While organisations often overlook tax-compliance requirements related to business travel, the days of simply traveling to and working in a different state or country for business without a thought to tax liabilities are coming to an end. Looking for additional tax revenue, US state taxing authorities are becoming stricter and more vigilant in monitoring business travel.
Extensive time spent on business travel in a country outside the US, or even a different state within the US, could create a PE exposure for the employing entity.
All US states have different reporting, withholding, and filing obligations for individuals performing services. The compliance obligations vary for the employer and the employees. Penalties and interest for noncompliance vary by state. Internationally, immigration and tax offices have started to exchange information on travellers for increased compliance.
Bottom line, to avoid tax-compliance risks, employees and employers must become compliant with their payroll withholding, reporting, and filing obligations. Some simple dos and don’ts might include:
- Differentiate between what is tax liable and what is not. If individuals are traveling for a conference, the risks are probably low. But risks might increase if individuals in a jurisdiction are developing business or signing contracts.
- Document clear guidelines and policies. For instance, create a risk-tolerance threshold on number of days where the company would start reporting/withholding.
- Keep in mind country-specific and state-specific regulations.
- Evaluate the possibility of tracking all business travel via a central team.
- Look internally or externally for technical solutions to track and monitor all business travel.
- Because clear and documented data is the best defence if a tax authority comes calling, centralised teams and technology will help in maintaining information.
And finally, like any other change in the organization, treat this as just that, a change.