A common agreement in the world of cross-border employment is the ‘tax equalization agreement’ between an employer and employee. Under this agreement, an employee does not pay more or less tax during their secondment than the tax they would have paid had they continued to live or work in their home country. However, in practice it appears that many companies only have limited insight into the status of both these tax equalization calculations and tax equalization settlements with employees. In this blog, Maarten Greijn, Senior Tax Manager, illustrates the role that tax technology can play in this by means of a practical example.
To achieve tax equalization, a tax equalization calculation must be made after the personal income tax return has been prepared in order to disclose the final settlement with the employee. However, in practice it appears that in many cases organizations do not settle with their employees because the tax equalization settlements are not kept up-to-date, which means that organizations do not have sufficient insight into this. This means that an organization regularly loses money, or employees become dissatisfied because tax equalization settlements do not take place.
We recently worked together with a client to gain global insight into the status of their tax equalization calculations and settlements. The data of all employees for whom a tax equalization calculation was required was entered into our international KPMG Link tool. The status and result of these calculations were subsequently entered into the tool, so that by means of graphs and tables the client gained complete insight into when or whether it is possible to settle with an employee. After an analysis of the entered data, it appeared that, due to a lack of insight, the client had failed to settle with employees in 30% of the cases worldwide. In more than 20% of those cases this concerned a payment from the employee to the employer. The insight gained at the individual level meant that the client could still settle with employees. By settling these amounts, the client recovered tens of thousands of euros from employees, which meant that the final costs of these secondments actually decreased. The status of these settlements were also entered into the system, giving the client a complete overview of the settled and pending amounts.
The interactive dashboard provides clients with insight into the status of tax equalization settlements with employees 24 hours per day and 7 days per week. This means that the client, now and going forward, can be assured that all tax equalization calculations with employees are settled.
By the clever use of tax technology and dashboarding, the client is again ‘in control’ of its agreements with employees. Would you like to know more about tax technology and how this can optimize or facilitate your business processes? Please feel free to contact us. We would be happy to tell you more about it.