Businesses Tracking Travelers To Ensure Tax Compliance

Xerox has started worldwide implementation of independent traveler-tracking system Voyage Manager—but not as a security tool, the purpose for which it was created. Instead, Xerox is using U.K.-based Voyage Manager for tax and immigration compliance by monitoring how many days employees spend in foreign countries. It is deploying Voyage Manager internally and reselling it to clients of its Xerox Relocation and Assignment Services division. 

Employee tax planning is not top of mind for most travel managers, yet even the briefest international business trips technically can make travelers liable for Pay As You Earn-type taxes incurred in foreign countries if visits are for internal company purposes. Longer periods spent in a country—regardless of the reason—also can render employees liable. Companies also must track how many days employees spend in a country to ensure they meet visa requirements.

HRG director for taxation Chris Gibson offered the following explanation of Pay As You Earn taxation and its underlying connection to travel: Under PAYE principles, employees pay income tax in the country where they work, so, technically, if an executive works abroad for a week, they are tax-liable in the country they are visiting for that week. Since this principle almost would be impossible to implement in practice, many countries operate bilateral tax treaties through which they agree not to tax each other's citizens for visits up to a specified duration—typically 183 days in any given tax year.  

However, such treaties work on the principle that a host office does not pay for a visiting employee's travel expenses or other costs for which the host office might claim tax relief, and that the traveling employee's home office not internally charge the host office for that employee's services. Some countries therefore require companies to monitor international trips to ensure compliance with these complicated rules. 

Although such rules have been in place for many years, experts in tax, travel and immigration told BTN that national governments are clamping down harder on noncompliance, thus pushing mobility risk issues up the agenda in many corporations. In October, the technology company Infosys reached a $34 million settlement with the U.S. Department of Justice for sending Indian citizens to the United States on visas deemed inappropriate by DOJ.

"As countries struggle for revenue, they are tending to crack down more" on tax issues, said Kelly West, vice president and COO for Xerox Relocation and Assignment Services. A client brought its PAYE concerns to her attention 18 months ago, "and since then we've had more and more customers saying it's a problem," West said.

Julie Pearl, CEO of San Francisco-based law firm Pearl Law Group, concurred and cited an improved ability of immigration authorities to track arrivals and departures through machine-readable passports. "Almost every corporate immigration conference I have been invited to over the past two years, they want to talk about traveler tracking," said Pearl.

HRG's Gibson listed the United Kingdom, Ireland, Belgium and Australia as countries where tax authorities have become tougher in auditing requirements to track employees' overseas visits. "It's a global issue," said Gibson. "Tax authorities are now much keener to ensure they are collecting the right amount of tax. It is very easy for them to challenge companies which don't put controls in place. The challenge is for companies to ensure they are providing sufficient data."

The big debate is about what constitutes sufficient data and which is the most reliable method for collecting details on traveler movements. Gibson has seen companies resort to processes as rudimentary as checking visitor books in their office lobbies. Others ask employees to fill in online calendars; the Big Four accounting firms all offer calendar-based systems, according to Pearl. "Two of the Big Four have systems I feel are pretty strong because they are built into their workflow, but that means you have to buy their services," she said. "A simple tax calendar is not good enough."

Another approach is to use data from travel bookings, as is common for security purposes. Spurred on by customer demand, Xerox approached Voyage Manager, even though the travel tracking tool provider never significantly had promoted the compliance-monitoring aspects of its product.

Voyage Manager managing director John Scott told BTN the system sources employee location data from four main channels. The first is travel reservations data, which it can collect through global distribution system-based travel management company sources in the usual way. Alternatively, it can integrate mobile itinerary data from Concur's TripIt and Carlson Wagonlit Travel's WorldMate. Another option is for travelers to send simple texts to Voyage Manager, such as their flight number, or a message that their flight has been cancelled. That information is parsed automatically into the system.

A second location source for Voyage Manager is mobile device "polling." Voyage Manager sends an automated request to mobile data networks, which send back data packets indicating the country in which a device is located. However, Scott said polling is not possible for phones obtained in the United States.  

A third channel is global positioning system tracking of a smartphone or a dedicated tracking device for travelers in high-risk countries. And the fourth is a manual option that allows travelers to enter details themselves or override information entered automatically into the system.  

Scott described tracking systems based solely on GDS booking data as "a good starting point" but not wholly adequate. He pointed to numerous potential gaps, including scenarios in which companies use multiple TMCs or travelers book outside authorized channels. There also is the potential for inaccuracy, especially when travelers divert from their booked itinerary or make journeys that are not recorded through a TMC—for example flying to one country and then driving from there to another.

Voyage Manager has followed up on Xerox's interest by developing a dedicated module for tax and visa compliance tracking. It provides manual overrides for travelers plus summary reports of how long travelers have spent in a country and the purpose of their trips. It also can be programmed to deliver automated warnings if travelers approach thresholds that would trigger tax liability or visa changes.  

In spite of Voyage Manager's additional features, HRG's Gibson is confident that TMC-only data plus a policy requiring travelers to use official booking channels is sufficient to demonstrate a company's effort to be tax-compliant. "Tax authorities don't expect you to be 100 percent perfect," he said.

Agreeing that "no system is going to give you 100 percent," Pearl said, "GPS is the way to go hypothetically but, because of privacy laws, companies are not comfortable requiring employees to do this, although within a few years, in the U.S. at least, it is rumored that certain states are going to start GPS tracking for tax purposes."  

As for what meets tax authorities' expectations today, Pearl said that "it's an emerging field. You need to make a good faith argument that you are working to comply with the rules. Sourcing booking records and requiring employees to use your TMC goes a long way, but if my company had a lot of people driving on business trips or using different TMCs, I would be telling them to use something like TripIt."  

Gibson's advice to travel managers is that they initiate dialogue with their organization's tax team to foster better internal understanding of the nexus between tax and travel. "Travel managers often receive requests from their tax team for data without understanding the purpose," he said. "Tax managers will be very interested in getting what help they can from travel managers, but don't wait for them to come to you because they may not even be aware of the help you can give them."