The new normal has created multi-layered and complex conditions for businesses. At the onset of the pandemic, organizations were forced to implement remote working procedures; and now, businesses are considering appropriate strategies to enable their people to safely return to work. There have also been challenges around business travel and mobility, with domestic and international travel limitations severely affecting many companies. Based on the EY article, Transforming the Mobility Function in the Wake of COVID-19, 98% of companies have suspended or outright cancelled international business travel, and travel industry forecasts indicate a two- to three-year timeline before recovery and a return to pre-COVID-19 level operations.
However, the bigger picture is far more complicated. The swiftly evolving situation has exposed weaknesses in the mobility programs of many businesses, especially when it came to real-time data and information-sharing. Simply put, many organizations were caught unprepared. According to a report conducted by EY and the RES Forum, Now, Next and Beyond: Global Mobility’s Response to COVID-19, only 49% of the respondents had a major incident response policy in place when the pandemic hit.
Being able to reach and manage a mobile or remote workforce posed a major hurdle. People also found themselves unable to cross borders, becoming stranded in countries beyond their permitted time, or working outside their country of tax residence. These situations created a slew of immigration and compliance issues. Fortunately, the situation surrounding stranded and overstaying workers was alleviated in part because governments implemented protective measures on work permits and immigration status. Nonetheless, any leniency is bound to be removed eventually.
In the Philippines, the Bureau of Immigration acted to suspend entry into and departure from the Philippines of both Filipino and foreign nationals at the onset of the pandemic. Lately, however, these rules have been relaxed with policies instituted to safeguard the interests of the public. Outbound and inbound travel now require the usual exercise of precautionary measures, COVID testing, and immediate quarantine in an accredited facility after arrival, among others. The Bureau of Internal Revenue has also issued some guidelines to address concerns and provide some tax relief to non-resident workers who become saddled with unexpected tax burdens from being stranded or quarantined in the Philippines.
From a wider perspective and for businesses to move forward in the near term, there are four key areas that must be considered for a more optimal and comprehensive transformation of the mobility function.
BORDER CONTROL
As restrictions begin to ease, the risks to the workforce increases commensurately. This makes the border situation central to any mobility program. Companies need to monitor these carefully, particularly the quarantine periods enforced in countries where borders are already open. In some cases, quarantine only applies to arrivals from “blacklisted” countries, which can be implemented at very short notice. An example was when the UK suddenly added Spain to its quarantine list in July.
Being granted entry to another country presents new challenges that organizations have to consider. One place to start is to establish a business’s risk tolerance and a comprehensive understanding of actual risks. Under what circumstances are they willing to allow travel for their employees? What policies will have to be implemented should employees refuse to travel for health and safety reasons?
Policies will need to be communicated to the right corporate decision-makers who may not be aware of the risks that are familiar to the head of mobility or immigration. Ensuring that proper processes and policies are established will be absolutely critical as global businesses execute strategies and objectives while navigating this period of economic disruption.
VISAS AND PERMITS
For the most part, countries have been understanding of situations regarding permits and visas, particularly for applications and renewals. In fact, 57 countries acted swiftly by granting automatic extensions for migrant workers and stranded business travelers to protect them from overstaying. However, organizations have to note that any leniency will be, by necessity, limited in duration as the pandemic runs its course. New procedures may be implemented, and it could be easy to overlook changes. This makes the continuous monitoring of visa and permit policies critical to ensure that any necessary paperwork is kept up-to-date and compliant in order to avoid any penalties or travel restrictions.
TAX OBLIGATIONS
Whether due to business or personal travel, many employees were stranded in foreign countries during the pandemic, some beyond the expiry of their visa or contracts. Naturally, many of these people continued to work for their respective companies, which in turn, triggered potential tax penalties.
Providentially, many countries were understanding of the situation. With insights from the Organisation for Economic Co-operation and Development (OECD), several countries issued guidance to address concerns like social security, income tax, and permanent establishment. However, this was merely guidance and not clear recommendations, which led governments to rely on bilateral agreements and updates from local tax administrations.
One key tax risk is the question of permanent establishment. A stranded executive may trigger permanent establishment by simply continuing to work remotely from a temporary location. It then becomes a challenge for any company to determine whether there actually is a permanent establishment; and consequently, to determine if such a situation triggers a corporate tax filing obligation.
There could be significant penalties for failure to file or for mistakes in filing, and a sizable taxable presence may very quickly be created. The environment will become more challenging as borders open and regulations are reinstated, but companies may still want their workforce to stay home and may not push seconded national experts (SNEs) to return to their “home” locations. This may need policy changes on behalf of the businesses, the implementation of virtual assignment policies, and a real-time view of any tax agreements between countries.
LOCAL SAFETY CONSIDERATIONS
When borders reopen to allow business travel and mobility, companies will have to prioritize issues of employee health and safety. They will need to know and require employees to follow local rules on social distancing, sanitation, occupation limits for locations and public transport, among others. These rules may change regularly and will require constant tracking and communication for people to be adequately informed and safeguarded.
Companies should consider leveraging technology to address this risk. For example, EY LLP entered an alliance with WorldAware, to enable the delivery of alerts and regulations for the safety of business travelers, crucial trip data, and a better understanding of travel-related compliance during and after the pandemic.
TRANSFORMING THE GLOBAL MOBILITY PROGRAM
Business travel and mobility will never be the same post-pandemic, according to the findings of the Now, Next and Beyond: Global Mobility’s Response to COVID-19 report which projects how significantly the landscape is expected to shift. Around 72% of surveyed organizations believe business travel will be reduced, 52% believe that short-term assignments will decrease, and 58% surmise that long-term assignments will become less frequent. More than 82% of respondents see increased use of virtual work, where assignees can complete the objectives of a foreign assignment without physical relocation.
The mobility function and the HR team will need to be more closely aligned with the business, and any cross-border activity will have to be intrinsically linked to the business objectives of the organization. “Business critical” will need to be revisited in the context of defining the specific purpose of a business trip and its Return on Investment.
The opportunity to transform does not signal the end of mobility — it will spur the creation of a leaner, more considerate mobility program that focuses on increased value creation for the organization while keeping the wellbeing of its people in check at all times.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Czarina R. Miranda is a Tax Partner and the People Advisory Services Leader of SGV & Co.