• Daniel Foster, Director |

As the pandemic closed borders and workplaces around the world during 2020, many internationally mobile workers were displaced. International transfers, secondments and repatriations were delayed, although in some cases new roles began wherever the worker happened to be at the time. Seconded employees visiting families back home during lockdown became stranded away from their host country. Business travellers ended up working from hotels for weeks longer than planned. Embassies closed, visas expired, work permits were declined. Cross-border commuters stopped commuting. Then started again. Then stopped. It has been a mess.

Understandably, at the time, many employers focussed on employee wellbeing and business continuity rather than the minutiae of tax and policy positions, unless it was an emergency or escalation. “Let’s make sure they’re all okay, and can do their jobs, we’ll sort out the tax later” was an often-heard phrase. Well, “later” has arrived like an unwelcome guest, as we prepare to file 2020 personal tax returns.

If these 2020 tax issues have not yet been pro-actively resolved, or perhaps even properly identified, then the 2020 tax return filing provides a (potentially last) opportunity to deal with these matters in a compliant, or at least voluntary, way.

But why should employers concern themselves with the tax positions of their employees? “The personal tax implications are their own responsibility” is a common response. And indeed, this may be true in many cases, particularly in relation to personal choice of work location. But it is becoming quite apparent that employers will need to decide on a consistent and fair policy position, in response to the inevitable queries and judgement calls that are coming in, given that many situations were not created by personal choice. I have found that these scenarios fall into four broad categories:

  1. Tax equalised expats
    An equalised employee’s tax position can have a direct impact on employer costs. Some displacement scenarios being examined do not fit neatly into the company’s tax equalisation policy. Dislocation of home and host country can make policy interpretation more nuanced when the Tax Equalisation Reconciliation is prepared and agreed.

  2. Non-equalised movers with tax windfalls or liabilities
    There will be winners and losers in the displaced worker lottery. Many employees will feel it is not their fault that they were impacted by a border closure or postponed work permit, so why should some colleagues cash in while others have a cash crunch?

  3. Payroll and net pay corrections
    Many employees were not only in the wrong country, they were on the “wrong” payroll for a period of time. Should net pay be corrected to reflect where they actually worked; or where they should have worked? And will the company bear the cost of retro withholding corrections (with a gross up cost), or recover this from the employee? Who keeps refunds of tax withheld in the wrong country?

  4. Employer and corporate tax obligations
    Last but not least, employers need to pay attention to what comes out of the woodwork on a tax return or travel diary, since it may result in tax authorities raising queries about third-country filing requirements, unmet employer wage tax withholding liabilities, social security contributions, corporate tax presence, transfer pricing / cost recharges, and even VAT.

But before I explore each of these issues, I want turn to the root cause of the problem – unexpected and complicated individual tax positions, and the technical analysis required to arrive at them.

Individual tax position

Tax residency, sourcing, treaty relief, exemptions and foreign tax credit positions for internationally mobile employees are always complicated, even in a normal year. In a year where employees were often in the “wrong” country, and many countries adjusted their residency, source and relief rules, there are going to be many difficult positions to consider.

A good place to start is the COVID-19 tax trackers maintained by the OECD and KPMG. There are far too many country specific concessions to discuss here, but there are some general points worth noting regarding residency day count concessions and employment income sourcing rules.

Tax residency day counts

  • Several countries have issued concessions that permit individuals to disregard certain COVID19-displacement days when counting days of presence under residency tests (e.g. UK, Canada, India). However, these concessions often only apply i) for a limited period during 2020 (usually the first wave lockdown period), and ii) where the dislocation of the employee was unavoidable, for example because flights were cancelled, or borders were closed. The concessions will generally not apply if the individual was in the “wrong” country outside the prescribed emergency period, or because of their own personal choice. The onus is typically on the individual to provide evidence that they tried to return to the correct country, i.e. by booking a flight that was subsequently cancelled

  • A vast number of countries have issued no formal concessions at all on days of presence relating to COVID19 displacement

  • Several countries (e.g. Finland, France) have stated that they will apply their normal residency tests during 2020, regardless of the reasons for displacement

  • A few countries (e.g. US, Canada) have issued specific guidance with respect to counting the 183-day test for source country relief under Art. 15 of a treaty

  • The OECD has issued updated guidance in January 2021 on tax treaty residence tie-breaker tests during the pandemic. Their view is that temporary dislocation of an employee should not impact their treaty residence position – for example centre of vital interests should not change and habitual abode should not change. However, these guidelines apply only if the treaty tie-breaker tests are in play, which first requires that an employee is considered resident in two treaty states (dual resident). If COVID displacement results in a person being tax resident in one country and not another (whether applying normal rules or the concessions) then the treaty tie-breakers are not required, and the individual cannot rely on the OECD guidance to argue that they “should be” tax resident elsewhere.

Employment income source rules

Employment income is typically sourced in the country where the work to earn that income is physically performed. This “workday apportionment” rule has been relaxed in some countries given the unintended work locations during 2020. However, the concessions vary considerably from country to country, and are very limited in scope. Some general points to note:

  • Concessions to disregard workday sourcing for a defined period (e.g. Australia) are the exception rather than the rule

  • Relatively few countries (e.g. Ireland) have issued formal guidance on relaxation of wage tax withholding where strict sourcing would result in administrative burdens with respect to temporarily displaced workers, as was recommended by the OECD in April 2020

  • The most comprehensive alteration to normal sourcing principles is with respect to frontier workers (cross-border commuters), particularly for the many countries bordering Germany and Switzerland. Many bi-lateral tax treaty consultation agreements have been made setting out specific deemed sourcing rules, relaxation of day counts, and evidentiary requirements. Most of these agreements continue in force at least until 31 December and some remain in force into 2021

  • Where domestic law contains a foreign earnings exemption (e.g. South Africa, US) we see the thresholds for qualification being relaxed during lockdown and border closure

  • A number of countries (e.g. Greece) have stated how they intend to source and tax state-paid wage subsidies for cross-border workers

  • Some countries (e.g. Finland, Austria, UK), have reiterated their existing laws regarding force majeure and illness, with respect to workday sourcing

As can be seen, there is a lot of work to do before a position is arrived at. And even then, it may be subject to debate, not to mention subject to assessment and audit in some countries. Certainty may be in short supply and slow in coming, which makes policy decisions now even more difficult.

Mobility policy considerations

Turning finally to those policy matters, it is useful to consider examples to illustrate the four broad scenarios outlined at the top of this article.


These examples are not actual case studies, and may not reflect the tax positions for the countries used in the examples, and should not be relied upon as tax advice:

  1. Tax equalised assignee
    Joao is on a tax equalised short-term assignment from Brazil to Argentina, from January to June 2020. He remains tax resident in Brazil, on Brazil payroll with actual tax withholding, and shadowed in Argentina (funded by employer). He spent most of April and May in Mexico caring for his elderly parents. Brazil does not have a tax treaty with Mexico.

    Joao must file a Mexico tax return and pay Mexican tax on his workdays there. The Argentina payroll was stopped so that no Argentine tax was paid in April and May, when Joao had no Argentina workdays. Brazil will give a credit for the Mexican tax due – Mexican non-resident tax is 30% and Brazilian tax is 27.5%, so Joao must pay 2.5% more tax for April and May.

    His employer’s tax equalisation policy states that the company are only responsible for host country taxes (Argentina). Joao has asked his employer if they can use the tax they saved in Argentina (because he had no workdays in April and May) to fund the additional 2.5% tax due in Mexico, while he worked there.

    The company have decided that spending April and May in Mexico was Joao’s personal choice, and any additional tax is his own responsibility. They will however pay for a Mexican tax return to be prepared, so that taxes are paid in the correct country and credited in Brazil.

  2. Non-equalised delayed move
    Claire was a permanent transfer from France to Switzerland on 1 April 2020. As part of her relocation package, her company provided various allowances and benefits and agreed to pay any Swiss tax due on these. Claire was transferred to the Swiss entity and payroll on 1 April, and was paid her net relocation benefits with her May salary. However, Claire did not physically move to Switzerland until July, because of various logistical challenges related to the pandemic. She also continued to perform her French role until being onboarded by Switzerland in July.

    Claire is French resident for 2020 and was assessed for French tax on her April to May salary, and her relocation benefits and allowances, in her 2020 French tax return. French tax is higher than Swiss tax.

    Her employer has agreed to compensate Claire for the additional French tax due on the relocation benefits, but she will be responsible for all other French taxes. However, Claire will need to wait up to two years for her Swiss tax refund, and in the meantime owes French tax. Her employer has told Claire to pay the tax with her credit card, and claim the interest as a business expense until the Swiss refund is received.

    Separately, the Swiss entity also asked Finance if they can charge Claire’s April to June costs to the French affiliate, since Claire was working in France for their benefit until July. The company’s Head of Transfer Pricing is considering the position.

  3. Payroll correction
    Nick was transferred from the US to the Singapore entity on 1 June 2020 and was moved onto Singapore payroll withholding from that date. However, he was unable to get an Employment Pass and physically move until 1 October, but started his Singapore role and worked from home in the US until then.

    His employer corrected the US payroll at year-end to reflect the US workdays, paying over Federal and California State tax for June to September, on a grossed-up basis. The employer did not immediately recover this from Nick, who was already having Singapore tax deducted from his pay.

    Nick received a refund of Singapore tax via his 2020 tax return, for withholding in June to September (the period before he actually arrived to work).

    Nick’s employer will perform a Tax Reconciliation to ensure he settles with the company for the tax due on his US workdays – he will be held to tax where he actually worked, not where he should have worked. As the US tax calculation is higher than Singapore tax, Nick needs to repay the Singapore refund to his employer, plus an additional amount to bring him in line with the higher US Federal and California state tax.

    Group Tax have also notified the Singapore affiliate of their view that there is no permanent establishment risk in the US, since Nick was working from his own home and not from company premises.

  4. Employer obligations
    Timo was on a long-term assignment from Slovenia to Poland, paying Slovenia hypothetical tax and social security (having obtained an A1 certificate of coverage in Slovenia). When the pandemic began, his employer closed all offices and told employees to work from home. No advice was issued to employees regarding international remote working.

    Timo moved to his holiday home in Spain, and has been working from there ever since. His employer was unaware of this, and has continued to pay over Polish tax on his salary via shadow payroll.

    When the employer’s tax services provider prepares Timo’s 2020 Polish tax return, they notice from his travel calendar that he had spent over 183 days in Spain, and per agreed process they flagged this to Global Mobility at the company, along with a recommendation to seek advice on permanent establishment risk, filing requirements, wage tax withholding obligations and social security contributions.

    Human Resources contacts Timo and informs him that he needs to make the necessary arrangements to obtain this advice and fund any tax, interest, penalties and compliance costs incurred in Spain as a result of his unauthorised remote working. Timo refuses, and escalates the matter to his Business Line head, who in turn insists to the CFO that the company’s Group Tax department is responsible for such matters.

How would your organisation respond to these scenarios? Do you agree with the policy positions taken? I expect there would be a healthy debate about what is fair and equitable!


In this article, I set out to surface some of the complexities and uncertainties we are facing during the current tax filing season, and in particular to highlight the policy decisions that confront Global Mobility professionals as the “messy” moves of 2020 are cleaned up via the returns.

There is lot here to take in, but I would sum it up as follows:

  • Don’t underestimate the extent to which displaced workers will impact the employer’s risks, costs and administrative effort

  • Detailed tax technical analysis may reveal unexpected positions, compliance requirements, and costs

  • Consider what typical scenarios your organisation may face, and document a policy position in advance

  • Centralise assessments and policy decisions, record and communicate any new policy positions taken, and encourage consistent treatment across countries and divisions.

And of course, given that we are now in 2021 and lockdowns and border closures are sadly continuing, remember that this may not be a one-off project. The exact same problems will likely arise in 2021 tax returns – so for the time being we need to treat this as a continuous exercise. Not what anyone likes to hear, I know, but forewarned is forearmed!

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