Risk to EmployeeWhen the threshold is met, a tax liability and filing may be required of the employee on income attributable to activities in the foreign ("host") country. There is no statute of limitations in some countries for filing, or it does not begin until a return is filed. This causes the potential risk to extend out indefinitely. Not filing may trigger additional penalties and non-income tax cost, including prosecution for civil and criminal penalties, even imprisonment, for tax evasion. Deportation or inability to enter the country in the future is also a risk.

Risk to EmployerSending employees to work in foreign jurisdictions may create a permanent establishment ("PE") for the employer company. Corporate income tax liability and filing may be required by the company if it is considered to be "doing business" in the foreign jurisdiction. VAT and customs duties may also apply. Since PE is determined by local law, each foreign jurisdiction needs to be reviewed for activity thresholds. Tax treaties provide guidance for what activities constitute a PE. In general, do not allow any employee to contract or otherwise bind the company in foreign jurisdiction. In some cases (such as with the U.S. – Canada income tax treaty) there is a number-of-days test that can cause PE for certain types of employers.

The Technical Resource for the Region’s Largest Organizations

TAx Issues for International Business Travelers and Their Companiesby Cynthia J. Hoffman, CPA, JD, Director, International Tax Services

—Continued on Page 2

FEATURE STORY

OCT/NOV 2012

ADVISORTHE

Changes in Group Audit Requirements are on the Horizon

by Charles A. Oshurak, CPA, Senior Manager, Audit and Assurance Services

—Continued on Page 2

Sending employees to a foreign country for business may have unintended tax consequences to both the employee and the employer. The issue is commonly referred to as the "accidental expatriate." Companies need to understand the rules that may cause tax compliance issues, establish procedures to track employee foreign travel and educate these employees about the concerns of foreign travel. The cost of tax compliance, if applicable, must be considered when expanding business abroad.

An "accidental expatriate" is defined as an employee who becomes subject to local country tax laws when working, even temporarily, outside of the U.S. Even working in a U.S. territory can have separate tax issues. In general, local tax laws define the threshold that triggers employee remuneration to be taxable in the local jurisdiction. Each foreign jurisdiction is different, but generally the threshold depends on frequency, repetition, length of visit and type of activities. If this threshold is met, the activity in the foreign jurisdiction may trigger a tax liability and filing requirement (for the employee) in the foreign country. Tax treaties with foreign countries (if available) provide additional guidance and usually extended thresholds beyond the local country laws.

1133 Penn Avenue | Pittsburgh, PA 15222 | 412-261-364441 South High Street, Suite 2100 | Columbus, OH 43215 | 614-621-4060

www.schneiderdowns.com

A lot of time and effort has been given to the issue of global harmonization of generally accepted accounting principles while, over a similar period, a much quieter revolution has been taking place in the world of U.S. generally accepted auditing standards (GAAS). Over the past seven years, the AICPA Auditing Standards Board (ASB) has embarked on an Audit Standards Project, with the ultimate goal of converging U.S. GAAS and international standards on auditing by the end of the year. This will result in GAAS for nonpublic companies being more consistently applied. While the practical implications of many of these changes to auditing standards may be subtle, some of the organization and wording changes, as well as additional audit requirements, are significant.

One primary change that will affect companies doing business internationally is the introduction of the “Group Audit” standard, based on ISA 600 (revised), The Work

In addition to taxation PE, there may be regulatory compliance to consider, such as immigration, registration, payroll reporting, withholding tax, social security and other reporting requirements, permits/licenses (company and individual), local country monetary and exchange restrictions, and compliance with Foreign Corrupt Practices Act. Failure to comply with local tax and other laws exposes companies to penalties, both monetary and criminal, and injury to business reputation, as perceived tax evasion by the company in a particular market can harm business reputation. The employer must consider that noncompliance with local tax laws and other legislation can result in failure to properly budget and allocate costs.

Practical SolutionsCompanies that anticipate sending employees outside of the U.S. need up front planning to understand the foreign laws and the potential risks of such decisions. Each jurisdiction is different, and one size does not fit all.

Some basic solutions to managing the risks and associated costs include:

a. Education of executives, operations personnel and all groups who travel internationally

b. Implementing system to monitor compliance with the policies and procedures put in place by company

c. Use of service companies (secondment)d. Tracking:

•Calendartool •Traveldesk/officereservations •Entry/exitlogs •Securitycards •CreditcardsandexpensereportsProper planning can avoid a myriad of issues in the future. Before engaging in offshore activities, be sure to know the local rules and both the U.S. and any foreign country consequences.

Oct/Nov 2012THE ADVISOR WWW.SCHNEIDERDOWNS.COM

Is there a topic you would like us to cover in the next issue? Contact Charles A. Oshurak, Senior Manager, at 412-697-5396 or coshurak@schneiderdowns.com with your suggestions.

Tax Issues for International Travelers continued from Page 1

Chuck Oshurak is a Senior Manager of Schneider Downs' Accounting, Assurance and Advisory Services. Chuck has more than 13 years of experience in technical accounting, auditing, reporting and business-related issues for local and national SEC, private and nonprofit organizations, including reviews of their internal control structure. For more information on this article, or to discuss similar topics, contact Chuck Oshurak at coshurak@schneiderdowns.com.

Changes in Group Audit Requirements continued from Page 1

Cynthia Hoffman is a Director of Schneider Down's International Tax Services practice. Cynthia specializes in tax planning for business expansion abroad through acquisitions and franchising, international tax compliance, cross-border transaction planning, withholding tax planning and compliance, tax treaty analysis,

transfer pricing, foreign tax credit planning, reporting for payments to foreign persons and expatriate planning and compliance. For more information on this article, or to discuss similar topics, contact Cynthia Hoffman at choffman@schneiderdowns.com.

of Related Auditors and Other Auditors in the Audit of Group Financial Statements. U.S. standards include only limited guidance in this area (SAS No. 1, Section 543, Part of Audit Performed by Other Independent Auditors).

The clarified SAS, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), will create significant changes in the scoping of multi-location audits. The requirements of the clarified SAS will require audit firms involved in an engagement to audit group financial statements to consider, among other things, the following:

• The acceptance and consideration process;• The risk assessment process to the financial statements both

individually to components of an organization and to the organization as a whole;

• The determination of materiality to the financial statements, individually to components of an organization and to the organization as a whole;

• The level and adequacy of communication, review and oversight of component auditors;

• The adequacy and appropriateness of audit evidence by the group’s engagement team in forming an opinion on the financial statements as a whole.

In the past, group auditors may have relied on audits of component financial statements without much involvement in the component auditors' work or referenced the work of other auditors in their opinion, even if the component financial statements were audited under different audit standards or had been presented under a different accounting framework than the parent company’s financial statements. Effective for 2012 audits, the group auditor will need to have component audits in accordance with the audit standards of the group auditor and in accordance with the reporting framework of the parent company.

This represents a substantial change that may impact costs of the audit, since group auditors will need to be more involved in component audits or obtain component audit opinions that are consistent with their own opinions.