As Madalina Racovitan, Partner and Head of People Services at KPMG in Romania points out: “The TIES guide gives regular updates on a wide range of taxation and social security issues affecting the international executive. It is particularly useful for those on postings outside their home countries. However, many might be surprised to learn that even short business trips abroad can generate some tax issues, so the TIES guide provides valuable updates for this category of executive too. By making the guide available online, we have made it easily accessible to everybody, anywhere in the world. It will also now be simpler to search for information about a specific country, or a specific tax or social security issue by accessing the TIES database via www.KPMG.com/ties. The online edition can also be easily updated, to keep pace with changes in legislation, and as a service to KPMG clients we provide regular notifications when such updates occur.”
As Racovitan continues: “Legislation affecting international executives changes frequently. For example, in Romania, amendments were made to the rules on tax residency from 1 January 2012. This can be a particularly complex area of tax planning, for international executives and the companies which employ them. Understanding the rules means that postings can be structured in a way that takes full account of the tax implications, to avoid the unpleasant surprise of an executive becoming liable to tax in a particular country without being aware of it. Many international travellers know about the “183 day rule” but although this is a useful guideline, the reality is much more complex. Companies also need to be understand the rules on Permanent Establishments.
Sometimes, the presence of an employee of the company in a foreign country, even for a relatively short period, can generate a Permanent Establishment, making the company liable to local corporate tax on the profits from its activities in that country. This depends on the particular powers which the employee has in terms of representing the company. In some cases, the presence of a company representative can generate liabilities for VAT as well as corporate and personal tax.”
As Racovitan adds: “Social security is another very complex area for international executives who go on long term postings outside their home country. EU legislation on this issue follows the general principle that you pay where you work, and aims to make it easier for cross border workers to obtain credits from payments into the social security systems of different member states. However, there are numerous exceptions to the general rule, depending on the length of the posting and special rules apply to certain categories of workers.”
As Racovitan continues: “Since the start of the global economic downturn, tax authorities throughout the world have been particularly vigilant about protecting budget revenue. This has made it especially important for companies and individuals to follow carefully all developments in the complex area of tax legislation affecting the international executive, to check that they are compliant, and to reduce the risk of unexpected tax demands together with related late-payment penalties. I hope that the online edition of Taxation of International Executives will be a useful tool, and will help answer some of the questions which they may have.”