With worldwide business travel spend set to reach $1.4 trillion by 2020, the complexities of traveling for business continue to rise. From managing payroll intricacies, increasing tax and immigration regulations, to mitigating concerns surrounding duty of care – the obligations for businesses to remain compliant are skyrocketing. While at the same time, the consequences for mismanaged travel and spend continue to involve significant monetary and reputational consequences. In 2018 alone, there were:
- 84 public cases of non-compliance with Canadian immigration law, resulting in penalties from $1,000 CAD to $10,000 CAD
- 49 organizations that received two-year bans for Canadian immigration violations
- 12 public cases of noncompliance with U.S. immigration law resulting in fines of $275,000 to $34 million
An article from Business Travel News, explains why there may be a sudden focus on business travel:
“Traditionally, tax authorities have focused on expatriates.” Nick Bacon, the People Advisory Services at EY states. “In more recent years they have begun to focus on people who maybe travel on business for just a few days and can represent areas of tax compliance failure. We do see in many countries business travelers as one of the key items on an audit checklist. Tax authorities will be looking for evidence that travelers coming into their country are being properly tracked and reported,” Bacon warns.
As businesses continue to globalize, it’s clear that governments are becoming more concerned with protecting their borders. But the jobs and financial interests of local populations are also creating frictions for global travel. Here are some of the key areas of corporate travel that will be scrutinized by governments in 2020:
1. International business travel
As more and more businesses go global, international business travel will be vital for companies around the world. “Workforce mobility is an important driver of competitive advantage, as well as an operational necessity,” states Michael Bertolino, EY Global People Advisory Services leader. Nonetheless, tax authorities will continue to step up their enforcement on the movement of international business travelers through increased income tax, social security compliance, and the potential creation of permanent establishment in focus.
“A perfect storm of global tax reform, bad publicity about corporate tax avoidance, and increased scrutiny of corporate balance sheets is putting corporations under a microscope and making it harder than ever for them to manage their international tax operations with certainty.” – Forbes
The Base Erosion and Profit Shifting Action Plan (BEPS), organized through the Organization for Economic Co-operation and development (OECD), broadly exists to align taxation with real economic activity. Rather than accept tax arrangements in which profits are shifted to low-tax countries in which a company records few workers, facilities, or sales, the plan encourages tax authorities to insist on taxation where these markets of real activity occur. The flow of business travelers into a country is one such area. Today, there is a greater likelihood that company activities in a country will mandate the presence of a permanent establishment, which means corporate income tax will be payable.
2. Interstate travel within the U.S.
You may feel there isn’t as much of a compliance concern for employees who travel within the U.S. However, a report from Deloitte claims that many U.S. states are looking to close budget gaps, and one way they are doing so is by identifying the source of revenue from the nonresidents traveling there for business. From tax revenues to monetary penalties, states have found they have much to gain by using technology to easily identify interstate tax violations.
What makes this even more difficult for companies and their employees is that states have inconsistent, varying requirements for employees to file personal income tax returns when traveling to non-residing states for temporary work periods. For example, the Mobile Workforce Coalition reports: Colorado, Montana, Pennsylvania, and some 20 other states that have personal income tax require employers to withhold tax from a nonresident employee’s wages beginning the first day the employee travels to the state for business purposes. While other personal income tax states – such as California, Virginia, and Georgia – provide a threshold before requiring tax withholding from nonresident employees. New York, on the other hand, is one of the most onerous states because the employer and employee requirements don’t match.
Talk about a headache for corporate payroll managers. The varying requirements like those listed above require finance teams to navigate filing for different rules in all 54 states and territories, using hundreds of their municipalities to ensure compliance.
3. Intra-European travel
The free movement of employees within Europe will be much more limited with the passing of the enhanced EU Posted Workers Directive, a revised set of rules intended to give temporary workers the same level of pay and benefits as their local counterparts. Under the directive, posted workers are entitled to a set of core rights in each EU member state, including minimum rates of pay, maximum work periods, minimum paid annual leave, and health and safety standards.
Often, companies will be required to register their employees with the country where they are traveling – a process that will be highly cumbersome for employers and employees, including:
- Filling out a registration form that varies country to country for every business traveler
- Covering travel, board, and accommodation costs, rather than deducting costs from employees’ salaries
- Taking into account registration deadlines and country-specific requirements for lodging
- Limiting travel activity to new rules, meaning travel planning will involve added steps to adhere to country-specific requirements
The cost of doing nothing: Risk, fines, and reputational damage can be crippling
Maintaining compliance in 2020 is only getting more complex. In order to stay compliant with interstate and global tax regulations, companies need to understand where their business travelers are, for how long, and the work activities they are doing. Thus, proper visibility and control over travel and spend management are going to be essential.
Given the evolving environment, a report from Deloitte recommends that organizations will need to implement a way to constantly monitor new jurisdictional requirements, assess evolving risks, and adjust original policies and guidelines accordingly. It’s also important to review compliance and employee satisfaction regularly to be sure that the systems are providing you with the information you need, but in a way that is not burdensome or culturally inappropriate.
Fortunately, a connected and automated approach to travel, expense, and invoice management can keep you compliant across these multiple areas. With robust spend data and reporting that can stand up to even the most intense tax-authority, a spend management solution can help spot noncompliant and fraudulent spending, signaling your finance teams with red flags before it’s too late.
Do you feel confident that your current spend management process or system is putting your organization in the best position to remain compliant? If not, find out why the status quo of your employee spend management program may not be good enough by downloading our eBook The Cost of Doing Nothing.