As remote-working blurs the lines between work, residency, and time off, national tax authorities and the Organization for Economic Cooperation and Development are grappling with the question: when does doing a little work on vacation turn into a stay that piques the interest of local tax authorities? The OECD plans to finish scoping out whether it needs to tweak global tax rules to cover "workcations" and cross-border remote employment by the end of 2023. The results could be tighter and clearer rules on how long people can work abroad before falling into another country's tax net. Also, it may open questions about social security and pensions payments for staff that keep a home in a different jurisdiction from where they are employed.
Due to the pandemic, Zoom and Microsoft Teams conference calls have increased, which clouded the distinction between work and holiday. This, in turn, has created a new generation of "digital nomads" that earn income in one place while physically basing themselves in another. As Zoom culture continues to dominate in offices worldwide, businesses are grappling with risks around double taxation and compliance headaches. Businesses see current treaties to avoid issues such as double taxation as insufficient to deal with the new post-pandemic office norms, while experts have said employees could also risk being liable for social security contributions in multiple countries.
Firms and workers are facing a jumble of complicated rules on when a worker must pay tax if they stay in different countries for prolonged periods. After about six months, many places — like China, India, and Britain — count people as tax residents. In the U.S., the guidelines known as the 183-day rule are more complicated and look at a person's time in the country over three years. In most places, rules come with caveats and exceptions but, importantly, can be triggered far more easily in some jurisdictions. Officials are unsure how to treat people doing a temporary stint abroad and how long those can last before it is considered permanent. Companies are worried they risk nasty surprises from foreign tax authorities, particularly if executives make key decisions and deals from somewhere other than their home jurisdiction.
Many tax officials want to get ahead of the curve before the remote working boom goes any further. With 30% of Americans planning to take a workcation this year, The OECD is working toward a scoping note for later in 2023 to set out the remote working tax problems and scenarios countries and businesses face. It will then discuss with members which remote working tax issues to focus its efforts on.
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