maximizing global mobility assignments · spread across the globe. generally, the major issues a...

2019 IMMIGRATION INSIGHTS SYMPOSIUM

OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 6-1

MAXIMIZING GLOBAL MOBILITY

ASSIGNMENTS

STRATEGIES AND BEST PRACTICES

Silke Dundon – Dell

Bernhard Mueller – Ogletree Deakins (Columbia)

Rodrigo de la Concha Alvarez – Ogletree Deakins (Mexico City)



Having the appropriate talent at the right place is essential to the success of a globally-

focused company, and the need to move key employees to different countries has increased in

recent years, whether involving a short-term business visit, a rotational exchange program, a

temporary work assignment, or a long-term foreign transfer of employment. Managing a

successful global mobility assignment requires careful analysis of the legal issues involved. This

paper touches on the major issues involved in developing and implementing a global mobility

assignment and strategy, and suggests practices to optimize the cohesiveness of a global

workforce while limiting the potential exposure of liability that comes with having employees

spread across the globe.

Generally, the major issues a global company needs to address for international work

assignments include: structure of the employment relationship and other labor and employment

issues, immigration, tax and employee benefits, termination of employment relationships, and

executive compensation issues. As a starting point, it may make sense to formalize the working

arrangements of the international assignment whether by entering into a new or amended

employment agreement or simply a Letter of Understanding/International Assignment Letter,

which sets out the terms and conditions of the global assignment. This document should clarify:

(a) the employing entity—whether it would continue to be the home country employer, a host

country affiliate, dual employers, or even an international holding affiliate; (b) the specific job

duties and responsibilities related to the assignment; (c) the title, compensation, and benefit

arrangements; (d) any tax equalization arrangements; (e) any negotiated or “special” agreements

that are particular to the assignment for an executive—such as mobility premiums, cost-of-living

adjustments, housing allowances, and home leave arrangements; (f) relocation and repatriation

arrangements; (g) a clear beginning and ending of the term of foreign assignment; (h)

termination provisions; (i) a dispute resolution process; and (j) consideration of available

confidentiality and intellectual property protections.

PART I: Legal and Business Framework Underlying Cross-Border Assignments

1. Immigration Issues

Immigration laws and visa requirements vary from country to country and the process of

obtaining the appropriate visa or other permit in order to legally work in the destination country

can be challenging and very time consuming. Initially, the duration of the assignment needs to be

determined: Will it be for a short-term or temporary stay where the employee is “seconded” to

the host country employer or will the assignment be for a long-term or indefinite stay (i.e.,

localized employment)? Further, the type or availability of the work visa required for the

assignment can depend on the candidate’s proposed activities in the destination country, the

duration of the assignment, the individual’s educational background, the proposed salary, and the

general labor market conditions in the destination country. A comprehensive global mobility

policy will also need to consider the immigration issues/visa options for accompanying family

members, including whether the host country provides for work permits for the family members

and whether the visa permits family members to attend school/university. Additionally, keep in

mind that specific documents such as birth or marriage certificates (to evidence the kinship) may

need to be secured in advance, and some jurisdictions may require those documents to be

legalized or apostilled, which can be a time-consuming process. Some countries have entered

into treaties or bilateral agreements that provide rules and arrangements regarding work visa or



permit requirements, the tax treatment and recognition of income earned in each jurisdiction, and

other important requirements. Accordingly, it is important that every contingency regarding

foreign employment be analyzed by someone familiar with the destination country’s immigration

laws, treaties, tax rules, and employment laws prior to the commencement of the assignment.

2. Tax Issues

Tax issues related to foreign assignment are rather complex and can potentially create

concerns for both the employer and employee. For instance, a key employee’s activities on

behalf of the employer could potentially create a taxable presence in the foreign jurisdiction for

that employer and thereby create the risk of double taxation, typically if those activities involve

binding the company to contracts and/or generating revenue for the company in that destination

country. Different countries use multiple standards to determine whether a “taxable presence”

exists for tax purposes. These issues are typically addressed in a tax treaty, which attempts to

standardize the circumstances by which an employer maintains a “permanent establishment” for

carrying on a trade or business in the jurisdiction for tax purposes. If a permanent establishment

exists, revenue attributable to it is taxable in the destination country. Some treaties (such as the

U.S.-China tax treaty, Article 5, https://www.irs.gov/pub/irs-trty/china.pdf) deem a taxable

presence solely by virtue of performance of services on behalf of a company located outside

China with no need for the employee to have authority to conclude contracts.

In addition, will the assignee become subject to taxation in the foreign jurisdiction? Once

again, treaties or the destination country’s tax laws generally define the terms and condition of

residency and whether there will be tax on local-source income only or on worldwide income

earned. U.S. taxpayers are generally subject to taxation of worldwide income (with a partial

exclusion for certain foreign-source income and housing allowances and a foreign tax credit may

be available for all or part of foreign taxes paid). As of August 1, 2019, the United States has

entered into tax treaties with 68 countries (copies of those treaties are available at

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z).

It is critical that these issues be fully analyzed by competent tax advisors familiar with global tax

requirements. Employees with potential tax obligations in multiple countries are often very

concerned with their income tax burdens, meaning that employers are hard-pressed to account

for these issues in benefits packages.

Whenever an employee spends six months or more in a year in a jurisdiction (most

treaties refer to “183 days” but vary as to whether this is per calendar year or in any 12-month

period), the employee is likely subject to income taxes in the host country—and the employer

may likewise be obligated to make withholdings if required in the host country. If a treaty is in

place, the treaty will define the terms and condition of tax residency. But local tax law is still

relevant—both because the treaty will not apply in all situations, and even where it does, local

tax law will determine whether taxation of worldwide or source income applies. For example,

U.S. taxpayers are generally subject to taxation of their worldwide income (with a partial

exclusion for certain foreign-source income and housing allowances and a foreign tax credit may

be available for all or part of foreign taxes paid). Employees receiving equity or other incentive

compensation may find themselves shouldering significant tax burden on that compensation.

Some countries—such as South Africa and Singapore—also have “tax clearance” requirements

https://www.irs.gov/pub/irs-trty/china.pdf

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z



before expatriate employees can leave the country, which impose obligations on employers to

notify the relevant authorities and confirming that all required taxes have been remitted.

3. Employee Benefits and Host Country Minimum Statutory Benefits

Generally, companies seek to maintain continuity of benefit coverage and parity of

compensation for assigned employees in relation to similarly-situated home country personnel.

For example, participation and vesting credit in home country Social Security programs,

company pension plans, health and welfare programs, or existing equity and long-term incentive

programs should be maintained and continued where permitted by law and by the specific terms

of the applicable plans.

By default, anyone working in a country is entitled to certain minimum employee

benefits there. Most obviously, the employee and employer must by default make contributions

to the local social insurance scheme. One of the first inquiries in crafting an expatriate package is

to consider whether a “totalization agreement” applies. These are bilateral agreements between

two countries allowing a temporary exemption whereby an employee temporarily in a host

country for five years or fewer is exempt from contributing to the host country social insurance

systems, provided that he or she continues contributions on home country payroll. The United

States presently has 26 such agreements (countries listed here:

https://www.irs.gov/individuals/international-taxpayers/totalization-agreements). In “totalization

agreement” countries, employers of employees on placements under five years can avoid the

complexity of dealing with multiple social insurance obligations by filling out a simple online

form and obtaining a certificate of coverage from the U.S. Social Security Administration. In the

absence of a totalization agreement or a specific exception under local laws, employers and

employees are faced with potentially having to contribute to two social insurance systems: the

U.S. Social Security program and the host country’s social insurance scheme. U.S. law generally

requires Social Security contributions to be paid on the earnings of a U.S. citizen or resident

alien (as that term is defined by the Internal Revenue Code) who is working for an American

employer anywhere in the world. An American employer could include a foreign division,

subsidiary, or branch of an U.S. employer (where such branch is “a mere extension of the U.S.

employer”). Therefore, wages paid would be subject to FICA withholding. A U.S. employer can

enter into a voluntary agreement to continue coverage under Social Security for U.S. citizens

who are employed by a foreign affiliate (which is at least 10 percent owned by the U.S.

employer), or when a U.S. employee is “seconded” to a foreign employer, but the U.S. company

retains the right to “direct and control” that employee. Some companies may choose to assume a

certain amount of risk by making only “home country” contributions in very short-term

placements rather than deal with complex payroll taxation issues, but penalties may apply

including criminal penalties in some countries (e.g., Argentina Integrated Social Security System

(SIPA) Law—administered by Administracion Nacional de la Seguridad Social—evasion of

paying social taxes can be punished with prison time).

Other minimum entitlements often apply under labor law, such as paid leaves (see for

instance the Ontario Employment Standards Act Part XI, setting forth right to paid vacation of at

least two weeks per year and minimum holiday pay as percentage of total wages), and most

notably on termination of employment. Most non-U.S. countries provide minimum notice and

severance entitlements on termination (e.g., United Kingdom Employment Rights Act 1996

https://www.irs.gov/individuals/international-taxpayers/totalization-agreements



provides for minimum notice up to 12 weeks depending on years of service, as well as

redundancy pay in the event of an economic termination, and the right to a fair process before an

employer dismissal). Some countries require “end of service” payments that apply no matter the

reason for ending employment. For example, in the United Arab Emirates (UAE) Federal Labor

Law Article 132, employees automatically receive an end-of-service payment at the end of

employment, in the amount of 21-30 days’ pay per year of service—this payment technically

applies even in cases of resignation or transfer to another employer entity. Immigration-related

laws and regulations may also set forth minimum entitlements. Certain benefits may apply to

foreign employees specifically—again in the UAE, the law requires employers to pay

“repatriation expenses” on an expatriate’s departure from country. (Article 131.) Attempts to

contract out of minimum entitlements may not hold up in a dispute (but that does not mean

employers should not do so anyway).

In the event that continued participation in home country plans and programs is not an

option, some arrangement providing a roughly equivalent value proposition should be developed.

This can be a stipend or reimbursement, or an alternative plan, such as one specifically designed

for expatriates. Related issues to be considered in developing this alternative include the length

of the assignment, the countries involved, the proposed employment structure, and whether the

employee will return to the home country following the end of the assignment. Employers should

check the home country plan terms, particularly U.S. tax-qualified retirement plans, because

there is some risk of invalidating the entire plan by allowing participation in violation of the plan

terms. Employers also need to assess practical realities, such as the need to visit local hospitals

and obtain local medical care.

As part of such alternative arrangement, a U.S. employee may become a participant in a

host country compensation or benefit programs. Such participation may lead to adverse U.S. tax

consequences, particularly related to Internal Revenue Code Section 409A, dealing with deferred

compensation plans and Section 457A, dealing with deferred compensation paid by “non-

qualified entities (i.e., entities incorporated in a tax haven country).” These rules are extremely

complex and apply to all types of deferred compensation plans and programs globally that have

U.S. citizens and tax residents participating therein. Generally, Code Section 409A requires

compliance with various rules regarding the timing and form of payment and the timing of

certain deferral elections, unless certain limited exemptions apply. “Deferred compensation” is

defined broadly and may include equity and cash incentive plans and severance plans that pay

over several years. Code Section 409A does contain limited exclusions for certain foreign plans.

There may also be potential Section 409A concerns regarding tax equalization payments made

over a number of years, where the payments would be considered a form of deferred

compensation. In addition, Section 409A may be applicable to a non-U.S. executive taking an

assignment in the United States. Participation in home country benefit and incentive

compensation plans that do not meet the specific Section 409A requirements could potentially

have an adverse impact on the executive, unless those plans are modified to comply with Section

409A prior to his or her becoming subject to U.S. taxation. Because of its adverse and potentially

serious impact, the applicability of Section 409A needs to be thoroughly reviewed and

understood as it applies to the broad spectrum of compensation and benefit plans and programs

in which executives may participate.



Likewise, the impact of Code Section 457A on offshore employees is often not

considered. Although originally targeted primarily at fee deferral arrangements used by offshore

hedge funds, Section 457A has applicability beyond the hedge fund area. Code Section 457A

imposes immediate taxation (including interest, if applicable, and a 20 percent excise tax

penalty) on any type of compensation that is deferred under a nonqualified deferred

compensation arrangement of a “nonqualified entity,” once such compensation is no longer

subject to a substantial risk of forfeiture. That means that income is recognized and tax may be

due at vesting of the compensation promise, even though the actual compensation is not payable

until a future date. “Nonqualified entities” can include foreign corporations with U.S. employees,

or employees of partnerships with U.S. and foreign entities based in “tax indifferent”

jurisdictions (which include Bermuda, Brazil, Cayman Islands, Hong Kong, Singapore, and

UAE). These could also include U.S. and foreign joint ventures or could apply to U.S. employees

of foreign employers. For example, Section 457A could apply to U.S. expatriate employees

working for a U.S. multinational in a foreign manufacturing subsidiary located in Hong Kong (a

“tax indifferent “jurisdiction). The U.S. expatriate is granted vested stock appreciation rights

(SARs) which are exercisable in 24 months from date of grant. Because the SARs grant is

subject to Section 457A, it is immediately taxable on date of grant if the amount is currently

determinable. If not, then it would be taxable when such becomes determinable (presumably at

exercise).

4. Assignment-Related Benefits

Expatriate packages often include additional and generous benefits in acknowledgement

of the employee’s burden in moving (sometimes accompanied by family) to a jurisdiction with a

different currency, language, and system. While certain benefits are market standard and a

reasonable investment for the company to make in connection with expatriate assignments, many

are above-market. Employers are well served to confirm an executive’s representations on

market practice. In addition, employers need to be judicious in formulating expatriate packages

tailored to a particular assignment, as well as avoiding implications that certain above-market

benefits apply across the board. Employers should consider whether to offer in-kind benefits or

allowances—tax being a driver here as well—and should set forth caps and conditions upfront.

Some benefits employers can consider including, again depending on the particular

circumstances:

Travel expenses related to the assignment (coach class—first class is generally

considered above-market in most circumstances)

Relocation of personal belongings (up to a cap)

Home leave in addition to regular leave, and payment for travel costs

Cost of living allowance (increase where the host country has a higher cost of living

than the home jurisdiction)

Hazard pay for assignments to hazardous jurisdictions (often applicable for

government contractors assigned to war zones)

Temporary housing on arrival

Housing during the assignment

Car service or company car

Assistance with home country housing during absence (e.g., facilitating rental)



International school tuition for children

Language classes

Athletic club memberships

Repatriation expenses

Participation in expatriate-specific benefits plans

Tax equalization/tax support

5. Foreign Corrupt Practices Act and Other Host-Country Ethics

Considerations

As a result of questionable activities by certain U.S. companies and individuals, the

Foreign Corrupt Practices Act (FCPA) was passed by Congress in 1977 to insure corporate

accounting transparency related to corrupt payments, and to prohibit the bribery of foreign

government officials. The Act applies to any corrupt act by U.S. businesses or foreign

corporations that have securities registered in the United States, and to American nationals,

citizens, and residents of the United States acting in furtherance of a foreign corrupt practice

whether or not they are physically present in the United States, or any corporation or enterprise

organized under the laws of the United States (including foreign subsidiaries). The FCPA defines

“payments” and “foreign officials” broadly and covers virtually any act that “benefits” someone

in a position to affect dealings with a foreign government. It should be noted that, under the

FCPA, a person or organization need not actually pay a bribe to violate the law. Rather, any

offer, promise, authorization, or approval to make a corrupt payment is prohibited. The FCPA

defines “corrupt motive” as any act “intended to wrongfully influence the recipient” for the

benefit of persons or organizations (or its agents) providing such benefit.

Culture-based codes of ethics vary between jurisdictions, making it difficult for managers

to adhere to a strict code in different markets. Nevertheless, it is important to have a consistent

code of ethics across multiple countries. To that end, multinational companies must be prepared

to provide advice and support to its management in order to best navigate difficult ethical

choices regarding particular local challenges.

6. Labor and Employment Issues

Certain foreign countries require formal employment contracts for expatriate executives

and employees on assignment, and employers need to fully understand the larger implications of

such requirements. On the other hand, employers should be careful not to accidentally create a

contract or establish an employment relationship in countries that do not have a contract

requirement. Any agreement should address the relationship between the home and host country

employers with regards to the employee. Applicable local laws need to be considered and

addressed when first entering a new country. Also, a concise policy needs to be developed to

take into account issues that could arise upon an employee’s return to his/her home country, like

reinstatement and job guarantees.



PART II: Best Practices

1. Assembling the Global Assignment Package

Mindful of the above, employers should consider a number of factors in putting together

overall global assignment packages. While the law is an important piece of the analysis, a

practical, administrable approach is also important. Given all the moving pieces, there is rarely a

risk-free approach to expatriate benefits, so employers should view the process as identifying

“risk drivers” as opposed to avoiding all risk (normally impossible). In addition to host country

law, employers should take steps to avoid the potentially-significant windfall that would result if

the employee received double benefits that the law arguably contemplates in some

circumstances. Accordingly, employers should reconcile the required cost of host country

statutory benefits with the cost of maintaining existing home country benefit plans on behalf of

the employee, and document expectations on local benefits very clearly upfront (discussed in the

next section). Many stakeholders will have opinions—tax advisors, immigration providers, host

country HR, and, of course, the employee being assigned.

While many factors are relevant, a few are key in structuring global mobility assignments

and benefits: (1) anticipated length of assignment; (2) local immigration requirements; and (3)

local social insurance requirements. These factors are the most important in making the threshold

structural decisions regarding the employment relationship (e.g., secondment or local employee?

Sever home country relationship or leave dormant?) and how the employee will be payrolled

(e.g., home country or host country? Split or shadow payroll?)—which will in turn drive the total

benefits package.

Regarding length of assignment, employers often treat assignments under six months

according to a simpler framework that assumes the employee will not be a tax resident in the

host country—anything above that will involve additional payroll analysis. Further, anything

anticipated to be over five years should generally be considered a permanent relocation and not

an expatriate assignment—but for existing employees, a “trial period” with expatriate status for a

period under five years is often appropriate. For example, in Mexico, the temporary residency

cards are initially granted only for one year.

Awareness of immigration requirements is a threshold issue—if there are any specific

requirements to obtain the necessary permit, such as a prior registration of the local host

company with the immigration authority to obtain permission to offer a job to a foreign national

or sponsor a work visa (as may be required in Mexico, Australia, or Japan, for example), a local

host country contract, or local payroll, these may drive the payroll structure and the ultimate

benefits package. On the other hand, sometimes such immigration requirements can be avoided,

for example, by structuring an assignment as a “secondment” or applying for a different type of

permit.

Finally, host country social insurance requirements hold a priority status in the analysis,

because these will often determine whether the payroll process is clean or messy, and how costly

the assignment may be. Host countries that have a totalization agreement with the home country

offer a straightforward option under which may be cleaner, easier, and less costly to leave the

employee on home country benefit plans and payroll. Countries with exemptions under which



foreign employees need not register or make contributions to social insurance (e.g., Singapore

Central Provident Fund and Hong Kong Mandatory Provident Fund in some circumstances) are

likewise a simpler proposition where the employer has more flexibility on payroll and benefits

decisions.

Depending on the underlying facts, employers should impose certain conditions on

international assignments—for example, where the employee must be payrolled in the host

country, it is often prudent to require the employee to resign from the home country, and in some

cases even to pay a severance amount in exchange for a release. Otherwise, the employee will

continue to retain employment rights under their home country law and accrue service for

purposes of calculating end-of-service benefits, making a later termination quite costly (e.g., in

Brazil, if the employment relationship is not severed and administrative procedures followed,

continued contributions to the severance fund are required and increase severance entitlement on

a later termination—and the employee retains rights under Brazil law including the right to be

free from unfair termination).

The assignment-related benefits should be carefully considered with regard to the

applicable laws, factors above, and other particular circumstances. Tax and practical

considerations may determine whether to offer a benefit as in-kind or as a stipend—and

assignment-related fringe benefits should be considered in line with the particular circumstances

(which may include the employee’s position, length of assignment, market standards in host

country, whether the employee is likely to suffer a tax burden, etc.). Business-critical executives

often negotiate specific packages—and the employer should try to avoid any precedent-setting in

these situations. While a catalog of assignment-related benefits can be helpful internally,

employers should avoid distributing a full list of possible benefits to anyone going on

assignment—even with eligibility conditions—and instead limit “policy” documents to standard

benefits the company is willing to offer to everyone with caveats that the individualized

assignment document governs the benefits for a particular assignment.

Finally, in determining a benefits package for temporary assignments, employers should

also have a “localization” plan in place. For many reasons, it is inadvisable to keep expatriates on

expat-type benefits structures after approximately five years. By that time, they should be on

local payroll and receiving benefits as a local employee. As expatriates are often reluctant to give

up these benefits, set these expectations upfront and be prepared to negotiate an increase in

compensation to offset the expat-type benefits that expire at localization.

2. Tax Support

Tax support merits specific attention. It is a potentially expensive benefit for an employer

to provide and is a key concern for employees and offers some dividends to employers (who

might have joint liability or heightened risk of a tax audit of the company if the employee does

not comply with applicable tax reporting rules, e.g., in India). While many employers offer tax

support in some form due to the inherent complexity of tax requirements on expatriates, the level

of reasonable tax support to offer differs—primarily based on the employee’s position, the host

country, the payroll structure, and the length of assignment (all of which determine the potential

complexity of the income tax reporting and payment requirements). For example, executives

receiving compensation subject to Section 409A likely have a greater tax burden and it is likely



worthwhile to engage a tax provider to provide “tax equalization”—handling the employee’s

income taxes in applicable jurisdictions and payrolling to deduct a “hypothetical tax” such that

the employee is neither burdened nor benefited by the assignment. Employees assigned to

countries like Hong Kong where employers do not withhold income taxes are, on the other hand,

in an easier position with less potential risk to the company. In that case, the company may

choose to offer no tax support, to provide a stipend for the employee to engage his/her own tax

provider, or to offer a certain number of hours of tax consultation by a company tax provider.

3. Assignment Agreement

Once the company has decided on the benefits, it is important to spell them out in an

assignment letter or expatriate agreement, which should include key provisions to mitigate

against potential claims by the employee. Expatriate employees are uniquely poised to take

advantage of multiple countries’ employment entitlements, sue in multiple jurisdictions, and

report potential corporate tax/other anomalies to get on authorities’ radar. Some general best

practices as it relates to benefits:

Threshold conditions. In addition to conditions such as obtaining a work permit,

include where applicable that the conditions of the assignment include severing

relationship from home country payroll, and release language.

No Duplicate Benefits. Make clear that the employee is not entitled to any duplicate

benefits during the assignment, and must inform the company of any receipt of such

benefits and promptly return any duplicate benefits received.

Governing Law. Make clear which law the parties intend to govern the assignment

(generally through a governing law clause). Generally, select a forum for disputes in

accordance with the governing law selected. Binding arbitration clauses are often

inadvisable, unless a very high volume of litigation is anticipated, or unless an

arbitration clause makes sense in the host country at issue.

Choice of law will depend on whether the assignment is from a jurisdiction such

as Canada to a jurisdiction with a less employer favorable employment law (e.g.,

one where it is nearly impossible to terminate someone unilaterally like Japan).

In such cases, it is preferable to have home country employment law govern the

arrangement to the extent possible. If the reverse is true (assignments from, e.g.,

Japan to Canada), it is better from a labor/employment perspective to have them

resign fully and govern the relationship with host country law. But this is not a

hard-and-fast rule—there are many considerations here, including desire to

approach assignments consistently, tax and payroll issues, and corporate tax

issues.

Offset of Benefits. If home country law governs, include a provision that to the extent

the expatriate is entitled to local benefits by law, the assignment-related and other

benefits in excess of minimums will be offset by such local benefits, and/or are

included within such benefits (for example, when a U.S. severance plan may apply).

For U.S. employees only, make clear that the relationship is an at-will relationship



(generally through an “at-will employment” clause). For Canadian employees, make

clear that the notice period from their underlying employment agreement applies (or

supersede it with a different notice period). Where relevant, it is also advisable to

state that certain benefits will not be included for purpose of calculating other benefits

(e.g., bonus payments are not included in salary).

Authority to Conclude Contracts. Include language that the employee has no authority

to conclude contracts on behalf of the home company. Depending on whether there is

a tax treaty with the local country, restrict employee’s right to conclude contracts on

behalf of the host country.

Clarify Applicable Continuation of Compensation/Benefits. If the employee is

eligible to continue participating in certain benefits, it helps to specify these.

Expatriate Benefits and Clawbacks.

Make sure expatriate benefits are appropriately caveated with applicable

maximums, time limitations, eligibility conditions, company discretion, payment

terms etc. Organize the agreement such that all of the expatriate benefits are in the

same section entitled “Assignment-Related Benefits.”

If you have an expatriate benefits policy, make clear that only the benefits

specifically referenced in the expatriate agreement will apply.

If you are offering tax equalization, make sure you require the employee to

consent to applicable deductions and condition the benefit on cooperation with the

company’s tax consultant.

Insert indemnity/clawback provisions whereby any expat benefits are

forfeited/reduced if employee resigns or is terminated for cause within a certain

period of time, or (in applicable cases) claims to be or becomes entitled to

benefits of local law.

Tax. Clarify the employee’s requirement to comply with tax laws—and mention tax

even if the company is providing no support. For tax equalization, clarify that this

constitutes an assignment-related benefit and its end date in relation to the

assignment.

Localization. Set expectations that the employee may be localized—this heads off

potential disputes later. Generally, the employee should not be out of country more

than five years without being localized, and the documents should be drafted as such.

At the five-year mark, they should be localized to the host country entity or

repatriated.

There are a few reasons for this. First, for social insurance purposes, under most

totalization agreements between countries, five years is the maximum length that

expatriates may continue to contribute to U.S. Social Security and be exempt from



contributing to social insurance in the host country. Second, this is important to

minimize labor and employment risks as most countries would consider

employees to have rights under local labor law after five years, if not sooner.

Third, from a practical perspective, five years is a long time to continue to pay

generous expat benefits, which are expensive and are really intended to

compensate the employee for the hardship incurred by picking up their lives and

moving to a foreign country. After this point, they will have had time to adjust

and acclimate.

Expatriates are often reluctant to have their benefits taken away, so make clear

that their benefits apply during the assignment only and will expire after the term

of the assignment.

(U.S. Tax Residents) Section 409A. For U.S. tax residents (or those who may at some

point be U.S. tax residents), include appropriate Section 409A language.

Foreign Exchange Conversion. If the employee will receive any benefits in local

currency, clarify any exchange-rate calculations or provide the company with

flexibility to determine the currency conversion methodology. Note that often it is

unnecessary to go into more detail about the payroll structure, which can be handled

in a separate document between home and host countries.

Time Spent. In situations involving a split of time between two countries, it may be

worthwhile to set expectations on the amount of time spent in each—particularly if

the goal is to avoid tax residency in a particular jurisdiction. (Likewise, having the

employee understand that it is his/her responsibility to track travel is often helpful.)

Right to Relocate. To avoid raising local claims at termination, it is important to

preserve the right to relocate the individual.

Cross-References. Cross-reference any benefit plans, equity award agreements, or

other agreements that may tie into the employee’s benefits—and make sure these are

accompanied by caveats with respect to terms and conditions.

The above sample clauses may not be fully enforceable in a foreign court—but maximize the

company’s leverage in the event of a dispute, including the potential to bring counterclaims and

avoid multi-forum disputes.

4. Terminating Expatriate Relationships

Nearly without exception, the reaction of U.S.-based managers to their first experience

with international employment law restrictions on termination requirements is disbelief. Upon

hearing the long list of employee rights and protections that are so contrary to the fundamental

principles of the employment relationship in the United States, they are shocked. The fact is, the

underlying construct for most U.S. employment relationships, the principle of “at will

employment,” is an anomaly on the global stage. In most parts of the world, the concept that an

employer may discharge an employee for any reason, or no reason at all, so long as the



termination is not based on discrimination, in breach of an employment agreement, or in

violation of public policy, flies in the face of the fundamental framework for how individuals,

their cultures, and their governments view work and employees’ relationship with their

employers. The United States is unique in its perspective that employers are free to make a

unilateral decision to change or disengage from the employment relationship. In fact, most

jurisdictions view the employment relationship as one in which the two parties must share equal

control, and the relative imbalance of power between employer and employee must be corrected

through legal safeguards to ensure employees are properly protected from unfair treatment by

employers. For example, in Mexico, employment relationships are protected by the constitutional

principle of “employment stability,” which means that unless the nature of the services allows it

(definite term, specific job, probation, or training period) all employment relationships will be

considered permanent or for an indefinite term.

Employee rights to continued employment therefore raise numerous legal, social, and

business challenges to U.S.-based employers that operate overseas. The rules governing the

employment relationship, including how and when it may be terminated, can be complicated;

each country has its own peculiarities that employers must understand and address. Employers

operating overseas may not terminate their regular, full-time employees except for legally

prescribed reasons and, if they do, often must pay severance and other separation compensation

and benefits, as prescribed by law. The vast majority of foreign jurisdictions permit employers to

discharge summarily employees who engage in misconduct of such severity that it amounts to

what U.S. employers commonly understand as “just cause,” often with limited or no severance or

advance notice obligations. However, in a narrower subset of jurisdictions, employers may

terminate employees who do not necessarily demonstrate misconduct, but instead demonstrate

poor work performance. In these countries, the level of performance that would justify a

termination typically is substantially lower than what a U.S. employer might deem acceptable.

In Germany, for example, the Federal Labor Court has held that, in order to be grounds for

dismissal, the conduct must be “significantly below average,” which the court defines as one-

third below the average performance level of comparable employees. In making this assessment,

the types of information that the employer must consider include: prior performance reviews,

objective assessments of whether performance goals have been reached, and exhaustion of

opportunities to improve either through coaching, training, or transfer to other open roles.

According to the laws of most foreign countries, employees who are terminated “not for

cause” (and sometimes even those terminated for just cause) are entitled to advance notice of

their termination. In most cases, the notice of termination must be in writing and must include, at

very least, the reason for the termination. Typically, the delivery of the notice commences the

notice period, which ends on the final date of employment. In many countries, the employer is

permitted to instruct the employee to no longer report to work for some portion or all of the

notice period. In such instances, the employer must pay to the employee his or her regular

compensation for this period, referred to as “payment in lieu of notice” or “garden leave.”

In addition to providing notice of termination, the laws of most foreign countries have

additional procedural requirements that must be fulfilled by the employer in order for the

termination to be valid. These often include documentation that the employer must provide to the

employee at the time of notice of termination. For example, in Colombia, the employer must also

provide: a) a written record of social security payments made by the employer on behalf of the



employee; b) a statement of separation pay and benefits to which the employee is entitled; and c)

a certification of the employee’s contract of employment, salary level, and other terms of

employment. In many jurisdictions, prior to terminating an employee, the employer must receive

approval from a regulatory agency or court. For example, in Indonesia, employers must obtain

preapproval for a termination by the Committee for Settlement of Labor Disputes. The process of

obtaining pre-approval for a termination can be time-consuming and somewhat costly. However,

it provides the benefit to the employer of knowing, in advance, that the discharge likely will be

upheld if later challenged by the employee. Thus, this requirement could assist the employer in

avoiding the even greater disruption and financial exposure if an employee ultimately would

prevail in a post-termination claim for reinstatement.

Finally, expatriate benefits can play an important role in terminating an expatriate’s

employment (frequently a tricky proposition). While there are no guarantees, the company

should rely on their well-drafted document—but should approach the initial discussion with

caution so as to minimize potential claims. Often it is prudent to bring the employee back to the

home country before initiating termination discussions—but not always practical. Offering a

severance package in exchange for a release of all claims under all laws is effective to resolve

any potential disputes before they turn into protracted, multi-forum litigation. In negotiations,

there is often some benefit the employee wants that the company can leverage—for example, if

the employee wants to remain in country for a certain amount of time, the company can offer to

keep the employee on leave for a period of time before formally ending the employment

relationship.

Conclusion

Perhaps the most essential guiding principal underlying employment relationships applies

universally, amid the many varied employment law systems across the globe. That is, good

employees are the lifeblood of successful business enterprises and it is a worthwhile investment

for employers to cultivate loyal, productive, and fulfilled employees who also are motivated to

invest in the employment relationship. There are a multitude of complex issues that need to be

considered in connection with the development of a global mobility assignment strategy with a

range of legal, tax, accounting, and immigration law implications. All must be considered for

today’s global companies to survive and prosper around the world.

1

Maximizing Global Mobility Assignments: Strategies and Best Practices

Bernhard Mueller (Columbia)

Rodrigo de la Concha Álvarez (Mexico City)

Silke Dundon, Global Immigration Sr. Manager, Dell

Immigration Insights

Symposium

September 26-27, 2019

Immigration Insights Symposium September 26-27, 2019

Agenda

• Major legal issues to be considered in planning assignments– Immigration

– Employment Laws

– Tax Issues

– Employee Benefits

• Best Practices– Assignment Packet

– Tax Support

– Assignment Agreement

– End of Assignment Considerations

2


Before We Start – Quick Polling Question


Immigration Considerations

• Most countries require visa for entry

• All countries require specific work authorization for foreigners

• Accompanying spouse often not allowed to work

• Process can be time-consuming and costly

• Requires planning well in advance of assignment

• Can be document intensive

• Frequently overlooked or delayed in expat planning process

3


Immigration Considerations

• Vet the following issues before deciding to proceed with an international assignment

– Entity: Does the employer have an entity in destination country?

– Feasibility

– Timing

– Crime

• Don’t forget: Spouses and children


Taxation Issues for Company

• Permanent establishment/taxable presence– Treaty or local law

– Bilateral tax treaty

– Fixed place of business

• Authority to contract

• Short-term/long-term

• “Deemed services” provisions in tax treaty (U.S.-Canada)

• “Performance of services” in tax treaty (U.S.-China)

4


Tax Issues for Employee

• Payroll taxes– Treaty or local law

– 183 days in any 12-month period

– Short-term/long-term

• Social Security– Totalization agreement

• How to manage– Split payroll

– Shadow payroll


Employee Benefits – Host Country Mandates?

• Host country legal benefits

– Social Insurance Rates

Contribution requirements for temporary expatriates

Role of totalization agreements

– Labor Laws Leaves

Termination entitlements

– Immigration Laws Repatriation benefits

Local contracts

5


Employee Benefits – U.S. Tax Law Traps

• Home country benefit plans?– Eligibility

– Feasibility

– Equivalent value

• IRS Code Sections 409A and 457A– Applicability

– Risks to company

– Risks to individual

– Tax implications


Employee Benefits – Add-Ons

• Assignment-Related Benefits

– “Market” versus “above market”

– Housing

– Relocation

– Transportation

– Benefits for accompanying dependents

– Localization

6


Best Practices/Market Practices

• Assembling the Global Assignment Package– Key facts

Length of assignment

Host country immigration requirements

Host country social insurance requirements

– Key decisions Payroll

• Home country only? Host country only?

• Split? Shadow?

Employment structure

• Keep as home country employee?

• Terminate home country relationship?

• Leave home country relationship dormant?



• Tax Support

– Options

None

Stipend

Time with consultant

Equalization

7



• Assignment Agreement

– Key benefits provisions

Clearly identify “assignment” benefits• Anticipate localization or repatriation

Offset of benefits

Clawback of benefits

Address tax in some form (whether support is provided or not)



• Termination of Relationship

– Consider bringing them home first

– Benefit packages as leverage Tax equalization

– Immigration requirements Desire to stay in country

8


Questions?

Maximizing Global Mobility Assignments: Strategies and Best Practices

Bernhard Mueller (Columbia)

Rodrigo de la Concha Álvarez (Mexico City)

Silke Dundon, Global Immigration Sr. Manager, Dell

Immigration Insights

Symposium

September 26-27, 2019

Internal Use - Confidential

SILKE DUNDON

Senior Manager for Global Immigration, Dell Silke Dundon manages all global immigration activities for Dell. A native of Freiburg, Germany, Silke has held domestic and international positions in HR & Immigration with several well-known multinational organizations. Following an expat assignment in Singapore and US for Deutsche Bank AG, Silke came to Dell via the acquisition of Perot Systems by Dell in November of 2009. Since then, she has been leading global immigration for Dell. In September of 2016, Dell purchased EMC and by close of the acquisition, Silke was handed global immigration for both sides of the house. Her global team of immigration specialists support Silke with the entire immigration management activity at Dell. Silke is a native German speaker, is married and lives with her family in McKinney, Texas.

Bernhard Mueller

Shareholder || Columbia

Bernhard Mueller is a member of the Cross-Border Practice Group of

Ogletree Deakins and has more than �� years of experience in handling

employment and immigration law ma�ers for multinational

corporations. A native of Germany, Bernhard focuses his international

employment practice on Europe, Canada, Latin America and Africa,

where he has handled ma�ers involving global workforce mobili�,

European data privacy / data protection compliance issues, global sales

incentive pay plans, employment and expatriate assignment contracts,

employer policies and handbooks, immigration law compliance and

government enforcement ma�ers, and immigration options for

international assignments and technical assistance projects. He

represents clients across the United States and internationally in a broad

range of industries, including manufacturing, aerospace, information

technology, biotech / biopharma, utilities, oil & gas, construction,

telecommunication, and professional services.

Bernhard has been selected for inclusion in Chambers USA as a top

immigration a�orney every year since ��, and he has been named as a

North Carolina Super Lawyer’s Outstanding Young Lawyers – Rising

Stars in �� and ��.* He is a frequent lecturer on business

immigration law and global mobili� topics before trade associations,

industry groups and professional organizations. He has authored

various newsle�ers and articles on these subjects.

*Disclaimer:

Please follow the link provided for information on the standards for

admission to this group, organization, or publication. �is group,

organization, or publication does not have a financial interest in

promoting any particular lawyer. �ere is no fee charged for

membership in this group, organization, or publication.

https://ogletree.com/locations/columbia

http://www.chambersandpartners.com/the-rankings-explained

https://www.superlawyers.com/about/selection_process_detail.html

tel:+18032521300

mailto:[email protected]

https://ogletree.com/wp/wp-admin/admin-post.php?action=get_vcard&pid=4264&name=bernhard-mueller

https://ogletree.com/

Rodrigo de la Concha AlvarezAssociate || Mexico Ci�

Rodrigo de la Concha Alvarez joined Ogletree Deakins in September of

��. Previously, Rodrigo worked in private practice at a leading law

firm in Mexico Ci� in the Labor, Social Securi� and Immigration

Practice Group and for two years at one of the most prestigious law

firms in Mexico Ci� in its collective and individual labor litigation

practice, where he appeared before federal and local Conciliation and

Arbitration Labor Boards around Mexico. Rodrigo began his legal

career as a law clerk at Notary O�ce Number �� in México Ci�.

Rodrigo speaks both Spanish and English.

https://ogletree.com/locations/mexico-city

tel:+1525591564212

mailto:[email protected]

https://ogletree.com/wp/wp-admin/admin-post.php?action=get_vcard&pid=3842&name=rodrigo-de-la-concha-alvarez

https://ogletree.com/

maximizing global mobility assignments · spread across the globe. generally, the major issues a...

Documents