Untracked Business Travellers: An overview of tax and regulatory issues

September 24, 2020 11:52 AM

Tracking business travellers can help evaluate possible tax and social security exemptions from the perspective of respective Double Taxation Avoidance Agreement, and Social Security Agreement.

income tax, Untracked Business Travellers, An overview of tax and regulatory issues, tracking of business travellers, Immigration, Tax, Social Security, Permanent Establishment (PE) exposure, Double Taxation Avoidance AgreementUnlike assignees, typically tracking of business travellers is decentralised. Thus, the aggregated impact of business travellers in an organisation is typically untracked.

With global networks opening up and India being on a growth trajectory, the business traveller population is expected to further increase. The post-COVID environment is likely to witness a sudden spike in the movement of business travellers. Unlike assignees, typically tracking of business travellers is decentralised. Thus, the aggregated impact of business travellers in an organisation is typically untracked.

Current technological trends suggest there will be seamless exchange of information among various regulatory authorities, either within the country or across countries.

Untracked business travellers are like perils in the sea; thus compliance actions are reactive outcomes to queries and notices by regulatory authorities. Further, such reactive actions may lead to non-compliance, which in turn could lead to increased cost because of interest and penal consequences, if any. The costs will further balloon if business travellers are tax and social security equalized / protected, which is often the case. Thus, the same could affect the overall cost estimates of a business function, and in totality for an organisation.

Some key compliance areas for business travellers include Immigration, Tax, Social Security and Permanent Establishment (PE) exposure. Travellers to some specified jurisdictions may have additional compliance obligations, illustratively:

⦁ Travellers to United States of America also need to track US state tax requirements; and
⦁ Travellers to member state of European Economic Area also need to track Posted Worker Directive requirements.

The compliance obligations for business travellers could vary based on various factors like nationality, duration of stay, past stay in same jurisdiction, country of residence, purpose of travel linked to grade/seniority of traveller etc. Thus, it is imperative to track the business traveller population and evaluate the overall implication at individual and corporate levels.

Tracking business travellers can also help evaluate possible tax and social security exemptions from the perspective of respective Double Taxation Avoidance Agreement (treaty) and Social Security Agreement (SSA).

Some key considerations for business travellers are:

⦁ It is important to understand the purpose of travel, nationality and duration of stay (past/current) to determine immigration requirements;
⦁ Duration of stay in current / past year will also help evaluate tax implications for the traveller. Short stay exemption as per domestic tax laws and / or respective treaty will have to be examined. For claiming such treaty benefits in India, a Tax Residency Certificate from the respective resident country is mandatory;
⦁ In case of social security obligations in any country, benefit of SSA (if any) can be explored and necessary steps initiated;
⦁ Presence of travellers could also trigger Permanent Establishment exposure which needs to be evaluated in detail based on the facts of the case.

The above issues are illustrative. Thus, if business travellers are untracked, the same could lead to significant compliance exposure for employees and employers. Effective and efficient tracking can not only assist in cost containment but also help mitigate such potential issues and risks of non-compliance. Appropriate business travel policies, processes and effective communication will help manage and track business travellers.

A well-tracked and monitored business traveller programme could also provide additional cost and risk containment opportunities such as tax credits, tax / social security exemptions, mitigate PE exposure, traveling on appropriate immigration documents etc. The same will also help free up time of employees, especially senior level employees, to focus on key priorities. Thus, for evaluation of key downstream compliance actions, it is imperative to track the business travel population in an effective manner.

(By Homi Mistry, Partner, Deloitte India; with Jimish Vakharia, Senior Manager with Deloitte Haskins & Sells LLP)

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