An Assignment Tax Program provides clarity, assurance of compliance and optimal utilization of available tax credits. At CompassGUIDES, we assist multi-national corporations in the development of effective Assignment Tax Programs which include the following components:

  • Clear and concise Assignment Letters and Inter-Entity Agreements
  • Well-designed and clear Assignment Tax Policy
  • Individual Assignment Tax Reviews
  • Pre-departure counseling
  • Domestic and host country tax compliance

We also assist in the widespread communication of these Assignment Tax Programs through customizable Online Assignment Guides, delivered via the internet and accessible to any employee anywhere in the world.

No detail in an Assignment Tax Program should be open to misinterpretation, and all aspects of assignment tax policy should be addressed.

Summary

At CompassGUIDES, we regularly observe the benefits that effective Assignment Tax Programs provide to multi-national corporations. We provide pre-departure counseling to their assignees, and it is evident that they are leaving Canada with a clear and organized approach to their expatriate tax situation.

To pose questions or confer about international assignment planning, or the development and communication of Assignment Tax Programs, visit our International Assignment Planning Help Desk .

The author wishes to thank Peter Simpson, CA for his contribution to this article.

 


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compasstax.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compassguides.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6