How to thwart the home-office types who want to cut packages
The whole issue of expatriate allowances is always contentious, and in particular those that don't get them (such as language teachers and journalists) think it's unfair that those that do get them (executives and accountants) get them in the first place, while those that get them on a different basis (embassy and diplomatic types) think the perks are great even though the cash salary may be awful.
Inevitably, celebrity tax advisers such as myself usually seem to be providing information to the corporate sector rather than those other types of expatriates, but it's interesting to pull together some trends from this area.
The first thing to remember is the history of why expatriates needed historically to be bunged large quantities of cash to get them to move away from the head office. In the past, being away from the central decision makers of a company was often a sideways move, meaning that you took yourself out of the line for rapid promotion, and so you needed extra cash to compensate for it. Alternatively, you had to live somewhere strange and horrible, which meant you needed extra cash to compensate, or it was more expensive there (more cash again was the solution).
Inevitably, people move from a variety of home locations to a variety of host locations, and so different policies evolve. One client I spoke to on this has a within-region policy and a between-regions policy, split between a long-term policy, a short-term policy and a temporary policy, plus also a within-country-moves policy and a between-country-permanent-moves policy. Each of these has its own terms and conditions, eligibility criteria and loopholes.
The general rule of thumb that many companies use for costing expatriate assignments is that by the time all the incremental costs are taken into account, the total cost is usually two to three times the base salary. This can make internationally mobile people expensive.
Against that you need to consider all of the benefits of assigning expatriates (especially tax advisers from the U.K.) to companies around the globe, but modesty forbids me going into more detail here.
And in turn there is the issue that if business is becoming truly more global, then should an international assignment and the chance to develop the company and your career in a new country, and experience a new language and culture, and get yourself a Polish spouse, be treated as a negative thing that requires you to be bunged more cash, or is it actually a career- and life-enhancing opportunity? Organizations that in the future can attract and retain mobile executives will be able to benefit more from using such people effectively.
So, to use what could turn into a catch phrase if I'm not careful, why is this an issue now?
Well the usual corporate constraints of cost reduction are never far from companies' minds, and when staff numbers need cutting and costs need reducing, then the most expensive people are often a good place to start looking. However, a cost reduction exercise that leads to everyone leaving may please the accountants (not that we're all that ruthless and horrible), but will upset the HR people as they will see themselves having to cope with too much recruitment work in the future. And cost reduction is not in itself an objective, only a means to an end (such as more efficiency).
If however your celebrity tax adviser has some friends who have a systematic methodology that can evaluate your policies and plans against global best practices and identify where you can increase the efficiency of what you're paying, you may be pleasantly surprised by the outcome, if you're the company. Particularly if the review can identify things like a complicated and sexy way to make the cost of granting stock options over new shares a tax deductible cost for the company (not usually easy as issuing of shares is not normally a tax-deductible cost, but it can be done). Or if the review can find preferential tax treatments of various benefits in kind that are not being factored in to the structuring and planning.
It's easy for some bunch of guys to sit in London or New York and say that you need to cut various allowances, but if you have a methodology that works systematically with experts in each country to take advantage of the loopholes (sorry, planning opportunities) there, while coordinating ideas on a global basis so that you can test what works in one place works in other places too, then there is the potential to make a real difference at the corporate profit-and-
-loss level.
An idea such as this is only as good as its implementation, so it is really important that not only are the issues identified, but the practicalities of implementation need to be addressed to make sure that those savings are realized, not just listed on a flipchart and included in a contingency fee invoice.
Of course, if Poland is only one of the receiving locations for thousands of expatriates being sent from a few home country locations, then it's unlikely that you would need to buy such a product here. However, as people move between assignments and as expatriate packages and allowances get discussed at budgeting time, then the chance to feed such suggestions back to a big cheese that can make such a decision may be possible. Also, if they're threatening to cut your expatriate chocolate allowance, suggesting that they review the basis of why the chocolate allowance was originally introduced before making that decision at least buys you a few more months!
Peter Ferrigno is a tax manager in the Warsaw office of Arthur Andersen.
Inevitably, celebrity tax advisers such as myself usually seem to be providing information to the corporate sector rather than those other types of expatriates, but it's interesting to pull together some trends from this area.
The first thing to remember is the history of why expatriates needed historically to be bunged large quantities of cash to get them to move away from the head office. In the past, being away from the central decision makers of a company was often a sideways move, meaning that you took yourself out of the line for rapid promotion, and so you needed extra cash to compensate for it. Alternatively, you had to live somewhere strange and horrible, which meant you needed extra cash to compensate, or it was more expensive there (more cash again was the solution).
Inevitably, people move from a variety of home locations to a variety of host locations, and so different policies evolve. One client I spoke to on this has a within-region policy and a between-regions policy, split between a long-term policy, a short-term policy and a temporary policy, plus also a within-country-moves policy and a between-country-permanent-moves policy. Each of these has its own terms and conditions, eligibility criteria and loopholes.
The general rule of thumb that many companies use for costing expatriate assignments is that by the time all the incremental costs are taken into account, the total cost is usually two to three times the base salary. This can make internationally mobile people expensive.
Against that you need to consider all of the benefits of assigning expatriates (especially tax advisers from the U.K.) to companies around the globe, but modesty forbids me going into more detail here.
And in turn there is the issue that if business is becoming truly more global, then should an international assignment and the chance to develop the company and your career in a new country, and experience a new language and culture, and get yourself a Polish spouse, be treated as a negative thing that requires you to be bunged more cash, or is it actually a career- and life-enhancing opportunity? Organizations that in the future can attract and retain mobile executives will be able to benefit more from using such people effectively.
So, to use what could turn into a catch phrase if I'm not careful, why is this an issue now?
Well the usual corporate constraints of cost reduction are never far from companies' minds, and when staff numbers need cutting and costs need reducing, then the most expensive people are often a good place to start looking. However, a cost reduction exercise that leads to everyone leaving may please the accountants (not that we're all that ruthless and horrible), but will upset the HR people as they will see themselves having to cope with too much recruitment work in the future. And cost reduction is not in itself an objective, only a means to an end (such as more efficiency).
If however your celebrity tax adviser has some friends who have a systematic methodology that can evaluate your policies and plans against global best practices and identify where you can increase the efficiency of what you're paying, you may be pleasantly surprised by the outcome, if you're the company. Particularly if the review can identify things like a complicated and sexy way to make the cost of granting stock options over new shares a tax deductible cost for the company (not usually easy as issuing of shares is not normally a tax-deductible cost, but it can be done). Or if the review can find preferential tax treatments of various benefits in kind that are not being factored in to the structuring and planning.
It's easy for some bunch of guys to sit in London or New York and say that you need to cut various allowances, but if you have a methodology that works systematically with experts in each country to take advantage of the loopholes (sorry, planning opportunities) there, while coordinating ideas on a global basis so that you can test what works in one place works in other places too, then there is the potential to make a real difference at the corporate profit-and-
-loss level.
An idea such as this is only as good as its implementation, so it is really important that not only are the issues identified, but the practicalities of implementation need to be addressed to make sure that those savings are realized, not just listed on a flipchart and included in a contingency fee invoice.
Of course, if Poland is only one of the receiving locations for thousands of expatriates being sent from a few home country locations, then it's unlikely that you would need to buy such a product here. However, as people move between assignments and as expatriate packages and allowances get discussed at budgeting time, then the chance to feed such suggestions back to a big cheese that can make such a decision may be possible. Also, if they're threatening to cut your expatriate chocolate allowance, suggesting that they review the basis of why the chocolate allowance was originally introduced before making that decision at least buys you a few more months!
Peter Ferrigno is a tax manager in the Warsaw office of Arthur Andersen.
