Tax planning means showing how much you care
This column gets accused of many things. One of which is not being funny. Another is being too obsessed with tax. Yet another is failing to come up with new ways to avoid tax for readers, and keeping all the good ideas for fee-paying clients. But one accusation where I may plead guilty is that the column seems particularly interested in expatriate issues.
Now the WBJ has always prided itself on being a Polish business newspaper that happens to be in the English language, rather than a business newspaper for foreigners in Poland. I think a measure of how well this does work is that most of the people in "Who's News" tend to be Polish these days (although if I say that you can be pretty sure that this week will probably turn out to be an exception).
Nevertheless, a fair sprinkling of our readers are foreigners (nobody seems to accept my argument that, by definition, as an Englishman I can't be foreign) and so these issues do tend to get the most response (apart from the ones about Cyprus of course). And as the global workforce gets more mobile in the global war for talent, expat issues will get more and more important, particularly when you take into account, for example, the need for Polish IT talent in the European Union (EU). So this one is not just for the foreigners; if you're Polish this could apply to you in the next few years. People working for me should not take that as a promise, of course.
Summer is the time when many expatriates move in and out. This is probably a bit early for those moving in, which means it's a perfect time to address some issues up front for those coming in, to make it look to those new arrivals as if you actually care!
Expatriate tax planning is one of the more complicated areas of tax planning, as there is often so much scope for alternative structures. For example, we recently looked at sending someone from Poland to the Czech Republic to act as a director of a Czech company. By the time we'd taken into account the possibilities of employing or hiring under a service contract directly in the Czech Republic or indirectly by paying in Poland and then recharging, and then combined that with the tax and social security alternatives, the document ran to more pages than I care to admit. And that's before considering any policy issues, such as how his remuneration should be assignment-adjusted for cost of living and so on.
But the whole area of expatriation is not only a tax issue, and in fact the policy areas are typically where we have more issues to address. In particular, the question of whether the assignment is for the benefit of the company and potential disadvantage of the assignee (e.g. if they're out of the mainstream organization for a few years), or whether it is mutually beneficial, means that there will be differences in how you remunerate someone for taking that post. Also, whenever people move from one country to another there are cost differences that need adjusting for.
But the big trend in the expatriate area is outsourcing the administration of expatriate engagements. The human resources concerns for people on international assignments are significantly different than those for employees working in their home office. Where a company has hundreds of assignees in multiple home and host country locations, then the benefits of, say, a global payroll or even a global employment company enabling the internationally mobile workforce to be hired on standard terms and conditions may be significant.
Also, as people move more and more within, into and out of the EU, keeping track of pension entitlements and the accrual of benefit rights is the next big subject. In particular, how do you harmonize pension benefits when you have some people coming from countries with generous state systems, some from countries with established private systems, and some from countries with neither?
With a properly designed and managed expatriate program, you can ensure that assignments are properly valued from a compensation, benefit and tax perspective, tax and non-tax compliance obligations are being met, and benefits are targeted at areas where incentives are needed without incurring cost on incremental benefits that an individual may not value.
If all of this is handled properly, then hopefully your departing expatriates will not have had their experience of Poland tainted by arguments over how much more they should have saved while they were here, and the new arrivals will feel the warm fuzzies from being appreciated and taken care of.
One final point. On the subject of departing expatriates I would like to send my best wishes to Larry Darby, chairman of the British Chamber of Commerce's tax committee, board member of the Chartered Institute of Taxation, and tax partner in one of our competitor firms (whose name, alas, I cannot bring myself to mention). Larry has been a giant on the international tax circuit during his time in Poland, and contributed much to the development of the tax profession in his time here. "Tax Watch" would like to wish Larry all the best on his return to the U.K.
Peter Ferrigno is a tax manager in the Warsaw office of Arthur Andersen.
