Dave - Hello, and welcome to this edition of Mobility Via Podcast.  I’m Dave Mayes, a principal in the KPMG Global Mobility Services Practice, and I’m here today with Kshipra Thareja, a Managing Director in the practice.  We work extensively in the area of helping companies with designing and implementing their remote work strategies, policies, and processes.

Over the last year or so, we had been looking into our crystal ball and contemplating what the Future of Work and Future of Mobility will look like. One of the themes that was starting to emerge was the concept of a distributed workforce or as we call it “work anywhere”. That just was a little over a year ago and at that time everyone agreed it is definitely something we could see happen over the course of next 3-5 years. What we didn’t anticipate was the rapid pace at which this would become a reality overnight. What seemed to be a slow moving trend (particularly in emerging tech companies) is now unfolding right before us. However, due to the rapid acceleration of this model, companies haven’t had the opportunity to transition to "work anywhere" models methodically and deliberately. My working in my basement was definitely not part of any strategic organizational or – for that matter – a personal goal to begin with!

Given that "work anywhere" is not only today’s reality but very likely here to stay, it is time for companies to take a pause and consider how they can turn this event into a strategic opportunity for growth while putting the right governance in place to manage tax, regulatory and risk issues.  

Kshipra, can you share some of the potential considerations that organizations are starting to work through?

Kshipra - Thanks, Dave. It is clear as we talk about remote work arrangements that it has tentacles into a number of areas in a company. Organizations have generally started by focusing on the employee’s wellbeing….and then HOW the work is going to get done while staying connected to teams, company culture and clients. Once the basic needs are “solved” they shift focus to other operational and governance considerations such as–corporate tax, payroll, compensation and benefits, etc., as a result what we are finding organizations are quickly pulling together task forces or working groups that can represent each of these functions.

Examples of some of the functional stakeholders we see as key to these discussions include:

1. Corporate tax
2. Payroll
3. Human Resources
4. Compensation and Benefits
5. Legal
6. Finance
7. And of course Business leaders
8. Another critical stakeholder to keep in mind is the employees themselves

One objective of these working groups is to align on enterprise-wide priorities to help align areas of focus and perhaps investment. From here, the company can build out a roadmap to execution.

Dave – A strong cross-functional working group is a great idea given the nature of the beast. KPMG has held several roundtables (virtual, of course), spot surveys, and client discussions. What are some of the common themes that we’ve heard?

Kshipra - As we have mentioned, a number of organizations have expressed that they are not going back to the way they used to work. Most organizations expect some level of flexibility and remote work in the future. And they are in the process of determining where they will land on the “spectrum of flexibility”…which ranges from allowing no remote work at all to allowing their employees to work anywhere in the world. And for most companies this journey of defining who can work remotely, how they can do it effectively and what guardrails need to be put in place to mitigate corporate risk has just begun.

Based on everything we are hearing and seeing in the market, the top issue revolves around:

• Attracting and retaining talent: - Based on survey feedback there is a clear desire from the employee group to continue some sort of work anywhere model in the future. Depending on the industry and talent they are competing for, some companies are realizing that if they do not allow for the same type of flexibility they might have a tough time hiring and retaining top talent.  At the same time they realize the more flexibility they provide, they create potential tax, compliance and other legal complexities. So they are looking to ways of balancing the “asks” from the employees and business realities.

Dave – Let’s take a deeper dive into some of those tax challenges you mentioned, remote work can lead to potential implications for the company and for the employee – let’s start with some of the company obligations…

Kshipra – So companies are very concerned about potentially creating Permanent Establishment and state corporate nexus in locations they didn’t previously have obligations. They are considering if they need to reassess their transfer pricing methodology in light of changed service locations. We have to also think about impact of this change in the overall value chain analysis and substance considerations given senior employee’s that are now working in different locations than they were intended to. Again, none of this is new to the tax folks around the world but really the "work anywhere" environment puts a renewed focus on these matters.

On the payroll front – companies are reviewing whether there are additional registration and filing requirements at both the company, payroll, and employee level now given the new work model. Each state or country may have differing views on who has the right to tax remote workers living in their jurisdiction so navigating the maze of inter-state and country is becoming challenging given the lack of direction even from a tax authorities perspective because they are figuring it out themselves.

Dave – And could you briefly touch on the employee tax considerations?

Kshipra –Employees working outside of their normal work location (whether it is within the country or cross-country lines) could trigger taxation in multiple states and countries. This can mean tax return filings in multiple jurisdictions and additional complexities for their personal obligations such as application of income tax treaties, totalization agreements, etc. These issues are nothing new, but while may have been limited to a smaller group of mobile employees in the past, have become all-pervasive now. And companies need to account for employee tax assistance as well in many cases.

Dave – So, there are a number of tax considerations that companies need to address. So, let’s shift gears and talk about how clients are starting to tackle these issues in a systemic way.

To get their arms around the scale and scope of the issues, companies are typically starting with performing a risk assessments as the first step. For example, we performed a sample high-level risk assessment  and at an initial pass, the payroll tax exposure for a remote workforce was estimated to be over $10M annually which could be a material amount if left unchecked or unmanaged. So for many companies, meeting the payroll obligations will be their first focus area. For other companies, perhaps corporate tax or value chain analysis could be the first area of focus.

Kshipra – that’s absolutely right. Please can you share what you are seeing from a non-tax side?

Dave - as we mentioned, Work Anywhere is really going impact a number of functions across the enterprise. So there are definitely a number of potential non-tax considerations that are top of mind. Some of the ones we’ve come across include:

• From a talent and human capital perspective: Identifying what roles can be successful in a remote environment – which leads to reviewing the competencies needed for a specific function and perhaps re-defining roles to bring the best out of people.
• Health & safety: Establishing guardrails around working remotely and employee and family wellness.
• Cyber/technology: Implementing technology and protocols that provide for safe digital environment that fosters teaming and connectivity across the enterprise.
• Immigration and employment law: There’s a focus on making sure  there are no unanticipated employment law or work authorization implication.
• Regulatory and licensing consideration: Do employers have the right regulatory framework to operate in the country where employees are now present? Do employers have to review our treasury function to check if they have the ability to remit the tax to authorities and compensation to the employees?

Kshipra – what would you say is a good roadmap for a company to consider looking out for in the next few months?

Dave: One approach that we’ve seen is to build out sample cases or employee personas by narrowing in on critical attributes of your workforce and grouping employees into segments. Then you can take each persona and map out which roles can be performed remotely, what risks these roles create, and then create a decision tree for who you will allow to work remotely, in which locations and for how long.  Once you have these personas built out, you can then start to see the various components you need to address. We have found that breaking down the various components into four major buckets helps you build a well-rounded approach.  Kshipra – please can you walk us through a sample approach you have used to assist a company in reviewing and managing these issues proactively?

Kshipra - Sure, I can summarize the approach into four components

• First, strategy & policy – Building a documented strategy that aligns with the company’s business and talent strategy while minimizing organizational risk and supports compliance, health & safety, and business operations.
• Second, structure – An organizational structure that allows the company to operate in a tax-compliant manner, anticipating global and local compliance requirements.
• Once you have the strategy defined and structure designed to support Work Anywhere you then focus on compliance & process – A seamless automated enabled process to assist with managing complex global tax and regulatory requirements based on employee location, value, and service considerations.
• And finally, last but not the least, Risk & data analytics – Automated solution that aides location and services based tracking and detailed cost analysis of the new model, risk assessment and quantification, and measure of return on investment. For some companies Risk & data analytics may come first as this approach is really circular and depending on company need you could start with any of these components.

Throughout this process you have to be very mindful of program shaping and management considerations – Deliberate and considered approach to initiating change and managing transformation.

Obviously, while tax is a key driver it is not the only consideration here.  The review and approach are really bringing together many different groups within an organization to look at managing a remote workforce cohesively. It will likely be a mixture of some employees coming back to the office full time, on a flex schedule, or potentially not come back to the office at all. And the company has to plan for an account for all of these scenarios.

Dave - Kshipra, thanks for joining me today to discuss these issues. These are clearly unprecedented times and how organizations respond to the changes will have a profound impact on their success. It’s important to remember that there isn’t one standard or singular approach that will address all of these matters. But we’ve found that a thoughtful evaluation process that brings a number of cross-functional teams to the virtual table is a good place to start.

So with that last thought, I’d like to close this session of Mobility via Podcast by thanking our audience for joining us again today.  You’ll find links to our COVID-19 information page in the online description of this recording.  In future episodes, we’ll continue to address the top-of-mind issues of interest to our listeners. In the meantime, we’d love to hear from you.  If you have thoughts on today’s episode or ideas for future episodes, please send us an email at US-taxwatch@kpmg.com.