Seeing the world and paying for it

Foreign countries formerly regarded as an easy tax dodge are tightening up their laws.
Expatriates do not generally attract much sympathy from their work colleagues. Though certain postings bring some personal risk, for the most part foreign assignments are seen as a desirable way of seeing the world at the company's expense.

However, this perception may be a little wide of the mark. For a start, few expatriate employees live in the style to which their predecessors of a few years ago were accustomed. This is largely because of sophisticated information available now to organisations and their relocation advisers.

No longer do Americans posted to London stand much chance of getting away with any request for a flat in Belgravia, since that is where "everybody lives"; the computer programmer will apply all the information provided about the employee's modest home on the outskirts of New York and come up with an equivalent in the London suburbs.

Second, and perhaps more serious, countries with past reputations for not worrying too much about taxing foreign nationals are cracking down. It is a move that has severe consequences for the individual and the organisation.

For example, in India until recently it was possible "through a nod and a wink" for multinationals to pay employees offshore, say international tax experts. Then, about 18 months ago, the government announced an amnesty for those who admitted past non-compliance - with the threat of dire consequences for those that did not own up.

According to Michael Kaltz, partner in expatriate services of accountants Ernst & Young, some "household name British companies" were among those forced to pay large fines.

But it is not just those who wilfully flout tax laws that can find themselves in trouble. As Stephanie Phizackerley, a partner with the international assignment services division of the accountants Price Waterhouse, points out: "Multinationals want to be compliant." The problem is that it can be difficult to keep within the law. This may be because a government is corrupt. Or it may be because - as in Russia - the law changes "regularly, retrospectively and without clarity", says Ms Phizackerley.

Even so-called "standard" countries can pose problems, says Mr Kaltz. Germany recently changed its policy on second homes. Previously, a British company could provide an employee who kept a home in Britain while posted in the country with accommodation free of tax for the duration of the assignment. Now that tax-free period is limited to 12 months. Belgium is reluctant to abide by the European treaty agreement on social security, which sets out clear rules for the taxation of European nationals working away from home.

As a result, Mr Kaltz and his team spend a lot of time seeking to co- ordinate the tax affairs of multinationals.

Similarly, the PW group claims to be able to offer help through a compliance review that analyses individual countries' requirements in income tax, corporation tax and social security. Moreover, it can call upon the expertise of its colleagues to keep track of changes.

"We have a better chance than most people of interpreting changes to legislation because we're in the business," Ms Phizackerley adds. Pointing to satisfied customers is tricky because of the risk of painting them as tax dodgers, but the firm claims "some take-up" for the service over recent months and anticipates a lot more business.

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