International Executive Services case study 

The client
The client is a Canadian multinational company with subsidiaries in the United States. The company has a number of employees who work across the Canadian and U.S. borders for business purposes. Some of the employees perform operational functions on their cross-border business travel. When these operational functions are appropriately identified, the costs are cross charged. When Canadian-based employees perform head office functions in the United States, the related costs of these employees are allocated to the U.S. subsidiaries through a head office charge.

The client was aware that it is important to comply with the tax laws of the countries in which they operate and wanted to ensure that appropriate steps were identified and implemented to meet these requirements. The client understood that when operating beyond national borders, there are certain costs that must be considered. One of the necessary costs of doing cross-border business is compliance with the tax laws.

Although the company did not want to avoid any tax provisions, it did want to implement a business traveler policy that is efficient with as little disruption as possible to its employees and operations. 

Issue
How does the company identify the employees working across the Canadian and U.S. borders?

How does the company ensure proper compliance with the tax laws including payroll reporting and withholding and individual income tax return filings?

How can this be accomplished efficiently with little disruption to the employees and operations?

Approach
KPMG’s international connections and experience helped the company to design a cross-border business traveler policy, providing a consistent support structure for the client’s business. A communications plan was developed and implemented to ensure employees were aware of the policy and their obligations and how the policy would add long-term value to the business.

KPMG worked with the company to help identify all the business travelers. This was done through collaboration with the company’s travel service. Once the business travelers were identified, they were asked to complete a customized KPMG designed on-line questionnaire to determine the employee’s tax exposure and the company’s payroll compliance requirements. Individual employees were also asked to track days on KPMG’s Travel Tracker in order to establish the amount and location of travel.

Many of the employees were exempt from taxation in the host country due to the provisions of the income tax treaty. Our firm took a practical approach, assisting with filing appropriate forms to eliminate the withholding requirements and assisting the employees with their obligation to file treaty-based returns to claim exemption from taxation. Other employees were not exempt from tax. For these employees, it was important to file the appropriate tax returns to ensure appropriate foreign tax credits were claimed in order to avoid double taxation and minimize the cost to the employee and company.

With the information gathered, payroll tax returns were appropriately completed including compliance with Canadian and U.S. federal and state provisions. KPMG assisted the employees with tax return filings in the host location and claiming a foreign tax credit on their home country return.

KPMG listened and responded to the pressure the client was under to provide a program that gives the company confidence that they are in compliance with the tax laws. The business traveler program went very smoothly in the initial year, with minimal disruption to the employees and businesses.