Part 2: Risk Assessment In Global Mobility: An Overview Of Five Key Risk Areas

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Sending employees abroad regularly raises a number of legal and administrative questions. After the initial preliminary review (as described in part one), a more detailed analysis of the individual risk areas is required. In practice, it has been shown consistently that certain issues are relevant to almost every foreign assignment and, depending on the circumstances, can pose risks of varying degrees to the company and the employees concerned.

Basically, there are five key risks that HR and global mobility need to keep in mind. These are work permits, social security, income taxes, labor law, and the risk associated with permanent establishments. The big challenge here is that although the individual areas must be considered separately on the basis of their respective legal foundations, they must then be brought into an overall context, so that it is not always possible to resolve every area to the complete satisfaction of all parties involved.

1.Work permits and reporting requirements

Whether a work permit is required depends not only on the country of employment, but also on the activity, duration, and nationality of the person concerned. In many countries, even short business trips (e.g., for meetings or project work) lead to activities that must be registered or even to work that requires a permit. Companies that overlook this, due to ignorance or even deliberately, risk having their employees refused entry at the border, fines, and damage to their reputation. The situation becomes particularly complex in the case of repeated stays in the same country or cross-border role profiles. It is, therefore, essential to carry out a thorough check in advance.

2.Social security coverage

When working across borders, the question of applicable social security law always arises. For assignments to countries with social security agreements, an A1 certificate or a Certificate of Coverage can be used to ensure continued insurance coverage in the home country and exemption from social security contributions abroad.In the case of regular cross-border work (e.g., commuters or cross-border workers with a home office), the social security issue becomes more complex. Here, each individual case must be examined specifically to determine the consequences under social security law and to avoid an unwanted switch to a foreign system.

Without a valid A1 certificate or Certificate of Coverage, there is a risk of double insurance or, in the worst case, even a complete loss of insurance. For companies, this means not only administrative effort, but also financial risks, such as additional contributions or gaps in benefits in the event of illness, accident, or retirement provision.

3.Tax risks and tax liability

Due diligence regarding tax liability is often at the top of the agenda for foreign assignments. However, in practice, it can be observed that due to a lack of expertise or insufficient information, the review is often carried out improperly "on the fly," resulting in, for example, the 183-day rule being misinterpreted.

Often, (HR) employees are not even aware that the 183-day rule does not only count the days (per calendar year, tax year, or 12-month period), but also takes into account salary payments or cost coverage in the country of assignment. For example, subsequent partial cost allocation to the country of assignment or the payment of a per diem allowance locally can trigger tax liability in the country of assignment.

In the area of taxation in particular, it is, therefore, essential not only to have a comprehensive picture of the employee's personal situation, but also to be aware of internal company components such as cost allocations or payments in the country of assignment.

4.Labor law pitfalls

Many companies overlook the fact that local labor law regulations may also apply to international assignments or other foreign postings. In some countries, protective regulations (e.g., regarding working hours, maternity leave, or minimum wages) apply after only a short period of time. This can mean that local occupational health and safety conditions apply even though Swiss labor law has been agreed upon. The risk is not only legal in nature, but can also entail a considerable administrative burden for the company in order to find out all the necessary regulations and then implement them.

5.Permanent establishment risks

In a cross-border context, the issue of permanent establishments is often a major headache for human resources departments. Not least because this is not actually an HR issue, but rather one that falls within the domain of corporate taxation. This is challenging because HR managers usually have limited knowledge of permanent establishment issues and are inevitably dependent on the tax or finance department. The latter, in turn, naturally takes a rather strict approach to risk assessment, which does not necessarily make foreign assignments any easier.

If an employee regularly works or wants to work abroad, for example in a management position, with signing authority or in customer service, this can lead to the unintended creation of a permanent establishment in the country of assignment. This would not only have an impact on the company's local tax liability, but also on profit shifting issues and the company's overall tax situation.

Conclusion

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.