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The World is flattening . . . except when it comes to filing taxes

It is that time of the year when we sit down to reflect on our personal bottomline and what’s due to the taxman. For many of us, is a very intricate process involving reading through guides, the latest regulations and spending weekends with tax consultants. Now, this process pales in comparison to the hoops that many of the global consultants and professionals have to jump through. A percentage of employees from large service firms - including the leading offshore firms Infosys, TCS, Wipro, IBM, Accenture et al – travel and work in foreign locations, some in more than one country in a given tax year.  And herein lies a saga of paperwork (and online filings).

Here are a few of my general observations on the topic:

  • ‘Tax year’ (Fiscal year) and filing dates vary from country to country. For instance, In India, the tax year is from 1st April to 31 March, in US and Canada it is the calendar year (1st Jan to 31 Dec), in UK it runs from 6 April in one year to 5 April the next
  • Tax filing and status may depend on the nature of (work) visa, salaries or allowances drawn and duration spent in each foreign location. Add to this equation tax treaties between countries (and lack of them between others).
  • Many expatriate employees draw the ‘base salary’ in their home country and living allowances and wages in the country where they work
  • When it comes to tax filing, most nations put the onus on the individuals to file their returns. My feeling is that since tax is already “deducted at source” for most employees, they would benefit from filings (in the form of refunds) rather than not filing

The real challenge for global expatriate employees, when it comes to filing taxes:

  • Most corner-shop tax consultants who set up booths in malls and supermarkets in different countries don’t understand the intricacies of foreign tax filing, status, tax treaties etc. Most employees are not in an extremely ‘high end’ tax bracket. Therefore, it is probably not worth their possible tax-refunds for them to hire a high-end tax consultant well versed in international filings.
  • Most websites and “tax guides” don’t do justice to the complexities involved for such international consultants who may need to file returns in more than two countries.
  • In this discussion, we are looking at very simple income filings for individuals; add to the equation the investment income, property and other intricacies that employees may be undertaking and the cases become really interesting.

In case you are wondering about the role of the company in assisting employees, here it goes (though this is not an official version of the process). Infosys’ Corporate finance and HR groups, which are geographically distributed, does a wonderful job of tracking the work status and earnings of deputed employees. At the end of the local fiscal year, employees are notified about their taxable earnings and a (US W-2, Canadia T4 or other similar forms) are mailed out to employees. The company also gives references to reputable tax consultants who understand intricacies of tax filing.

I'm not sure of the process followed by other global consulting firms; wonder if it is similar? I also wonder if there a way to flatten the tax-filing for such global consultants?

Note, in this blog, I did not focus on the intricacies of corporate/business taxes etc

Posted by Mohan Babu K. on February 19, 2008 03:35 PM |

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