Don’t fudge when overseas laws apply
The growth plans for many Scottish businesses include taking the plunge into international markets. A key aspect of “going global” is typically the deployment of managers on international assignments and, similarly, a corresponding movement in Scotland’s direction of foreign employees on temporary assignment here.
The international movement of staff will often be a critical component of a company’s global strategy yet, if managed badly, it might lead to financial penalties, damage to reputation and even a bar on business activities in some locations. These compliance pitfalls are a mix of the obvious, for example, complying with local immigration rules and paying tax, and the less obvious, such as data protection and anti-bribery laws.
Immigration rules can appear to be a tangled web, with the only certainties being that, in the UK as in most countries, enforcement is tougher and non-compliance penalties are higher than ever before. Even a seemingly straightforward scenario, such as the posting of an employee to another EU country, can trigger an immigration problem if the employee’s accompanying spouse turns out to have non-EU citizenship. But perhaps the most common “error”, in terms of immigration compliance, is succumbing to the temptation to use an easily obtained tourist or visitor visa and then spending a few months in the host country conducting business illegally.
Accurate records must be maintained
Typically, failures to meet foreign tax obligations arise more often from record-keeping deficiencies than from deliberate attempts to avoid tax. Accurate records must be maintained of each employee’s time spent in the foreign location, including the accumulation of short trips.
On the other hand, there can also be the danger of paying too much tax in the host country. Depending on the length of the employee’s assignment it might, for example, be possible to reimburse travel and accommodation costs free of tax liabilities. So advice on local tax rules is important for compliance and to ensure that specific expat allowances are being properly exploited.
Rental accommodation for the employee can itself give rise to some unbudgeted liabilities. In some locations, landlords appear to regard foreign tenants’ security deposits as a legitimate source of income. A foreign employer, named as tenant on the lease, may be shocked by the size of a claim for dilapidations, but will often be reluctant to incur further potential costs in defending the claim. The key is to ensure that each expat lease is properly reviewed prior to signature, including the insertion of a “break clause”, allowing the lease to be terminated if the assignment ends earlier than planned.
International assignments can create challenges in relation to employment law and employment contracts. An employee should be provided with a Letter of Assignment which sets out clearly how the existing employment contract terms will be varied, for example, provision of housing and other assignment allowances, while the employee is on assignment. But there are limits to what can be agreed in such a contract and the employee may acquire significant additional employment rights under the national laws of the host country.
The connection between sending employees on international assignments and data protection law may not be immediately apparent, but this area is seen increasingly as a compliance challenge for employers. There can be issues around the transfer of data if a non-EEA (European Economic Area) country is the host location and there is a consequential need to obtain data transfer consents from employees and their families. Sending data to the United States or Australia, for example, cannot be assumed to comply with the Data Protection Act.
Clash between IT specialists and DP regulators
There can be particular challenges for large multi-national employers who have to balance the efficiencies of open data-sharing – for example, giving a relocation company direct access to relevant HR data held by the employer – with the danger of falling foul of the data protection rules of a particular country. In other words, there can be a direct clash between what our IT specialists can offer us and what DP regulators will allow.
If we make it through all these “compliance traps”, there is still the 2010 Bribery Act lurking in the undergrowth!
The real danger is finding that a local agent, in a corruption hotspot such as Nigeria, is making payments to a public official to speed up the immigration process or the clearance of an expat’s personal goods through customs. Tough penalties, including imprisonment, can be imposed directly on company directors in Scotland even where they have no direct knowledge of payments being made. The only defence is to have an active anti-corruption policy in force and ensure that this policy is implemented and shared with employees and suppliers alike.
The message is clear: investment in international business must include investment in international compliance solutions. The costs of compliance failures have never been higher.
• Gordon J Kerr is director, employee mobility unit, Morton Fraser LLP www.morton-fraser.com