Common Mobility Tax Mistakes in the Energy Sector and How to Avoid Them

As international travel picks up, energy corporations are turning to mobile employees to fulfill their international staffing needs. However, as mobile work gains steam, tax and compliance risks continue to grow as well—unbeknownst to most corporate leaders. Many businesses, unfortunately, are failing to set up an adequate plan to protect against tax violations in the home and host locations of their employees, and it could cause tax nightmares in the near future.

As tax regulators ramp up cross-border enforcement, energy companies need to prepare for the tax and compliance risks their mobile workforces carry. Here are the most common mobility tax mistakes impacting the industry and a few simple ways to avoid them.

What Are the Biggest Mobile Tax Risks in the Energy Sector?

As COVID-19 restrictions have lifted and businesses start resuming corporate travel, employees are increasingly on the move. According to a Global Business Travel Association report, corporate travel spending is expected to increase by 38% this year. Since the energy sector included essential work during the pandemic, this upswing hits an industry that already had a head start on travel.

At the same time, mobile, hybrid, and remote work are on the rise. In 2020, there were a reported 78.5 million mobile workers in the U.S., according to Statista. The same study estimates that figure will swell to 93.5 million by 2024.

Alarmingly, most companies aren’t prepared for the uptick in tax and compliance risks that are inherent in mobile work. What follows are a few of the most common mobile work tax and compliance mistakes companies make.

They Fail to Plan. A swath of companies simply don’t have policies in place to protect against tax and compliance violations. A joint report from 2020 found that only 58% of corporations have a single corporate travel policy. In the same report, more than half of the companies surveyed said their company’s ability to track employees’ whereabouts is “inadequate.”

If companies don’t know where employees are working, the rules for each work location, and the correct reporting protocols for each jurisdiction, the whole organization is at risk. When companies fail to enforce clear travel policies, employees could easily report in the wrong jurisdiction, overlook country-specific social security laws, and/or trigger any number of violations.

They Fall for the 183-Day Myth. Many business leaders wrongly believe their employees can work in any country or jurisdiction for 183 days without incurring any tax obligations. However, this 183-day rule is often not accurate. In fact, some legislation, such as the Canadian Income Tax Act, requires the company to report wages and withhold Canadian income taxes for even just one day of remote work in Canada. Overall, social security and tax withholding laws vary from country to country and state to state. Assuming otherwise can easily cause tax violations. 

They Miss Out on Tax Breaks. Even when companies avoid tax violations, they often fail to structure mobile work to take advantage of tax breaks and maximize compensation. For instance, if a company is sending an employee to the Netherlands for a two-year assignment, the individual may qualify for a Dutch tax exemption known of the 30% ruling. Misreporting could cause the company to miss out on such tax breaks, or they could end up triggering an audit.

Overall, if companies don’t understand where employees are working and the rules attached to those locations, the organization and employees can miss out on valuable tax incentives.

How Can Companies Avoid Mobile Tax and Compliance Mistakes?

Fortunately, corporate leaders can avoid tax penalties, increased audit risk, and reputational damage by following a few mobile tax best practices. Here’s how to avoid mobile tax mistakes.

Revamp Your Mobile Employee Policies. It’s important to create a centralized mobile employee policy and make it available to employees. Although specific policy details will vary depending on your company, there are a few common things to include in a mobile employee policy, including:

• A clear approval process for mobile work.
• An explanation of where employees can and cannot work.
• A “Frequently Asked Questions” document that addresses common employee questions.

Create and Communicate Processes. To plan for smooth mobile work processes, it’s important to gather input from as many relevant departments as possible. In most cases, that may include expertise from immigration, corporate tax, payroll, human resources, and other company resources. It’s also a good idea to designate a single owner to help manage, enforce, and champion your mobile work processes.

Use Technology to Reduce Workloads. Technology won’t solve all your mobile tax and compliance problems, but it can lighten your staff’s workloads. Once you’ve established clear policies and procedures for mobile work, you should start seeing what resources you have and where there are internal gaps. You can then use technology or third-party support to fill in any gaps or level any unreasonable work demands.

Plan Now to Avoid Trouble Later

As mobile work picks up, tax and compliance problems could soon hit unprepared energy corporations. However, pushing preparation efforts into motion now can pay off in the long run. By committing to a little planning now, you can save hours of work, avoid costly violations, and prevent reputational damage down the road.

—Jennifer Stein joined Global Tax Network in 2011 and serves as managing director. She has more than 25 years of experience in expat and foreign national tax preparation and consulting.