Global enterprises encounter fresh tax risks as the business paradigm shifts towards the remote and hybrid models. Governments have implemented the Pillar Two global minimum tax project in different countries led by the Organisation for Economic Cooperation and Development (OECD). One of the prime challenges is that companies deduct payroll taxes based on the location where their employees work or reside and now where they receive their payment. If a worker is present in an unknown jurisdiction, the business can be exposed to Pillar Two taxes.
Cross-border workforce mobility can have a dual impact on taxation. It creates a potential risk for tax and compliance demands, like the permanent establishment (PE). It also leads to the recalibrating of supply chains and operational models. Therefore, understanding the implications of Pillar Two tax and tracking the location of employees to comply with it is not just important but essential for preparedness.
The pandemic of 2020 exposed how fragile supply chains can be. It also highlighted the importance of resilience, bringing about changes in operational structures. Now, businesses face a fundamental question—whether their current operating models are still perfect for the purpose, considering factors like labour empowerment, the use of technology, and changing dynamics. Since Pillar Two introduced a global minimum tax rate, businesses are re-evaluating how attractive their principal locations can be.
Reviewing the priorities for businesses
For global enterprises, it’s imperative to understand the pivotal role that the workforce plays in executing Pillar Two strategies. Experts suggest that the real challenge lies beyond tax compliance. It is all about managing people, which turns out to be more vital and complex.
Leading companies like the IMC Group, which provides global mobility tax solutions, can help businesses move talent globally with minimal inconvenience and delay.
Understanding where your employees are working
For global businesses, it’s imperative to understand where their employees are working. The key challenges to address are the popularity of hybrid and remote work, particularly across borders, and the lack of proper tracking mechanisms.
Forward-thinking businesses must focus on the immediate demands of new tax regulations. This will help them remain proactive. Besides, they should address workforce policies like mobility, considering their potential impact on tax outcomes. Dedicated tax teams should ensure that employees work for the right entities, considering where they perform their activities.
