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Proposed changes strengthen Singapore’s data privacy law

7/30/2020

By Paul Sutton, Vistra

Singapore is planning key updates to its data privacy law, bringing the country more closely in line with the EU, Australia, and other regions that have strictly regulated the use and sharing of online personal information. Multinationals doing business with the island nation should review their procedures for collecting and processing personal data to ensure they are in compliance before the changes become law.

The updates come in the form of amendments to Singapore’s Personal Data Protection Act (PDPA), which was passed in 2012 and became effective in 2014. After the EU’s landmark General Data Protection Regulation (GDPR) was passed in 2016, Singapore’s Ministry of Communications and Information and Personal Data Protection Commission (PDPC) began holding public consultations to gain feedback about proposed modifications to its PDPA and the country’s Spam Control Act (SCA), which regulates phone calls and texting.

On May 28, after obtaining public commentary on three feedback sessions held between 2017 and 2019, the government closed discussions on its proposed amendments. It is very likely to adopt these changes, which clarify some aspects of using personal data, strengthen protections for consumers, and introduce stiffer penalties for organisations and individuals who fail to comply.

Raising data privacy standards will allow Singapore to conduct business more easily with other advanced nations and win the trust of customers in an increasingly digital world economy. "The amendments...will support our organizations' efforts as they transform and grow in the digital economy to better serve consumers," said PDPC Deputy Commissioner Yeong Zee Kin.

Updating the data privacy law is part of a general technology push in Singapore, which has invested heavily in digital infrastructure and education. A recent Cisco survey named it the world's top nation in digital readiness, and Swiss business school IMD listed it as the world’s most digitally competitive economy in 2019 and 2020.

The proposed data privacy amendments contain their own nuances, but companies familiar with the GDPR and other privacy laws will find many similarities.

Consent

As with the GDPR, companies are not required to obtain consent to use customer information for legitimate business purposes.

The PDPA amendments clarify some of these purposes under a “business improvement” provision, which allows companies to use personal data without consent “where there is a need to carry out operational efficiency and service improvements, develop or enhance products/services, or know more about the organisation’s customers.”

The amendments also say that the use of personal data must be “what a reasonable person would consider appropriate in the circumstances,” and should not cause adverse effects for individuals.

Companies may also collect data without consent if it is necessary for contracts or if it benefits the broader public interest — for example, the creation of blacklists to prevent fraud. In some cases, researchers may use personal data without consent if it does not harm individuals or identify them in published results.

Data portability

A new data portability rule will allow people to request the transfer of their personal data to another organisation, enabling them to change service providers more easily. More fluid information flows will facilitate the development of new services and drive innovation, the government believes. So far, the data portability provision will only apply to organizations with a presence in Singapore, but it may be expanded in the future, the government notes.

Breach notification

The new amendments require companies to notify the PDPC if they experience a data breach involving 500 or more people or one that is likely to harm affected individuals. Companies must also notify the people affected by the breach.

Under existing PDPA rules, companies have up to 30 days to determine whether a breach merits notification. The new amendments remove the time limit, saying instead that organisations have “a duty to conduct, in a reasonable and expeditious manner, an assessment” about notification decisions.

Spam messages

Amendments to the SCA will outlaw the use of data-harvesting software and online dictionaries for the purpose of sending out bulk unsolicited messages by phone, email, text, or through instant messaging services on apps such as WhatsApp and Facebook Messenger.

Increased penalties

Under the existing PDPA, organisations that violate its rules may be fined up to S$1 million. The new amendments allow a penalty of S$1 million or up to 10 percent of annual revenue, whichever is greater. In contrast, organisations found in violation of the EU’s GDPR rules may face penalties up to a maximum of 20 million euros or 4 percent of annual revenue, whichever is greater.

In addition to fining organisations, the amendments allow the government to prosecute individuals who mishandle personal data. If found guilty, they may be assessed a fine of up to S$5,000, receive a prison sentence of up to two years, or both.

Singapore’s changes to its data privacy law show that the country is serious about improving the digital environment for consumers and is willing to crack down on organisations that break the rules. Though the government has not yet announced a timeline for voting the changes into law, we strongly urge multinationals that do business with the country to study the proposed amendments and make any necessary changes to their personal data policies as soon as possible.

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European court overturns ruling in Apple tax case: What it means for multinationals

7/22/2020

By Tom Lickess, Head of International Tax Advisory

Last week, the European Union’s second-highest court overturned a 2016 ruling ordering Apple to pay Irish tax authorities 13 billion euros for receiving undue tax benefits.

Background

The 2016 ruling followed a two-year investigation by the European Commission. The investigation concluded that Irish tax decisions in 1991 and 2007 gave Apple “selective treatment [that] allowed Apple to pay an effective corporate tax rate of 1 percent on its European profits in 2003 down to 0.005 per cent in 2014.” Selective treatment is illegal under EU state aid rules.

In August 2016, Apple published an open letter saying the Commission’s claim that the company had received special tax treatment from Ireland had “no basis in fact or law.” Both Apple and Ireland appealed the decision; nearly four years later, the General Court of the European Union (GCEU) ruled in their favour. In a 15 July press release, the GCEU said it annulled the 2016 decision “because the Commission did not succeed in showing to the requisite legal standard that there was an advantage” for Apple.

Another possible appeal

The European Commission must now decide if it will take the matter to Europe’s highest court. The Commission’s executive vice president, Margrethe Vestager, said in a statement that her office “will carefully study the judgment and reflect on possible next steps.”

Some regard an appeal as inevitable. In the run-up to last week’s decision, Irish Deputy Prime Minister Leo Varadkar predicted that no matter what the outcome, “this case will almost certainly be appealed by one party or another to the European Court of Justice.”

Ireland’s motives

One of the fascinating aspects of the Apple case is Ireland’s decision to contest a judgement that would have instantly increased its tax revenues by 13 billion euros. In a brief initial comment last week, Ireland’s Department of Finance confirmed it welcomed the decision that prevented it from receiving the windfall.

The simple answer to why Ireland appealed is that accepting the 2016 ruling — and the billions that came with it — might have killed, or at least wounded, a golden goose. As I mentioned in a 2016 post on the original Apple ruling, Ireland has for decades courted tech companies with low corporate tax rates and benefited by resultant inward investment and jobs. Apple’s own website boasts the company employs 6,000 people in Cork, and has spent almost 220 million euros on its Hollyhill campus there.

Despite these benefits for Ireland, at least some in the country will be ambivalent about the recent GCEU decision. Revenues everywhere are decreasing due to the coronavirus pandemic, and tax dollars are desperately needed. Furthermore, many in and outside Ireland have long questioned the country’s corporate tax rates, alleging they essentially create a tax haven within the EU. The BBC reports that after last Wednesday’s decision, a spokesman for Sinn Fein “called it a bad day for the Irish taxpayer that would draw negative attention to the country's international tax reputation.”

The Apple case in context

The GCEU ruling is a powerful reminder that individual jurisdictions — even EU member states — have autonomy when developing, implementing and enforcing direct tax rules and rates. Multinationals have for decades been accused of unduly benefiting from the arbitrage opportunities afforded by country-specific tax-rate differences. In recent years, tech companies in particular have come under fire from tax authorities, the media and the public for not paying their perceived ‘”fair share” of taxes.

Vestager has been at the forefront of the EU’s efforts to ensure tech and other companies aren’t engaging in anti-competitive behavior by getting sweetheart tax deals — effectively subsidies — from EU member states. The New York Times points out that as a result of Vestager’s investigations, Google is appealing three decisions with a cumulative 8.2 billion euros of fines, and Amazon is appealing a decision involving 250 million euros in unpaid taxes to Luxembourg. Vestager has similar cases pending against Nike and Ikea.

What the GCEU decision means for multinationals

The GCEU decision may be a welcome event for Apple, and even Ireland, but multinationals should beware of taking it as a sign that the world of international taxation is reverting to some earlier era. Even last week’s decision could be appealed and ultimately overturned. More importantly, OECD and G20 efforts to combat tax-base erosion and profit shifting have not stopped, nor have individual tax regimes stood still, as the recent proliferation of country-specific digital services taxes makes clear.

Last week’s decision may also change the way Vestager and other reformers attack the problem of how and where to tax multinationals in our digital economy. Ireland’s finance minister Paschal Donohoe, for example, indicated that policymakers will now pay more attention to the law when developing tax rules. He told reporters, “I imagine that one of the consequences of this is that care will be given for what are the legal foundations for pursuing change in this area, and maybe that is the most likely development of the ruling.”

If anything is certain in the ruling’s wake, it’s that multinationals, tax authorities, the European Commission and the OECD will each continue to work on developing a transparent, equitable international tax framework that accounts for cross-border electronic commerce. Vestager said as much in her statement last Wednesday. The final passage can be read as a warning to multinationals as much as an exhortation to fellow reformers: “State aid enforcement needs to go hand in hand with a change in corporate philosophies and the right legislation to address loopholes and ensure transparency. We have made a lot of progress already at national, European and global levels, and we need to continue to work together to succeed.”

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The VAT e-commerce package and the supply of services

7/15/2020

By Christina Gencheva, Manager, Indirect Tax Advisory

The EU’s VAT e-commerce package is a series of measures being implemented in stages and intended to simplify VAT rules on the cross-border sales of goods and services to final consumers based in the EU. The measures are expected to ensure that VAT on these supplies is accurately paid to the member state of the customer, following the principle of taxation of supplies in the destination member state.

As a brief overview, the EU’s VAT e-commerce package includes changes in the VAT treatment and reporting of supplies to private individuals in the EU. The package includes the following measures. (The first three bullets include links to my previous posts on these subjects for details.)

Measures affecting intra-EU (also known as intra-Community) distance sales of goods, which aim to simplify the reporting of these transactions and introduce new thresholds and VAT-recovery options.

Measures affecting the import VAT of goods from countries and territories outside the EU. The EU’s existing low value consignment relief will be lifted, and import VAT will be due on each import, even those under 22 euros. The new measures will benefit certain imports of up to 150 euros.

Measures affecting the cross-border trade of goods to EU customers through online platforms and portals such as Amazon and eBay. The EU VAT authorities’ enforcement efforts will focus on electronic interface (EI) platforms, though businesses that sell through EIs must also comply with the new rules.

Measures affecting the supply of services by both EU and non-EU businesses to EU customers. These are the VAT e-commerce package’s final reforms, and are addressed in detail below in this post.

Implementation of new VAT measures delayed six months

The VAT e-commerce measures were initially planned to come into force on 1 January 2021. Given the coronavirus pandemic and associated lockdowns, however, the European Commission has proposed postponing the implementation date by six months, to 1 July 2021. This will give member states and businesses more time to prepare for the new rules.

The European Commission’s proposal to delay the implementation date was made on 8 May. After further discussion, the proposal has been agreed to and is currently subject to the formal approval of the EU Council. Meanwhile, all other documentation on the VAT e-commerce package is in place. The initial steps were taken in 2015, provisions for the package approved in 2017, and detailed measures adopted at the end of 2019. The latest implementation rules were approved in February 2020.

VAT changes related to the provision of services

Businesses that supply business-to-consumer (B2C) services to customers in the EU must comply with the new VAT measures. The new rules apply to businesses established inside or outside the EU.

The changes will allow businesses to centralize and simplify the VAT accounting and reporting of their supplies. This will be possible by the introduction of the so-called One-Stop-Shop system (OSS). The OSS is an extended version of the existing Mini-OSS (MOSS). The OSS will include three main schemes: the Union scheme, non-Union scheme and Import scheme. They are referred to as “special schemes” and cover the transactions within the scope of the VAT e-commerce package.

The existing MOSS platform has been in place since 2015. It allows businesses supplying certain limited types of cross-border services to clients in the EU to use a simplified regime to register for VAT, fulfil certain compliance obligations and perform general VAT reporting.

The current scope of the MOSS covers only telecommunication, broadcasting and electronically supplied services to private individuals. These transactions have their place of supply where the customer is established. In brief, the MOSS allows the suppliers of these types of B2C services to opt out of the obligatory VAT registrations in all EU member states where their customers are established. Under the MOSS scheme, businesses can account for and remit VAT due in any EU country through a single VAT registration, using an online portal that is managed and run by their respective local tax authorities.

In 2019, the EU introduced improvements to the MOSS, including a new threshold of 10,000 euros in order to apply the simplified MOSS rules. The threshold was put in place to decrease burdens on micro and small businesses, which had been required to register for the MOSS even though they may not have been required to register for VAT in their own country due to the volume of their supplies. Another improvement involved the use of “home country” rules with respect to invoicing requirements.

The 2021 e-commerce package changes will extend the type of supplies subject to the OSS scheme to all types of cross-border supplies of services where the final consumer is an EU-based private individual. The changes ensure that these supplies are taxed at the country of destination — that is, where the consumer is based. In this respect, the changes recognize the nature of VAT as a tax on consumption.

All suppliers of cross-border services to private individuals in the EU, then, will be able to take advantage of the coming OSS scheme. They will be able to register in only one EU member state and operate and control all VAT-related reporting and compliance from that state.

If you provide services to private customers based in the EU, you should examine your supply chain and your tax and accounting systems in light of the new rules. You may need to update your policies and practices to ensure compliance and ensure that your supply chain is tax-optimized.

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India’s equalisation levy: Why the low-threshold digital services tax poses challenges for multinationals

7/8/2020

By Tom Blessington, Manager, International Tax Advisory

The Organisation for Economic Co-Operation and Development and G20 member countries are developing a standardised approach to taxing the digital economy. Their ongoing collective effort aims to ensure relevant jurisdictions can tax their fair share of profits based on current digital and economic realities. Related OECD/G20 recommendations are known as Pillar One and Pillar Two.

Pillar One addresses taxing-rights allocation, profit allocation and nexus rules. In particular, it examines how to tax large multinationals that generate profits where they don’t have a traditional tax presence.

Although the OECD has not yet agreed on the final approach to Pillar One , many countries have developed and implemented their own regulations for taxing cross-border digital services. Most of these country-specific taxes only affect very large multinational groups, typically those that have country-by-country reporting obligations.

Some countries, including India, have introduced digital services taxes (DSTs) with much lower thresholds. Given the size of the Indian economy, its tax is likely to affect more multinational businesses than any other low-threshold DST.

Background: India’s 2016 equalisation levy

In 2016, India introduced an equalisation levy targeting payments for “specified services” made by Indian businesses to non-Indian businesses. These specified services included online advertising, the provision of space for online advertising and associated electronically delivered advertising activity.

The 2016 equalisation levy was effective from 1 June 2016 and applied at a rate of 6 percent. The levy amount was to be withheld by all Indian businesses making payments for online advertising services and remitted to the Indian tax authority.

India’s expanded equalisation levy

In early 2020, a proposal was made to expand the equalisation levy to include all digital services, though at a lower rate of 2 percent. This expanded definition of the equalisation levy — sometimes referred to as equalisation levy 2 — was adopted and took effect from 1 April 2020.

In contrast to India’s original equalisation levy on online advertising services, the expanded equalisation levy covers substantially all revenue-generating online services and requires the non-Indian business providing the services to report and remit the levy.

The new equalisation levy will apply to all businesses with India-source revenue exceeding 2 crore rupees (approximately US$265,000), unless that income relates to a permanent establishment in India or is subject to the original equalisation levy on advertising services.

For the purpose of the new equalisation levy, India-source revenue is revenue arising from either:

Sales to both business and non-business customers resident in India, or customers that are accessing the service from an India IP address; or

The sale of data relating to either an individual or business resident in India or one that uses an Indian IP address.

India’s equalisation levy, then, has significant extra-territorial scope, as it applies to users that are resident in India but not physically present there. It also applies to sales of data relating to India residents by non-India resident businesses.

Businesses that are subject to the new equalisation levy are required to report and remit the relevant equalization levy on a quarterly basis. The first quarter end is 30 June 2020, with the other quarter ends being 30 September, 31 December and 31 March. The equalisation levy amount for a quarter must be remitted a week after the end of the reporting quarter.

Practical operation of India’s expanded equalisation levy

The design of India’s equalization levy has caused concern among a number of tech companies. While it is relatively simple for businesses to measure service usage by IP address, it is almost impossible to identify which users are Indian resident — rather than located in India — when selling services or anonymised datasets. This is before the measurement of user location is further complicated by the growing use of VPN services by internet users.

The penalty for failing to collect and remit the equalisation levy is high, with penalties of up to 100 percent of the amount not collected, plus interest on late remittances of 12 percent APR. Despite these stiff penalties, little guidance has been published regarding the reporting process for the expanded equalisation levy.

India has enacted the equalisation levy outside of its Income Tax Act to take it outside the ambit of its double taxation treaties. India’s position here, though, is controversial. Many tax treaties contain clauses to bring into their scope any charges substantially similar to taxes but enacted as something other than a tax, as would appear to be the case here.

The United States government, for one, is reviewing whether India’s equalisation levy constitutes a tariff on trade between the two nations and whether the U.S. needs to take formal action in response.

The difficulty in accurately determining the revenue subject to equalisation levy, combined with the fact that the compliance burden is imposed on non-resident companies whose activities the Indian government is unlikely to be able to measure effectively, means that there are a number of compliance and enforcement challenges to consider. These challenges will affect both the companies subject to the equalisation levy and the Indian government.

These difficulties are no doubt contributing to reports that the expanded equalisation levy may be suspended (or even abolished) before the first reporting quarter ends. Given the high stakes, multinationals are sure to watch the developing situation with interest.

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New U.S. visa restrictions curb foreign hiring

7/1/2020

By Paul Rubino, Senior Director, U.S. Expatriate Tax

New U.S. visa restrictions effective until the year’s end will make it harder both for American companies to hire foreign workers and for multinationals to transfer their workers to the U.S.

The executive order, issued by the Trump administration, became effective June 24 and suspends the issuance of most new H-1B, H-2B and L visas. Designed to funnel more jobs to Americans during a time of record high coronavirus-related unemployment, the measure is also part of a broader pattern of the administration’s tightening of immigration policy.

Who is affected

The order suspends four types of visas affecting multinationals:

H-1B visas, available to foreign workers with bachelor’s or post-graduate degrees. Used primarily by technology employers to fill highly-skilled jobs in the U.S.

H-2B visas, available to workers in lower-wage jobs and common in industries including landscaping, forestry, seasonal construction and seasonal hospitality.

L-1 visas, used by multinationals to temporarily transfer executives or skilled employees to a U.S. branch office, parent company, subsidiary or affiliate.

L-2 visas, which allow the spouses and children of L-1 workers to accompany them and obtain work permits or attend school.

In addition, a separate policy change ends the requirement for the U.S. government to issue work permits to people seeking asylum.

Who is exempted

The new restrictions do not apply to:

Workers who are already in the country under existing visas, or workers whose visas have been approved, though they have not yet traveled to the U.S.

Healthcare workers treating or researching Covid-19.

Workers in the food-supply chain, specifically including those in the seafood and food packaging industries.

Anyone else whose presence is “necessary to facilitate the immediate and continued economic recovery of the United States.”

Pronounced effect in India

Multinationals may decide not to open or expand U.S. offices if they are no longer able to obtain visas to bring in employees. Others may stop sending employees to work for U.S. firms.

India is particularly affected. Seventy-two percent of H-1B visa holders come from the subcontinent, mostly to work for the tech industry. Many are hired through outsourcing companies such as Tata and Wipro. India also has the highest share of L-1 and L-2 visas. Nasscom, a trade group that represents Indian IT outsourcing firms, said the restrictions were misguided and would be harmful to the U.S. economy.

Jobs for Americans

The White House estimates that the new restrictions — combined with measures passed in April to suspend a diversity green-card lottery and a program granting visas at the request of U.S. family members or employers — would free up to 525,000 jobs by the end of the year, making them available to out-of-work Americans. The Migration Policy Institute estimates the number of job openings will total about 325,000.

Unemployment in the U.S. is at historically high levels, with over 20 million people currently receiving benefits, according to the Department of Labor. The new restrictions will have no immediate effect because the U.S. State Department had already suspended most visa appointments globally since the pandemic took hold in the U.S. in March. In May, for example, the U.S. Citizenship and Immigration Services issued a total of 143 visas, compared with more than 13,000 in May, 2019.

Business criticism

Technology company leaders at Amazon, Apple, Google, Microsoft, Dell and other multinationals were quick to criticize the new order, saying that foreign employees have played an important role in creating the innovations that make the U.S. a strong global competitor. Software alliance BSA said access to foreign talent is a critical component of the country’s economic recovery.

Criticism also extended beyond the tech industry. Jon Baselice, the executive director of immigration policy for the U.S. Chamber of Commerce, said feedback from manufacturers, accounting firms, pharmaceutical companies and others indicates executives are concerned the restrictions will hurt their businesses. Thomas Donohue, the Chamber’s CEO, said restrictions would “push investment and economic activity abroad, slow growth and reduce job creation.” Several Republican Senators drafted a letter to President Trump emphasizing the value of guest worker jobs.

Nevertheless, the H-1B program has always been controversial, with opponents saying companies often use it to save money by hiring cheaper foreign workers instead of Americans.

Further changes and uncertainty ahead

In addition to imposing the current restrictions, the administration is working with the Labor Department to change the way the H-1B program works. Instead of using the current lottery system, the 85,000 visas awarded each year would go to the highest-paid job applicants, resulting in higher salaries for visa holders and putting them on a more even footing with American workers. Another change would add new rules for contract workers.

It’s possible that the tightening of visa restrictions could lead to more offshore outsourcing in India and other countries, particularly since U.S. companies have grown more comfortable with remote work during the pandemic.

Another possibility is legal challenges. According to Sarah Pierce, a policy analyst at the Migration Policy Institute, said companies may be able to contest the order if they have invested money in consultations with attorneys and other immigration specialists to help them with a process that was suddenly changed.

But the restrictions are very likely to remain in place in October, when most H-1B visas traditionally are issued. Multinationals doing business in the U.S. should plan accordingly.

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Six important considerations for businesses with remote workers

6/24/2020

By Katie Davies, VP International Solution Development

As the pandemic recedes in many places, some employers have announced plans to extend their work-from-home policies indefinitely. Google, Microsoft, Amazon, Twitter and Facebook are among the growing list of major corporations to embrace the shift and acknowledge the benefits of remote work.

Not only is there evidence that employees prefer the flexibility of working from home, but there are also significant benefits for employers. According to a Global Workplace Analytics survey, businesses can save roughly $11,000 a year for each employee who works remotely just half of the time. The same study found that remote work programs created during the pandemic are collectively saving employers in the U.S. more than $30 billion a day. For the most part, these savings come from a reduction in real estate and energy costs.

In a recent statement, Facebook CEO Mark Zuckerberg said that half of the company’s employees could be working from home within the next five to 10 years. He also said the company will adjust salaries for those employees who decide to move to a different location, a decisive action that represents yet another opportunity to cut back costs and realize the strategic advantages of engaging a remote workforce. According to Zuckerberg, Facebook plans to “aggressively ramp up” the hiring of remote workers, which will help the company diversify its workforce and save even more money by seeking out talent that lives outside traditional tech hubs such as Silicon Valley and Boston, both of which have high costs of living and local salaries to match.

While the rise of remote work presents businesses with a significant opportunity to reduce costs, there are still several important decisions that need to be made before making the transition indefinitely. The remainder of this post will outline some of the most important considerations for businesses looking to make the long-term shift to a remote-work model.

Setting salaries for remote employees

When calculating salaries for remote workers there are a number of factors to consider, including: the type of work being conducted, where the company is based, where the employee is located, market trends and more. Location is typically a key element in this equation because the cost-of-living, tax requirements and employment laws may vary from place to place, both within the U.S. and internationally.

In addition to properly determining the salary ranges for remote workers, employers should establish a system that will allow them to accurately track and maintain records of their virtual employees’ locations. This will help them avoid possible noncompliance with local tax, HR, immigration and other regulations.

Triggering a corporate tax presence

Even a single employee working remotely in another country, state or municipality can be enough to trigger a taxable presence, or a permanent establishment (PE), in that jurisdiction. Activities that trigger a permanent establishment can range from sending employees abroad on business trips, to hiring contractors in another country, to signing sales contracts, to establishing a remote office and more. If a PE is triggered, there will likely be a requirement to report and pay corporate income taxes to authorities in that location. Failure to understand and follow permanent establishment laws in all jurisdictions of operation can lead to double taxation, financial penalties, reputational damage and more.

Worker classification

While hiring long-term workers as independent contractors can be an effective solution for scaling back costs, many governments are increasingly questioning the fair treatment of contractors versus employees and adjusting and enforcing employment laws accordingly. Local authorities typically look beyond the contractor agreement and use their own employment tests to determine a worker’s classification. If a contractor is deemed to be an employee, the company could be liable for back taxes, noncompliance penalties, backdated employee benefits and more.

Immigration considerations

Businesses that employ remote workers abroad should familiarize themselves with the country-specific procedures related to sponsoring a visa or other immigration documentation requirements. Two of the most common immigration violations include entering a country on the wrong visa and staying longer than a visa permits. This is often more of a concern for remote workers because their travel isn’t as closely monitored as that of their office-based counterparts. Employers that don’t comply with these types of requirements can face fines, reputational damage and, in extreme cases, criminal prosecution.

Payroll, worker compensation and benefits

The location of a company’s employees plays an important role in determining where the company will be subject to income tax reporting and other payment obligations, such as payroll taxes, wage withholding and unemployment insurance. It’s also important to remember that every jurisdiction has its own set of laws governing things like workers’ compensation coverage, overtime requirements, family leave, vacation time and medical accommodations. Businesses should invest in designing and setting up a proper payroll process for their remote workers to avoid related compliance, compensation and payroll management issues.

Data protection considerations

Employing a remote workforce comes with increased use of personal devices, insecure Wi-Fi connections, risky file-sharing practices and other actions that pose a potential threat to your company’s sensitive data. It also puts you at risk of failing to comply with data protection laws, which could lead to significant fines and reputational damage.

Unfortunately, extending data and information security protection to home offices presents a host of IT-related challenges, especially as online attacks on personal and corporate data continue to rise. Remote work poses other problems as well, such as: how an employer can compliantly monitor employee activities at home without breaching their privacy rights; how to ensure physical documents are properly stored and destroyed; how to continue working if the company’s VPN goes down; and more. These and related risks only increase when a business operates across borders and multiple data protection laws could apply.

Employers need to establish robust processes to protect corporate and employee data and ensure compliance with local data protection laws in every jurisdiction of operation. They should also provide data protection training to all employees and implement related policies and procedures to help them maintain good information security habits.

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Corporate governance explained: An interview with the experts

6/17/2020

By John Bostwick, Head of Content Management

Everyone agrees that sound corporate governance is essential to reducing corporate risk. But few people define “corporate governance” in precisely the same way, in part because the term encompasses so much. The OECD says its purpose is to “help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity.” That description likely won’t help an organisation develop its own corporate governance framework, but the general message is clear: Get it right, and corporate governance becomes a very valuable asset for a business.

It’s also clear that developing sound corporate governance practices has never been more important. Tax and other authorities all over the world are implementing and enforcing new regulations relating to transfer pricing, economic substance and more that promote transparency and corporate responsibility. In this complex and changing regulatory landscape, corporate governance controls are often a multinational organization’s first level of defence against fines and reputational damage.

To get a better sense of what corporate governance is now and why it’s important, we emailed three Vistra experts a list of related questions. They shared their answers with each other, and the result is this interview. First, here are brief descriptions of our interview subjects.

Charlotte Hultman is Vistra’s global sector head for corporates. For nearly two decades she’s helped companies expand into new jurisdictions and has deep experience structuring private equity and real estate transactions. Debbie Farman is Vistra’s global head of legal and regulatory services. With more than twenty years’ experience in corporate law, she helps clients with a wide range of legal and regulatory challenges, including those related to mergers and acquisitions and management buyouts. Theresa Doyle is a manager in Vistra’s global services team. Since 2016, she has helped Vistra’s large multijurisdictional clients solve their corporate governance challenges.

The OECD’s Principles of Corporate Governance is 60 pages, giving an indication of how broad this area is. What does corporate governance mean to you?

Theresa: For me, Corporate governance is a set of rules, regulations and controls which should dictate the corporate behaviour of a company. The rules should ensure accountability and transparency for key stakeholders as well as the wider community. Corporate governance rules should be strict enough to ensure regulation and accountability, but flexible enough to support and enable growth of new business.

Debbie: I describe corporate governance to clients as a necessary framework to a successful business. Getting the governance right ensures the board has a risk framework that allows them to make informed and strategic decisions with the peace of mind that their statutory and regulatory requirements are in line with best practices. For large global multinational corporates this can be very tricky, because regulations are changing constantly all over the world. I always advocate using specialists to get this right and help design a suitable framework.

What would you say are the most common corporate governance risks that companies must address?

Debbie: In many countries it is very simple to set up an entity without any formal governance in place. For example, very few countries, and very few sectors (financial services excepted) have directors’ fiduciary duties clearly regulated. This provides an uneven platform for good governance. As a business grows and expands, it usually places an emphasis — both from a cost and efficiency perspective — on bare-minimum statutory compliance by jurisdiction. Without a clear framework and regular governance audits, management may find themselves with a large global group that has no central core for group- and entity-management governance.

Theresa: Unfortunately, we still encounter companies that are trying to get away with the bare minimum when it comes to setting rules and policies for their entities. For example, some choose to set up a non-resident partnership instead of a subsidiary, even when they project headcount to grow beyond five to seven people within six months. This can be a big corporate tax risk that doesn’t provide much reward. And some companies barely meet economic substance requirements when they do set up an entity, which given EU blacklisting and similar initiatives is increasingly risky. Other companies for whatever reasons don’t implement robust structures when setting up boards and other functions.

It’s important for new and established companies to understand that corporate governance regulations are becoming stricter worldwide. More and more pressure is being put on corporate leadership to ensure that they are not merely profitable, but that they are good corporate citizens.

Is there a client or prospect story related to corporate governance that you find particularly illuminating or interesting?

Debbie: I have a fantastic client who has been with me for many years and has what I regard as best-in-class corporate governance. It has over $200 million in assets under management and a clear remit to ensure its philanthropic, environmental and social governance programme is second to none. It is a quasi-NGO, not-for-profit, and must be transparent about its asset holding and donations to good causes. The chair and board members are truly an inspiration. Their governance is like an A-plus-plus response to an exam question about what good governance should look like. I learn from them every day.

Theresa: A client I’ve been managing over the last two years is a life sciences group with a presence in more than 30 countries. They also have over 60 entities. This type of client is particularly interesting from a corporate governance perspective. It’s extremely challenging for this kind of multinational group to adhere to the corporate governance requirements in each of their jurisdictions, while also developing and following a consistent set of policies and controls governing the entire organization.

Do most countries have similar corporate governance requirements, or are there significant differences between jurisdictions?

Charlotte: When expanding to new markets I think it is very important to keep an open mind and be prepared that most things in the destination market will be very different from home. Theresa made the point about regulatory differences between countries, and it’s critical to understand that aspect of corporate governance and account for those differences. Many companies make the mistake of not taking cultural differences and language barriers into account as well. Many firms turn to third parties that have cross-border experience to help them understand all these factors. That’s of course a big part of our job — to help clients reduce the risks associated with new expansions, keep track of any new regulations and provide advice on how to approach each market.

Debbie: All countries tend to have a minimum statutory requirement, such as annual checks on shareholding, the production and filing of annual accounts, etc. However, the biggest difference can be on what is legislatively required for corporate governance. For example, some countries require a company to appoint a company secretary. In the UK this is a statutory requirement for public companies, but not for private ones.

To take another example: In the UK, a private limited company can be formed in one hour, the constitution is default through statute, there is a minimum share capital of one pound, the registered office can be at your home, and there is no requirement for a company secretary. The minimum statutory requirements are to file accounts annually and to confirm beneficial ownership, shareholder and director changes. There are codified directors’ duties, but limited policing. By contrast, to form a private company in Luxembourg, you will need legal representation, a formal set up through a notary, and a minimum share and registered office through an agent. The officer appointment is regulated and costs approximately 20,000 euros.

Accounting for these kinds of jurisdictional differences is where the risk lies for most companies. It’s also why I recommend that businesses adopt a general corporate governance code, akin to a code of conduct. A general code provides a common approach to all countries, regardless of their minimum statutory requirements, and is a best practice.

What specifically are “company secretarial services” and why are they such an important part of sound corporate governance?

Theresa: I would say that company secretarial services — often shortened to “cosec” services — are the day-to-day service operations that maintain an entity and ensure its compliance with local laws and its good standing within the wider company’s corporate structure. Cosec services encompass everything from diligently maintaining a company’s corporate records to ensuring the correct administration of a company’s AGM [annual general meeting]. That last point may seem like an insignificant one, but AGM administration is an important and often-overlooked part of corporate governance.

So, cosec services are wide-ranging. They also include domiciliation services — such as providing locally compliant registered office addresses and mail-forwarding services — providing local directors and nominee shareholders, appointing local company secretaries, preparing annual reports and filings, acting as agents for process and more.

It’s also important to emphasize that good corporate governance involves adhering to the operational rules set out in a company’s articles of association or incorporation memo.

Debbie: The only addition I would make here is that it is vitally important to maintain a strong evidence-trail of decisions made. So for example if an entity within a portfolio is regulated, you need to make sure that board meetings are held regularly and in line with the entity’s constitution, and that board minutes and action lists are taken and reproduced in a timely manner. This can be achieved through an outsourced service — and, yes, Vistra does provide these through our board advisory teams!

I sometimes hear of service providers offering corporate governance “health checks.” What’s involved in a health check and why are they important?

Charlotte: Performing a corporate health check is as important as taking a company’s inventory. In the case of a health check, you’re making sure all entities within a group have their documents in order, that they’ve made all their required filings, and that they have no outstanding government fees, pending tax disputes or other outstanding obligations. A health check can significantly lower a group’s financial and reputational risks in certain situations, such as after a period of rapid growth through acquisition when a multinational group’s structure may become unwieldy and difficult to oversee.

A corporate compliance audit is also a critical process in certain situations, such as prior to disposing a company or a division and making it ready for a sale. If we find compliance gaps, we can give you that information and recommend steps to close the gaps. A compliance audit can ensure that a business is in an operational-readiness stage to enable optimal separation and a successful sale.

In your career, how has corporate governance changed, both from the perspective of corporations and regulators?

Debbie: Previously, I would have said corporate governance was seen, even by the global groups, as an irritation, something that had to be done to comply with certain statutory requirements. If there was a need for cost savings, the company secretariat could be one of the first functions to feel the cuts. The thinking was usually something along the lines of: “Surely anybody can do this, it just takes a few minutes to write board minutes and file a few forms?”

With most regulators now choosing a risk-based, outcomes-focused approach to their regulations, there’s more of an emphasis on what good governance looks like, which places more responsibility on the senior management teams of businesses. Now more than ever, a board needs to know its business and how it’s governed, while also having a robust framework that ensures that global entity statutory and regulatory requirements are satisfied.

In addition, and most significantly, there is now a widespread expectation that businesses aren’t solely focused on maximising shareholder value in the short term, but also on being a force for societal good in the long term. Good corporate governance now involves demonstrating that a business is committed to environmental and social needs, sustainability and climate change, that it takes care of its supply chain and its employees’ wellbeing. Investors now look to invest in companies that focus their efforts on these important factors.

How does technology affect corporate governance? For example, do companies use apps or other tools to help create better corporate governance? Are there risks involved in using these?

Theresa: Technology has had and will continue to have a massive effect on corporate governance. For example, an effective and efficient entity management system — or EMS — allows companies to automate certain documents to reduce data-entry errors, facilitates remote participation and allows for the secure transmission of board information. It can also act as a single source for key stakeholders to access company information, such as articles of incorporation, tax filings and board minutes. Improved technology allows for corporations to work more efficiently by increasing accountability, transparency and the ability to securely store information and make it accessible to the right people, no matter where they’re located.

Of course, there are always risks involved when using any platform. It’s critical to select a thoroughly vetted provider with proven data security controls in place so you can use an EMS with confidence.

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U.S. to investigate digital services taxes of UK, Italy, France and others

6/10/2020

By Tom Lickess, Head of International Tax Advisory

The Office of the U.S. Trade Representative announced on June 2 that it’s launching investigations into digital services taxes adopted or being considered by the European Union and a number of individual countries. A USTR press release says the investigations are actionable under Section 301 of the 1974 Trade Act, the same section used by the U.S. to impose tariffs on China during the ongoing trade war.

Background

The Organisation for Economic Co-operation and Development and G20 countries have for years been trying to develop an equitable way to tax the digital economy. In 2014, they finalized 15 BEPS Actions, the first of which specifically addresses the tax challenges of the digital economy. Last year, the OECD grouped proposals into two “pillars” that seek to overcome these challenges.

Despite these efforts, the OECD and its partners have not achieved consensus on digital taxation, in particular on how to tax the tech sector. As a result, a number of countries have unilaterally implemented or are considering adopting tax rules governing the online economy.

Some of these rules are referred to as digital services taxes, or DSTs. France was the first major economy to implement a DST. It was passed last July and was made effective retroactive to 1 January 2019. It targets large tech companies and is known informally in France as the “GAFA tax,” an acronym for Google, Amazon, Facebook and Apple.

The French DST imposed a 3 percent tax on revenues to companies with annual worldwide revenues of 750 million euros and revenues in France of more than 25 million euros. While French authorities put forward that the DST doesn’t necessarily target U.S. companies, U.S. companies and U.S. government authorities disagreed. Last summer, U.S. President Trump threatened tariffs on French exports, including wine, in response to the DST. France agreed to postpone the implementation of the tax until at least through 2020.

Other countries around the globe, however, have proceeded to implement their own DSTs. For example, the UK and Italy enacted DST regimes at 2 percent and 3 percent respectively. The UK government regards the country’s new tax as a short-term measure pending more comprehensive global tax changes, confirming that its DST will be dis-applied “once an appropriate international solution is in place.”

The OECD was supposed to release a framework for digital taxation by the end of this year, though the coronavirus pandemic has slowed progress. Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration, recently cautioned that some elements of the development process may be delayed.

The USTR office investigation

U.S. Trade Representative Robert Lighthizer’s office will conduct investigations into the DST regimes now effective in or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey and the United Kingdom. Lighthizer’s office is also seeking related public comments until July 15.

The eight-page Federal Register notice, released the same day as the press statement, provides concise summaries of the DSTs in question. The summaries provide a glimpse of how tax laws are evolving, and not always in the same ways. All of the DSTs, for example, apply taxes to companies based their on global and in-country revenue thresholds. Rates and thresholds, however, can vary considerably by jurisdiction.

For example, the Czech Republic is considering a DST that would apply a 7 percent tax on revenues from targeted advertising and digital interface services from companies with 750 million euros in worldwide annual revenues and CZK 50 million in in-country revenues. India, by contrast, rolled out its DST on 1 April 2020. Its rate is 2 percent, which applies to the online sales of goods and services to persons in India by non-resident companies with annual revenues of more than approximately US$267,000, a very low threshold relative to the Czech Republic (and most other DSTs).

Despite variations, however, U.S. authorities are uniformly displeased with the DSTs. Lighthizer is quoted in the June 2 press release as saying, “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies. … We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

The investigations will initially examine whether the DSTs in question do in fact discriminate against U.S. companies. They’ll also examine the DSTs’ retroactivity and whether they are reasonable tax policies within the context of the U.S. and international tax systems. The USTR will also consider extraterritoriality, taxing revenue as opposed to income, and whether certain technology companies are being taxed on the basis of their commercial success.

Section 301 of the 1974 Trade Act is somewhat vague as to what constitutes “unreasonable or discriminatory” foreign tax policies. The Federal Register notice indicates that an “act, policy, or practice is unreasonable if … [it], while not necessarily in violation of, or inconsistent with, the international legal rights of the United States, is otherwise unfair and inequitable.”

In other words, it’s up to the USTR to decide if a given DST is unreasonable or discriminatory and burdens or restricts U.S. commerce. If Lighthizer determines that it is, the Federal Register notice explains, then Lighthizer “must determine what action to take.”

What multinationals should consider

The Financial Times reports that the USTR’s recent announcement has bipartisan support in the U.S. A joint statement from Republican Senator Chuck Grassley and Democratic Senator Ron Wyden said the new digital services taxes “unfairly target and discriminate against U.S. companies.”

Needless to say, U.S.-based tech companies agree. The U.S. corporates’ argument is summed up in a May 27 CNBC op-ed article by Clete Willems, who writes: “Digital tax policies have always posed a threat to the U.S. economy and tax base, but this threat is exacerbated by the coronavirus. Increasing taxes on our companies will make our own economic recovery more difficult, and looting our tax base will make an already troubling fiscal situation worse.”

There is, then, a strong chance Lighthizer’s investigations will deem some or all of the DSTs unreasonable or discriminatory. The actions he and President Trump may take as a result will almost certainly include tariffs, presumably tailored to each country, such as imposing wine tariffs on France or car tariffs on the UK. The Wall Street Journal reports that Trump’s administration is already preparing tariffs.

The U.S. has argued that countries should forgo unilateral implementation of DSTs and wait for agreement on an OECD framework for digital taxation. The U.S. has also indicated it could support certain DSTs if they were voluntary for U.S. companies.

Given dwindling tax revenues due to the pandemic, it is unlikely countries that have implemented or are considering digital services taxes will simply wilt in the face of U.S. tariffs. Reuters quotes France’s Finance Minister Bruno Le Maire as saying, “We will give no ground on digital tax. I call on all G7 states to step up work at the OECD to reach an international solution by the end of 2020.” Reuters adds that France will begin taxing big tech companies whether or not an OECD framework is agreed to. The European Commission has also indicated it will resume talks if no OECD agreement is reached by the end of the year.

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Four steps your company can take to reduce global mobility risks

6/3/2020

By Paul Rubino, Senior Director, U.S. Expatriate Tax

Sending an employee on assignment to another country is financially and administratively burdensome. Many estimates put the cost of employing an expatriate worker at two to three times the cost of compensating a traditional worker. Expenses include those related to visas and work permits, relocations, shadow payrolls, tax equalization, repatriation and more.

For many multinational companies, these costs are simply a necessary part of doing business in our global economy. But during the ongoing coronavirus pandemic, businesses and their employees are reconsidering the benefits and risks of expatriate assignments in light of health concerns, travel restrictions, tax incentives, the rise of remote working and more.

This blog post describes some important steps your organization can take to reduce its global mobility risks. These steps could put your company in a better position to thrive as our global economy recovers.

Recalculate your cost-of-assignment projections

Many companies with existing expat employees made cost-of-assignment (COA) projections before the coronavirus pandemic was declared in late January 2020. Others employers may have calculated the costs of future or contemplated assignments before the declaration.

As such, these projections could be based on assumptions that are no longer valid, pushing them significantly wide of the mark. Companies in this situation should consider recalculating their COA projections based on current regulatory realities, and update their budgets, strategies and policies accordingly.

Each expat assignment is unique, but here are a few factors to consider when making your new projections:

The location of your expat employee. In some cases, this may be the home country (i.e., the expat has temporarily relocated back to his or her home country), in others, the target country. The location will affect taxes due to home- and host-country authorities. Any hypothetical taxes will have to be recalculated and tax equalization amounts adjusted in light of any unforeseen relocation.

Applicable U.S. foreign earned income exclusions may need recalibration. Even if an expat has temporarily relocated to the U.S., he or she may still be eligible for the exclusion.

Cost reductions from temporarily repatriated expats, for example those related to cost-of-living (COLA) and housing allowances.

Additional costs to expats for hardship or adverse conditions due to lockdowns or for other reasons.

Any change in the expat’s equity value in light of slumping stock prices, new tax incentives or other tax-triggering events.

Any additional scenarios unique to your expat that may affect costs, such as changing the status from a long term assignment (LTA) to a short term assignment (STA).

Calculate the real costs of expat employment severances

The global economic contraction caused by the pandemic has left many multinational companies with little choice but to lay off some of their workforce. Some of these employees are of course expats on assignment.

This rather unusual situation of terminating an assignment while also severing ties with the expat creates at least one notable challenge for the employer. That is, when the expat employee has had his or her taxes “equalized” (i.e., when the employer has ensured the employee has not incurred any tax losses or derived any tax gains from the assignment), the employer is left holding hypothetical taxes from the expat employee. That employee will need to reconcile those taxes against the true tax for the year when completing his or her 2020 tax returns.

In such cases, the employer and the terminated employee may decide to estimate a tax-equalization settlement, paying the employee upon termination for taxes that will come due in the next calendar year. The company may also decide to estimate what it will cost the terminated employee to prepare and file his or her tax return, and also include that amount in the termination settlement.

Consider tax equalization policy caps on equity rewards

Many employers provide their expat employees with equity stakes in their companies as an incentive. You may want to consider putting caps on these incentives, so you put your company in a good position to thrive as the global economy recovers. A cap will not only reduce total employee compensation costs, it will also limit the employer’s future exposure to host-country taxes, especially in high-tax jurisdictions.

One good option is to base an equity cap on an average fair market value (FMV) of equity earned over 2020. The cap would only apply to employee-initiated transactions, such as option exercises on incentive stock options (ISOs) or non-qualified stock options (NQSOs) or employee stock purchase plan (ESPP) sales. (Restricted stock units, or RSUs, should be excluded.)

Imposing such caps will of course potentially reduce employee engagement, but (depending on the company’s situation) a cap may be fully justified by the current, unprecedented global economic situation. Employers should in almost all cases implement such a policy across the organization so that it applies to all expats, to avoid charges of favoritism and to promote employee engagement.

Understand your risks when employing remote workers in another country

Due to the pandemic, employers across the globe have asked their employees to work from home. Indeed, the practice of remote work may become our “new normal” long after the pandemic fades. In the meantime, companies must understand that there are significant compliance risks related to employing workers remotely, especially when they’re working across borders.

For example, I recently heard of a U.S. expat who was laid off from her UK-based job. Due to travel restrictions, she remained in the UK, and was quickly hired by another U.S.-based employer. The new employer is now paying her on a U.S. payroll, and not paying any income or social security taxes to UK-based authorities. This is of course in direct violation of local law.

Some employers and employees may feel that, because travel is now severely restricted, tax laws and enforcement have been relaxed. This is not the case, however, and in our example the employer and employee are putting themselves at risk of fines and reputational damage.

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Europe faces privacy concerns with contact-tracing apps

5/27/2020

By Paul Sutton, Vistra

As the Covid-19 virus ebbs in Europe and people start to return to normal activities, countries are turning to contact-tracing apps in an attempt to reduce disease transmission and lower the odds of a second outbreak.

But some apps have raised the hackles of privacy advocates, and with many unknowns about the virus, scientists can’t gauge how effective they will be. In the meantime, governments are moving ahead with the technology, sometimes changing their minds as they struggle to achieve a balance between public safety and citizen privacy.

Centralized versus decentralized

The apps have two basic formats: a centralized model, in which user data is shared with government health authorities; and a decentralized model, in which data is stored only on the individuals’ smartphones.

Germany, Italy, Switzerland and the Netherlands have opted for the decentralized system devised by Apple and Google. France, Norway and the UK are creating centralized models. The UK is currently testing its app on the Isle of Wight.

Both models use Bluetooth wireless radio signals to log instances when phone owners who have downloaded the app are too close to each other. People who are diagnosed with Covid can note their status on the app, which sends an alert to others they may have infected. By using Bluetooth rather than GPS technology, the apps are in theory less able to collect data without revealing user location.

In both systems, personal data such as names and phone numbers is anonymized. With a centralized system, government health authorities obtain the data and store it on their servers, where matches with other contacts are made. Some epidemiologists have argued they need this framework to see how the disease is spreading, and say the data can help them make informed public policy suggestions.

Privacy concerns

Privacy advocates argue that centralized data could be de-anonymized and information about who associates with whom used improperly by other government departments.

In addition, data that moves from one location to another provides hackers with a new attack portal. Government databases are especially valuable targets for foreign intelligence operatives, who could potentially damage systems or flood them with false alerts, leading to a panic. Political agents or pranksters might also wreak havoc. Furthermore, governments themselves might someday use contact information to spy on citizens.

In April, more than 300 European scientists published an open letter warning governments about privacy concerns with centralized apps, saying they could, “via mission creep, result in systems which would allow unprecedented surveillance of society at large.”

Amnesty International has asked the UK to delay rolling out its app until it can prove that the data can’t be de-anonymized and ensure that it will not be used for other purposes or accessed by third parties. The group also recommends independent oversight of the apps and automatic data deletion after set time periods.

It is not yet clear whether centralized apps meet European privacy standards. In both the EU and the UK, countries are required to do a Data Protection Impact Assessment (DPIA) in cases where information processing entails high risks to privacy. The European Data Protection Board has strongly recommended that governments submit DPIAs for contact-tracing apps. It has not yet received one from the UK.

Will the apps work?

Apart from privacy considerations, there are questions about the effectiveness of the apps, which estimate the distance between people based on the strength of Bluetooth signals between one phone and another.

Computer scientists in Dublin found that for people sitting at a table, signal strength was lower for those who kept phones in their pockets rather than laying them on the tabletop. Another problem: The presence of metal — such as that found on supermarket shelves — sometimes increased signal strength even as people moved farther apart.

The apps also don’t address the question of how close is too close. Though most health authorities are using six feet as a guideline, that number is based on diseases of the past, and some scientists say a buffer of 10 feet may be needed.

Scientists also say the apps would need to achieve widespread adoption to be useful. Researchers at the University of Oxford said 56 percent of the UK population — or 80 percent of smartphone users — would need to download an app for it to be effective in suppressing an epidemic.

Even mass adoption among smartphone users could leave the most vulnerable elderly populations out in the cold.

Another flaw is that the apps rely on users to voluntarily report a Covid diagnosis. People who are ill may not enter their information in a timely manner, if they do so at all, and in some areas, a shortage of test kits may preclude diagnosis. Many who contract the virus experience no symptoms and are not likely to seek testing, which could give their contacts a false sense of security.

Looking ahead

At the moment, most experts are considering contact-tracing apps in light of public health and data privacy. That said, the technology could ultimately affect regulations governing cross-border business, and how those regulations are enforced. It is easy to imagine, for example, immigration and tax authorities of multiple jurisdictions sharing individuals’ location information from the apps. This data sharing could in turn be used to enforce permanent establishment laws, elevating a company’s risk of triggering a taxable presence when sending an employee on short- and long-term expatriate assignments.

As government leaders turn to contact tracing in an attempt to contain the disease, and as their strategies evolve, they would do well to remember that decisions they make now will follow them into a post-Covid future. Voter insistence on privacy — which not long ago led to the GDPR — is sure to remain strong long after the virus has passed.

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What foreign investors need to know about Indonesia’s proposed omnibus law

5/20/2020

By Floris van der Velde, Associate Director, Business Development

In February, Indonesian President Joko Widodo’s government submitted a draft bill to the country’s parliament. The draft is widely known as the “omnibus law” and aims to transform Indonesia’s economy. The bill has strong implications for multinationals operating in or considering investing in Southeast Asia’s largest economy.

Background

The omnibus law is a comprehensive bill that would regulate many provisions in various industry sectors into one law. It seeks to strengthen the economy by increasing competitiveness, creating jobs and making it to easier to do business in Indonesia.

Last October, President Widodo presented his vision of Indonesia in 2045. An English translation of the speech quotes him as saying, “Our dream is that by 2045, Indonesia’s gross domestic product will have reached US$7 trillion. Indonesia will have become one of the top five world economies with a poverty rate nearing zero percent. That is what we must head toward.”

The government realizes that to fulfil this vision, it must address the problem of over-regulation in Indonesia. Bureaucratic red tape has long hampered growth in the country and deterred foreign investment. Indonesia is currently ranked 73rd among 190 economies in the World Bank’s Ease of Doing Business list. President Widodo has set his sights on Indonesia achieving a rank of 40.

The omnibus law is designed to help meet these lofty goals, in part by streamlining the country’s complex, sometimes redundant regulatory environment. The law would ease restrictions in 11 critical areas, including labour law, capital investment, business licensing, corporate tax and land acquisition. Needless to say, these measures if adopted would make Indonesia a far more attractive destination for foreign businesses and investors.

Below are a few of the proposed changes we believe will most affect foreign investors.

Simplifying business licensing

Any business in Indonesia now requires one or more licenses to operate, and many of these must be extended after a certain period. The responsibility for issuing business licenses is spread across many government institutions and regional governments. This multi-layered system, involving various state, local and central agencies, makes it very difficult for an investor to know what business permits and licenses must be obtained, where to obtain them, and in what order they should be applied for.

The omnibus law strengthens existing regulations by simplifying the business license process across almost all business sectors, including maritime and fisheries, energy and mineral resources, electricity, infrastructure, and transportation. In addition, many licences will be combined or scrapped entirely.

The role of the national Investment Coordinating Board (BKPM) will be strengthened and is set to play a pivotal role in streamlining the issuing of all business licenses. Under the proposed law, a foreign investor will be able to obtain a business licence through an online single submission (OSS) system, eliminating the need to go through multiple ministries or other government institutions.

The omnibus law will also introduce a risk-based-approach system, dividing businesses into categories of low, middle and high risk. Businesses deemed low risk will no longer be required to obtain a business license, only a registration number. Middle-risk businesses will also not be required to obtain a business license, but will need a standard certification. High-risk businesses will still be required to obtain a full business licence.

Easing foreign investment restrictions

Although the omnibus law is lacking implementation details on the subject of investment restrictions, the proposed main regulation reads: “All business lines are open to direct investment, save for those that are designated as closed to investment or which constitute activities that are reserved to the central government.”

Indonesia now uses the so-called negative investment list, which includes a number of business lines that are only partially open to foreign investment (i.e. these lines have foreign ownership caps). To take two examples, companies engaged in large horticulture business are open to foreign ownership of up to 30 percent, and companies engaged in broadcasting business are open to foreign ownership of up to 20 percent.

Though it’s not clear at this time, under the omnibus law we expect these and other business lines will be fully open to foreign ownership. (That is, these lines would be available for 100 percent foreign ownership.) If this is indeed the case, the new law will mark a dramatic liberalization of Indonesia’s foreign direct investment (FDI) regime.

This element of the omnibus law must be clarified by a presidential regulation that includes a list of closed business lines. This hasn’t yet been issued.

Easing labour laws

Indonesia has relatively strict labour laws. For example, the laws provide for generous mandatory severance compensation, by far the most generous in the APAC region. These and other worker-friendly laws deter many foreign investors. The omnibus law aims to make labour laws more flexible and market-friendly, and bring them more in line with other countries in the region.

It must be said that this is a sensitive subject in Indonesia that has generated considerable opposition from labour unions and other parties. While this should not be dismissed, some resistance is to be expected when a government seeks to relax worker protections.

Streamlining corporate tax regulations

A large part of the proposed omnibus law covers corporate taxation. Currently, there are many different tax laws in the country.

Essentially, the bill provides for a unification of Indonesia’s scattered tax regulatory framework. It aims to minimize overlapping regulations and provide many corporate tax incentives, including adjustments to the following rates.

Corporate income tax rate

The bill will gradually decrease the corporate income tax rate from 25 to 20 percent for the period 2021 to 2023.

Furthermore, qualified public companies that trade at least 40 percent of their shares on the Indonesian stock exchange can apply for an additional 3 percent rate reduction. This decrease will make Indonesia more competitive with neighbouring countries.

Dividend tax rate

The bill will provide for income-tax-free dividend payments, as long as the full amount is re-invested in Indonesia.

Interest tax rate

Indonesia’s current interest tax rate of 20 percent is high relative to other APAC countries. The proposed omnibus law will provide for a reduction of the rate of income tax coming from interest payments. The exact reduction has not yet been determined.

The deliberation of the omnibus bill is currently on hold due to the pandemic and is expected to be picked up in a few months. Despite this unavoidable delay, the proposed omnibus law clearly shows the Indonesian government is committed to minimizing red tape in virtually every area of business to woo foreign investors. Those investors should keep in mind that the omnibus bill will be deliberated in parliament and that there could be changes to the draft before it becomes law.

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Important considerations for transitioning back to the office

5/13/2020

By Rosie Ranauro, Senior Associate, HR Advisory

With the COVID-19 pandemic receding in many places, multinationals are readying their workforce to return to the office. With guidelines constantly changing, employers are looking to local governments for support in making unprecedented decisions about safety precautions.

Many workplaces will likely have to be physically altered as we emerge from the crisis, at least for the near term. In addition, the dynamics of an economy in recession combined with the recent move to remote work, may lead to permanent changes in the way business is conducted. Even as restrictions continue to ease, businesses will need to learn how to adapt to the “new normal.”

Ensuring sanitation and promoting health

To keep germs from spreading, companies must create a plan for cleaning and disinfecting work surfaces, providing hand sanitizer and possibly supplying masks. Companies should remind employees to wash their hands frequently, disinfect personal workspaces, maintain social distancing and avoid handshakes. Both the World Health Organization (WHO) and the Centers for Disease Control (CDC) offer detailed guidance on workplace sanitation.

Some companies, including Amazon and Starbucks, are requiring employees to have their temperatures read before they can enter the workplace. Employees running a fever can be sent home, both for their own health and to avoid infecting others. If your company is planning such a program, make sure temperature readings are permissible in your jurisdiction. In the U.S., for example, the procedure is legal and recommended by the CDC. You should also make sure employees waiting in line follow social distancing guidelines.

Another potential workplace health measure is immunity testing. Both the UK and the U.S. are considering "immunity passports," or testing employees for antibodies to the virus. However, there are still many unknowns about the disease, including what level of antibodies is sufficient and how long protection lasts. Furthermore, many of the tests that have been developed are unreliable. France and Italy have both considered immunity testing, but health experts in both countries now say they’re wary of rolling out programs without further study.

Reconfiguring the office

Even as the virus ebbs, social distancing measures are likely to be in place for some time. Today’s open office plans make distancing difficult, but with a little planning, it can be done.

To start, businesses should consider rearranging their office space so employees are sitting at least six feet apart. The same should be done for shared spaces like the kitchen, lobby, break and conference rooms. Experts also suggest limiting the number of chairs in these areas to twelve to discourage large gatherings.

Workers can still use popular “concentration rooms” for individual work or small group meetings. But “hot-desking” — a popular trend in which workers tote laptops to any available work station — may become a thing of the past, unless there are strict controls in place to ensure each workspace is properly disinfected.

Another measure companies can experiment with is implementing a one-way hall traffic system to keep employees from physically running into one another. Many businesses are also installing Plexiglas sneeze guards for receptionists and other workers who may come in frequent contact with the public.

In the future, more companies may install touchless faucets, toilets, coffeemakers and elevator panels, which can be controlled by a smartphone app. Some retailers are already using IoT sensors to count the number and location of customers in their stores. This data is used to create “heat maps” showing occupant density, and connected electronic signs warn people to stay apart in congested areas.

But even with these measures in place, some employees — particularly those at higher risk — may feel uncomfortable reporting to work. Employers should respect their concerns, make accommodations and ensure they apply the same policy to everyone. These policies should be in writing and available to all employees, such as in an employee handbook. Workplace policies related to the pandemic will continue to evolve, so employers should have sound communications practices in place to notify their staff of any updates.

How much responsibility do employers have for keeping their workplaces virus-safe? It’s an unanswered question, and many businesses are calling on legislative bodies to provide liability protection before reopening. So far, no consensus has emerged, leaving businesses with a slew of difficult choices to make.

The remote work option

Facing losses and an uncertain future, many multinationals are scaling back operations and laying off workers, with more cuts likely to come. Some experts are predicting a recession that will last through 2021.

Nevertheless, many companies with remote workers are thriving. Work-from-home programs have been rolled out at enormous scale with almost no preparation, and they’re succeeding, mainly because the technology that makes them possible was already in place. Employees have honed their software and conferencing app skills, and executives have discovered that knowledge-based businesses can operate well with fewer workers in the office.

To reduce costs moving forward, many companies may decide to keep part of their remote workforce at home. According to a Global Workplace Analytics survey, employers can save roughly $11,000 a year for each employee who works remotely just half of the time. The same study found that remote work programs created during the pandemic are collectively saving employers in the U.S. more than $30 billion a day.

In a Gartner survey conducted during the pandemic, nearly three-quarters of finance executives said they plan to make at least five percent of their on-site workforce permanently remote after the crisis. Nearly 25 percent said they will make at least 20 percent remote.

Some studies have shown that working from home increases productivity, as well as allowing for more flexibility and family time. For some caregivers, it could make staying on the job a feasible alternative to taking extended leave.

Employers should be aware that workers who do return to the office or job site may need help finding childcare. Companies can help by compiling a list of providers or opening their own facilities nearby.

The pandemic poses steep challenges for multinationals that will continue long after the virus fades. Though nearly everyone will suffer financially, businesses that plan wisely during this time may come back to a tighter ship and a safer, happier workforce.

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UK businesses should use caution when interpreting Morrisons data breach ruling

5/6/2020

By Paul Sutton, Vistra

Lawyers for UK grocery chain Wm Morrison Supermarkets heaved a sigh of relief in April after the country’s Supreme Court ruled the company was not liable for a data breach caused by a disgruntled employee. But multinationals would be gravely mistaken to take encouragement from the narrow ruling. Though the UK has split from the European Union, GDPR privacy rules remain in full force there and carry penalties that could swing a wrecking ball at company finances.

The Supreme Court’s decision overturns two lower court rulings that had held Morrisons responsible after an angry employee published sensitive company payroll information on the internet and shared it with newspapers in 2014. The employee was convicted for fraud and disclosing personal information and sentenced to eight years in prison. Nine thousand Morrisons workers sued the company for the breach.

“Vicarious liability” verdict

The high court quickly dismissed the case’s direct liability allegations and turned its attention to the lesser-known standard of “vicarious liability.”

Proving vicarious liability entails demonstrating that an employee acted “in the course of employment,” i.e., in the course of carrying out his duties to the employer. In this case, the employee, who carried a grudge after receiving a disciplinary warning, released the information without company authorization on his home computer. Deliberately harming the employer (and doing so while not at work) contradicts the concept of carrying out one’s duties, the court found, ruling that the company could not be held responsible for the actions precipitated against it.

The importance of the GDPR

There are two important things for companies to note about this ruling. The first is that the ruling deals only with a narrow subset of law concerning the question of indirect liability. The second is that the incident occurred in 2014, four years before GDPR legislation came into effect.

If the breach had occurred later, after the GDPR was in force, Morrisons would have been subjected to an intensive GDPR investigation of its policies and its enforcement of data privacy rules. Any violations that came to light could have received the full force of the law, which can result in fines of up to 20 million euros or 4 percent of revenues, whichever is greater.

Though the UK has officially left the EU, it is in a transition period at least until the end of 2020 to allow for a new trading relationship with the EU to be negotiated. Throughout this period the same trade rules and free movement of goods and services continue to apply in the UK, and the GDPR also remains in full effect. Whatever the outcome of the UK-EU trade talks, it is certain that from 2021 onwards, GDPR requirements will continue to apply throughout the UK, as the GDPR has already been imported into UK national law. Following the transition, it will be known there as the UK GDPR.

UK employers should also bear in mind that — although some have described the Morrisons ruling as “a great result for employers,” — the case went all the way to the Supreme Court and involved thousands of employees seeking damages. Had the ruling gone another way, more of Morrisons’ 100,000 employees might have added claims, with devastating financial and public relations results.

Taking privacy seriously

Since the GDPR came into effect in May 2018, authorities have received an average of 278 personal data breach notifications per day. Though the total amount of fines collected so far — 114 million euros — is much lower than it could be given what the law allows, some legal experts believe that new German guidelines will cause penalties to rise in the future.

Quite a few multinationals have been hit, including Marriott, Uber, Yahoo, Facebook, and British Airways, which received one of the largest fines (183 million pounds) after website visitors were diverted to a fake site where their payment information was stolen. The fine has been deferred twice and could be appealed.

In the end, then, the Morrisons case should serve as a reminder to all organizations with UK operations that — Brexit or no Brexit — the country takes data privacy very seriously. UK employers should review their employee handbooks and training to make sure they comply with all UK GDPR requirements.

In cases involving an employer transferring data outside the UK — for example, to the United States — the employer should also ensure that it fully complies with all GDPR rules relating to cross-border data transfers. Note that data transfers to the U.S usually require membership in the EU-U.S. Privacy Shield Framework or the execution of EU standard or contractual model clauses.

UK employers should also update their policies to convey that their company will not be held responsible for employees’ actions while they are not conducting work business. This will not necessarily absolve an organisation from vicarious liability, but should be done. Other actions may also be necessary to ensure GDPR compliance.

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The ABCs of BEPS Pillar One explained

4/29/2020

By Tom Blessington, Manager, International Tax Advisory

Over the past half dozen years, a number of countries have implemented laws to account for the evolving digitalised economy. Often known as Google taxes, these country-specific measures seek to capture tax revenues from online companies that generate profits in the respective jurisdictions, but don’t have traditional tax presences there. Some examples include Australia’s diverted profits tax, France’s digital services tax and the UK’s diverted profits tax.

These laws are broadly similar, but each is unique. Most lawmakers and tax experts agree, moreover, that implementing a patchwork system of country-specific laws will not be effective in overcoming the challenges of taxing the digital economy, particularly its technology sector.

Digital taxation: Developing a standardised approach

In order to address concerns about how and where the profits of large tech companies should be taxed, the Organisation for Economic Co-Operation and Development and G20 member countries are developing a standardised approach. This coordinated effort essentially seeks to ensure that taxing rights over the profits of multinational technology entities are shared fairly between relevant tax jurisdictions. The recommendations arising from this project are known as Pillar One and Pillar Two.

As we explained in an October 2019 post, Pillar One is a group of proposals examining taxing-rights allocation, profit allocation and nexus rules. Essentially, Pillar One addresses how to tax large multinational groups that generate profits in certain jurisdictions where they do not have a taxable presence under current international tax rules. At the time of our October post, the OECD had recently announced new rules for public consultation known as the Secretariat Proposal for a “Unified Approach" under Pillar One. Further details of Pillar One were expected to be released in January 2020.

As expected, in January the OECD Inclusive Framework on BEPS working group released a statement setting out the proposed approach to Pillar One. This post summarizes some of the critical elements of Pillar One as described in the January statement. The post is meant to help multinationals understand the current state of this critical, evolving initiative that's shaping international tax rules. The initiative is significant to say the least — it now involves 137 countries and jurisdictions — and has massive tax implications for multinational groups.

(For information on Pillar Two, see our post BEPS Pillar Two reflects radically changing world of corporate taxation.)

Additional background on OECD objectives

The OECD/G20 BEPS program aims “to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.” The program addresses the following key elements of taxation:

How taxing rights are allocated between jurisdictions

What the digital economy means for traditional measures of taxable presence and intercompany transactions

How to minimise the complexity of any proposed changes, for both taxpayers and tax authorities

In order to achieve these objectives, the OECD considered how new and evolving business models — such as the internet and cloud services — challenge traditional physical-presence-based tax principles and how taxing rights can be extended to tax these new business models in a fair way.

Once agreement is reached, new rules governing digital taxation will likely first apply only to very large international groups, such as those with group annual revenues of more than 750 million euros.

The ABCs of Pillar One

Pillar One addresses nexus rules (or where tax will be paid) and new profit-allocation rules (or what portion of a multinational group’s profits will be taxable). The January 2020 statement clarifies that the unified approach on Pillar One “is designed to adapt taxing rights by taking into account new businesses models and thereby expand the taxing rights of market jurisdictions (which, for some business models, is the jurisdiction where the user is located).” This should in turn create a more stable international tax system.

In order to fulfil this goal, the approach on Pillar One suggests that three kinds of taxable profit may be allocated to a market jurisdiction, calling these Amounts A, B and C. I’ll address these now in order.

Amount A

Amount A is the apportionment of group profits and will occur even when there is no physical presence or product in the country. This is a significant departure from existing international tax principles.

Taxable Amount A profits are likely to be assessed on companies with significant foreign revenues where a new nexus (i.e. a taxable presence) may require group profits to be allocated between different jurisdictions according to a special formula.

The Amount A profit allocation formula will likely attempt to measure the degree to which there is an “active and sustained participation of a business in the economy of a market jurisdiction” through (largely automated) sales to individuals.

As the Amount A profit allocation formula will focus on automated online activity with individuals as the end user (specifically search engines, social media, cloud services and online marketplaces), exemptions will likely exist for professional services and certain business-to-business activities.

Amount B

Amount B is the taxation of in-country marketing and distribution arrangements through the application of a fixed, taxable profit margin. This is a departure from current practise, as these types of activities do not typically create a taxable presence and are therefore not typically subject to tax.

The calculation of Amount B will be based on established international tax concepts (such as the arm’s length principle) and will take the form of a fixed return on expenditure. While a “fixed return” has not been defined in this case, it is likely to be a cost-plus on in-country costs.

Amount B will potentially affect multinational companies with local sales teams that are not generating taxable profits in those countries.

Amount C

Amount C is an extension of Amount B and covers in-country activities other than marketing and distribution. This category will help clarify the treatment of certain activities that are now considered grey areas in terms of whether a taxable presence is created.

The calculation of Amount C will be made on an arm’s-length basis, taking into account the factors that make the activity “non-standard” (and therefore not included in Amount B).

This will potentially affect multinational companies with specialist local teams that are not currently generating taxable profits in those countries and not covered by Amount B.

Practical implications of Pillar One’s ABCs

In practise, there are not many multinational groups whose turnover will place them within Pillar One. As a result, few companies will be subject to the Amount A profits.

Multinationals should keep in mind, however, that few tax laws remain static. Once Pillar One recommendations are adopted by the OECD and various countries begin to legislate for the changes (and repeal any interim measures such as the various digital service taxes), Pillar One will almost certainly start to apply to multinational groups with lower annual revenues.

Some multinational groups may find that rules introduced to impose Amount B and Amount C taxable profits have little impact, especially if a group already conducts in-country activity on a cost-plus basis through a subsidiary or a branch.

When the inclusion of Pillar One amounts would result in double taxation under existing tax treaties, these treaties will need to be updated. This risk — and possible ways in which it can be mitigated — is under ongoing OECD review.

Additional key features of Pillar One are expected to be announced in July 2020, with a final report issued by the end of 2020. Multinational groups should as soon as possible review their existing activities in key markets in light of the January statement. They’ll then be in a good position to make informed decisions when the final Pillar One proposals are released at the end of the year.

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UK employers need to know about these Good Work Plan changes to written statements

4/22/2020

By Ben Watters, Associate, HR Advisory

A number of important new employer requirements went into effect this month in England, Scotland and Wales. The changes follow former Prime Minister Theresa May’s Good Work Plan consultations in late 2018. The consultations aimed to provide UK employees with greater access to employment-related information and address rising concerns over the gig economy and worker rights.

This post examines critical new requirements related to written statements of employment.

Background

Before the recent changes took effect, employers had been legally obligated to provide employees with a written statement of certain terms and conditions, typically in the form of an employment contract. Employers had to provide the statement to employees who had at least one month of continuous service, and to issue the statement within two months of the employee’s start date, even if he or she had terminated. Employers had to provide certain required information in a single written statement, while they could provide other information in installments or in other documents, such as an employment handbook.

A summary of new requirements related to written employment statements

The Good Work Plan went into effect on 6 April 2020, including the changes affecting the written statement of terms and conditions that all UK employers must issue their employees.

For starters, employers no longer have two months to issue the written statement. They must now provide it on or before an individual’s start date. It should be noted that employers must provide a statement not just to their employees, but to all their workers, such as independent contractors.

Employers must now also provide additional information in the written statements, including a number of new required terms. The new rules also change what information can be provided to employees at a later date in installments and what information can be provided by a separate but reasonably accessible document, such as an employee handbook.

Below is a more detailed look at what employers must now include in their written statements. (Please note these requirements are in addition to the requirements that were in place before the 6 April Good Work Plan effective date.)

The days of the week the employee is required to work.

If and how the employee’s working hours or working days may be varied, and how this variation will be decided and put into effect.

Details of the employee’s sick leave and incapacity terms; these can be provided in another reasonably accessible document referenced in the written statement. The employee must be able to access this document on or before their start-date.

Details of any paid leave that an employee is entitled to outside of usual annual leave and sick leave entitlements (such as maternity leave, shared parental leave or paternity leave); these can be provided in another reasonably accessible document referenced in the written statement.

Any other benefits the employee is entitled to; again, these can be provided in another reasonably accessible document referenced in the written statement.

Details of any mandatory employee training, including information on whether the employer will bear the cost.

Details of any probationary period, including period length and conditions.

If the employee is on a fixed-term contract, the date this contract will end or the length of temporary employment.

Confirmation of whether the employee will potentially be required to work abroad for a period of more than one month and, if so, the terms relating to this period, such as remuneration arrangements, additional benefits or details of the employee’s return.

The length of notice period for either party; previously, this could be provided to employees at a later date in instalments, but now it must be detailed within the written statement. Employers may still refer to the law or any applicable collective bargaining agreements.

A small amount of information can still be provided to employees in instalments, no later than two months after the employee starts work. We recommend, however, that the employer provide this information in the initial “day one” written statement to ensure there are no lapses. This information includes:

Details of the employer’s pension schemes; employees can be referred to a separate reasonably accessible document for full details.

Details of any collective bargaining agreements that affect the contract.

Any non-mandatory employee training and the cost arrangements for this; employees can be referred to a separate reasonably accessible document for full details.

Details of the employer’s disciplinary and grievance policies and procedures.

What UK employers should consider

Broadly speaking, the Good Work Plan’s written-statement provisions increase the amount of information an employer must provide its employees in writing before or upon beginning employment. Due to the amount of required information, employers may need to adjust their HR practices to ensure that employment contracts are issued to employees prior to their start dates and that other requirements are met. Employers should keep in mind that very limited information from the list above can be provided during the two-month window allowed under the previous rules.

If an employer has no information to relay to its new employee about one or more of the above requirements — such as how the employee’s working day may be varied — this must be acknowledged in the written statement. Information related to sickness, sick pay, enhanced paid leave, pensions, training entitlements and disciplinary processes can be contained within an employer’s company handbook or company policies. However, in order to satisfy the requirements under the new rules, this information must be reasonably accessible to the employee on or before their employment start-date.

The above changes apply to employees beginning employment on or after 6 April 2020. That said, employees with start dates before 6 April may request any information noted above if it has not already been provided to them. Employers will have one month from the request date to fulfill the request.

Under the new rules, employees retain the right to refer any dispute over an employer’s failure to provide required information to an employment tribunal. If an employee claim is successful, the tribunal may require the employer to award the employee between two to four weeks of additional pay.

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Australia: Important changes to salary clauses in many modern awards

4/15/2020

By Laura Marshall, Senior HR Consultant

As part of a four-year review, Australia’s Fair Work Commission (FWC) has made important salary-related changes to a number of modern awards. Modern awards are government-issued contracts used to define the minimum terms and conditions for employment in Australia.

The new rules took effect from the first full pay period on or after 1 March 2020. They impose stricter wage-related reporting requirements on businesses with salaried employees. They’re part of the FWC’s broader strategy to reduce worker exploitation by Australian employers. Failure to comply can result in costly fines and significant reputational damage.

Worker exploitation in Australia has attracted widespread media attention in recent years. Some of the nation’s largest employers have been exposed for underpaying their staff, an offense commonly referred to as “wage theft.” Target, Woolworths, Coles, Qantas, ABC and the Commonwealth Bank of Australia are on the long list of companies that have admitted to wage theft.

The most notable wage-theft case involves celebrity chef George Calombaris and his restaurant empire, the MAdE Establishment. After a four-year inquiry, investigators found that among other violations, Calombaris’ restaurants neglected to pay earned overtime, penalty rates and/or correct award levels to over 500 employees. The group was ordered to pay back a total of AU$7.83 million in wages owed to staff.

It also made an AU$200,000 “contrition payment” to the federal government. Many commentators have observed that this payment is paltry given the millions of dollars involved. Even Australia’s Fair Work Ombudsman Sandra Parker agreed the fine should have been more substantial. When reviewing wage-theft cases in the future, she said, her agency would “take into account the size of underpayments when assessing the size of contrition payments.”

This prospect of increased penalties — in addition to paying back any unlawfully withheld wages — should cause Australia’s employers to take notice. If that weren’t enough, the government announced plans last year to introduce new anti-wage theft legislation. If passed, businesses that fail to comply could face lengthy jail sentences, public condemnation, director disqualifications and other consequences.

The remainder of this post provides details of the newly imposed annualised wage arrangement provisions in Australia’s modern awards, including what your business needs to do to comply.

Modern awards wage changes explained

The Fair Work Commission has inserted new annualised salary clauses into a number of modern awards. The new rules introduce additional obligations for employers to ensure that employees with annualised salary agreements are not underpaid. An annualised salary agreement simply means that an employee is paid a fixed annual income.

The changes apply to the annual salary provisions of several modern awards including: banking, finance and insurance; legal; contract call centres; telecommunications; and others. (For a complete list of the affected awards, click here.)

Here is a list of some of the most significant new requirements to the affected awards.

Written notification

Employers must provide employees with a written statement that includes information about the annualised salary payable, the method used to calculate it, and any other award provisions factored into the calculation.

Outer limit payments

Employers must pay employees for any additional hours worked outside of the “outer limit” in addition to their salary. This payment must be made separate from the annualised wage, but within the same pay period.

Annual reconciliations

Employers must conduct annual audits of their salaried employees’ actual pay compared to their modern award entitlements. Any discrepancies must be corrected and paid back to the employee within 14 days.

Record keeping

Employers must keep detailed records of their employees’ actual start and finish times, including overtime and any unpaid breaks. Additionally, they must ask employees to formally acknowledge that the record of hours is correct for each pay period.

Employer next steps

Employers in Australia should understand what modern awards are affected by the changes and whether those awards apply to their employees. Employers must also ensure that their affected employees are paid according to the new rules and that they take other steps necessary to comply, such as providing employees with written statements as described above.

Employers should also regularly check the Fair Work Ombudsman website for updates, especially during the ongoing COVID-19 crisis. On March 28, for example, the Fair Work Commission announced that it had added flexibility to the Clerks Award during the coronavirus outbreak.

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The CARES Act: What multinational businesses operating in the U.S. should know

4/8/2020

By Hanna Mialik, Senior Associate, Global International Tax Advisory

The U.S. Congress signed the Coronavirus Aid, Relief, and Economic Security Act into law on 27 March 2020. Known as the CARES Act, it provides $2.2 trillion of support for citizens, businesses and other groups affected by the pandemic.

Background

The CARES Act was preceded by the $8.3 billion Coronavirus Response package, signed in early March by President Trump to provide domestic and global relief due to the outbreak. That measure was followed two weeks later by a $112 billion relief bill to aid individuals affected by COVID-19.

The CARES Act is the third, and by far the most significant, legislative response to the coronavirus pandemic. It is the largest financial aid package in U.S. history, including the state bailouts that were extended during the 2008 global financial crisis.

This article summarizes some critical elements of the CARES Act that multinational businesses operating in the U.S. should understand.

Help for businesses

The biggest portion of relief from the Act — $908 billion of the total — will go to help large and small businesses as well as nonprofits. Exactly one half of that amount (or $454 billion) will support Federal Reserve liquidity facilities for businesses.

Here are some specific incentives organizations should consider.

Social security payment deferrals

Employers may defer paying a portion of their 2020 social security tax contributions to 2021 and 2022. The deferral applies to payroll taxes from the Act’s enactment date on 27 March through the end of this calendar year.

The Employee Retention Credit

Certain employers that are forced to suspend their commercial activities due to the coronavirus outbreak, but continue paying their employees, will be eligible to claim the Employee Retention Credit. The refundable tax credit is 50 percent in wages paid (up to $10,000) by an eligible employer. Eligible wages are paid after 12 March 2020 and before 1 January 2021, and include not just cash but also part of the cost of employer-provided healthcare.

For employers that had an average of 100 or fewer employees in 2019, the Employee Retention Credit is based on wages paid to all employees, regardless of whether they worked or not. For employers that had an average of more than 100 employees in 2019, the credit applies only to wages paid to employees who did not work during the calendar quarter. Employers may request advance payments of the credit by completing a Form 7200.

The Paycheck Protection Program

As an alternative to the Employee Retention Credit, employers may apply for a loan through the Paycheck Protection Program, run by the U.S. Small Business Association (SBA). The program provides an incentive for small businesses to keep workers on their payrolls. Eligible small businesses, nonprofits and veteran organizations may receive assistance to maintain payroll for a period of up to eight weeks. Notably, sole proprietors, independent contractors and the self-employed are also eligible.

Loans are tied to total payroll and 100 percent guaranteed by the federal government. Loan payments are deferred for six months. SBA will forgive loans, provided all employees are kept on the payroll for eight weeks and the loan is used for payroll, rent, mortgage interest or utilities.

Those eligible may apply for a loan through any SBA-approved lender by 30 June 2020. Loans are available on first-come, first served basis, so applying sooner is better than later.

Keep in mind that applying for a Paycheck Protection Program loan may disqualify a business from receiving an Employee Retention Credit and payroll taxes deferral. Eligible businesses should, then, weigh and compare each benefit carefully.

Other available benefits for businesses

Interestingly, the CARES Act temporarily modifies some of the Tax Cuts and Jobs Act (TCJA) provisions by allowing five-year net operating loss (NOL) carryback and lifting the 80 percent limitation. This modification should be a significant relief for businesses.

The Act increases the business interest expense limitation from 30 percent to 50 percent of earnings before interest, tax, depreciation and amortization (EBITDA) for the 2019 and 2020 tax years. Businesses may also calculate their 2019 interest deduction by using their 2019 EBITDA if it is higher than their 2020 EBITDA.

The Act also encourages charitable deductions by lifting the 60 percent Adjusted Gross Income (AGI) limitation.

Other business highlights include changes to the accelerated alternative minimum tax (AMT) credit, suspension of aviation and other excise taxes (such as 2020 excise taxes on alcohol used to produce sanitizing products), and qualified improvement property expensing.

Help for individuals, local governments and other groups

Multinationals with U.S. operations should have a basic understanding of how the CARES Act helps sectors of the U.S. economy that are not directly related to business. Some of these benefits will of course help their employees, while others will help sustain the infrastructure of the world’s largest economy.

Individuals and families

An estimated $591 billion of the Act will go to tax relief and direct cash injections to help individuals and families, and businesses, with a near equal split of $292 billion and $280 billion respectively.

Subject to the AGI limitation, a single individual will receive $1,200, and a married couple filing jointly will receive $2,400. An additional $500 will be paid for each qualifying child.

The Internal Revenue Service (IRS) will start issuing stimulus checks on 9 April. The speed of receiving a check largely depends on the status of the recipient’s 2019 individual income tax return and whether the IRS has the recipient’s banking information on file. Some Americans may not receive checks until September 2020, according to the IRS’ schedule.

The Act also modifies unemployment insurance programs by broadening eligibly criteria, increasing the benefits term by 13 weeks after state benefits are exhausted, and increasing weekly payouts by $600. $260 billion will be spent on unemployment insurance programs across the U.S.

Agencies and state and local governments

$492 billion will be appropriated to federal agencies and states and municipalities, along with territories and tribes. 80 percent of federal aid will flow through to state and local governments. The allotment will be calculated using a complex formula based on population, with an emphasis on ensuring food-supply safety and on bolstering the Medicare and Medicaid systems.

The healthcare system

The Act will inject significant cash into hospitals incurring COVID-19 expenses and losses. It will also help frontline medical staff and patients by providing personal protective equipment, ventilators and other medical supplies. In addition, it will ensure that COVID-19 vaccines will be fully covered by health insurers, and that COVID-19 testing will be reimbursed by employers or insurance companies. The Federal Emergency Management Agency (FEMA) and Centers for Disease Control and Prevention (CDC) will also receive benefits under the Act.

What’s next

The CARES Act was an emergency response to the coronavirus outbreak, the goal of which was to provide quick aid to American individuals and businesses. Not surprisingly, many of the Act’s passages will need clarification, especially as the measures are put into practice. Additional guidance will likely be introduced soon. In the meantime, Congress is working on the next policy phase, which is expected in late April or early May.

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