Travelling abroad packs risks
(As originally published in Canadian Mining Journal,
1 December 2011)
By Joanthan Leebosh, Senior Manager, Egan LLP
Tough economic times are translating into fewer long-term travel assignments and more short-term business travel for Canada's mining and metals companies, but what the majority of these companies aren't considering is what happens when business travellers overstay their welcome and unintentionally cross certain boundaries.
With so-called "accidental expatriates," often travelling without the tax or HR departments of their respective organizations knowing about it, employees may be exposing both their business and themselves to significant tax and immigration risks.
It's no secret that risk is an inherent part of doing business in the global mining and metals industry. But as countries grapple with the effects of economic uncertainty, new challenges - including the threat of a global skills shortage and resource nationalism - are quickly climbing the risk agenda and causing new problems for business travellers. Companies are more susceptible to these risks than ever before as governments around the world continue to look for new sources of revenue and adopt technologies that allow them to track and share information between organizations.
During the financial crisis, governments strapped by deficits looked to the relatively swift rebound of the mining and metals industry to replenish national treasuries. Now, recent political and economic volatility is giving host nations all the more reason to impose new taxes and rent on mining companies and keep a watchful eye on international travellers to ensure they're gaining their fair share of the profit pie.
As mining businesses send staff or management on business trips to work briefly at international sites or as they acquire operations in new locales, this important work may be viewed by local governments as an attempt to avoid domestic employment-related taxes or a way to subvert the use of a local labour force. Typically, in most jurisdictions, where a person is providing services to a local business (for example, the local subsidiary of a Canadian business), work authorization will be required and tax obligations may occur.
These days, companies fearful of an impending talent crunch are sending more and more employees on informal fly-in-fly-out business. But by anticipating and preparing for a global skills shortage these mining and metals companies are inadvertently increasing the already highly mobile nature of the industry and attracting a whole host of new challenges.
Workers travelling to foreign jurisdictions need to take changes in tax and immigration laws into account or risk losing the ability to do business or receive government contracts in that particular country.
Failing to identify and comply with tax changes can lead to double taxation in home and host countries, unexpected compensation liabilities and expenses, budget overruns and financial misstatements.
Allegations of tax evasion can also generate bad will and harm business reputations, create suspicion and foster investigations in other areas of corporate activity. Tension generated between the company and immigration and border officials can result in ongoing difficulties, delays and refusals of admission to the country.
Complying with immigration laws, income tax specifications, social security laws and employment law in the host country is crucial - so that companies can maintain their social license to operate.
There are internal company risks too. Companies that avoid the necessary precautions when sending resources overseas may expose their employees to host country taxation. Those that break immigration regulations may also receive travel impeachments that have implications for their personal lives. The overall result can be severe employee dissatisfaction.
When it comes to sending employees into foreign jurisdictions on business travel, companies have to determine where they are comfortable on the risk-reward scale. Understanding the factors that influence risk is an important step in properly determining the reward ratio in the current and anticipated environment. The location and duration of travel, as well as employee status and corporate structure of the company - in both the home and host nation - are important considerations before embarking on any travel assignment.
Addressing these issues should involve the entire organization. The best way to mitigate the risks associated with international business travel is by addressing them before the employee departs. By gaining sponsorship of key executives, assessing risk and business implications, educating all stakeholders and establishing controls, policy and processes companies can avoid unnecessary conflict.
Engaging the C-suite in tax and immigration preparedness not only sets the tone from the top, it ensures that any preventative measures become part of a risk management strategy rather than an administrative burden.
With the trend towards shorter business travels only set to increase, mining companies need to practice due diligence and ensure they have the processes in place to avoid damaging tax and immigration issues.
As technologies and processes become more widespread and cheaper to implement, and as it becomes easier to record and track people's travel patterns, tax and immigration issues are likely to penetrate a broader spectrum of organizations. Companies about to acquire an operation or spend time in a foreign country will not only need to be aware of changes in tax and immigration laws, they'll have to weigh the expense and burden related to tracking employees.
The cost and effort of staying proactive far outweigh the potential consequences of turning a blind eye. Since companies are accountable to their shareholders, it would be wise to invest in controls and policy processes that prevent unforeseen costs and a black mark on their records.
Jonathan Leebosh is a Senior Manager in Ernst &Young's allied business immigration practice, Egan LLP. He is located in Vancouver.