Expatriate workers

Expatriate workers

In search of stealth
Apr 21st 2005
From The Economist print edition
Source

Today's global businesses have created a new kind of expat


CARLOS GHOSN is a Brazilian who, from next month, will be spending 40% of his time in Paris as the new boss of Renault, 35% in Tokyo where he will continue as the head of Nissan, and 25% elsewhere, most of it in America. Jean-Pierre Garnier is a Frenchman who heads a British drugs company (GlaxoSmithKline) but spends up to 70% of his working life outside Britain and France. Who is first in line for the tax on these executives' not inconsiderable incomes? And, er, have they got the necessary work permits?

These two bosses are the most visible examples of a growing army of mobile workers who are giving human resources (HR) departments a new sort of headache: how to track where they are and when, for tax and visa purposes. Brian Friedman, president of Ernst & Young's Institute for Global Mobility, says this is a major challenge for such departments. Gone are the days when working abroad was merely a matter of signing a formal expatriate package—with an allowance for differences in the cost of living and the quality of life—before waving goodbye for three years.

Today's global business is creating a new sort of worker, termed the “stealth expatriate” in a recent worldwide survey by Cendant Mobility, a firm that helps firms to relocate employees. The survey found that 78% of HR departments either have, or suspect they have, stealth expats within their firm. Yet 83% of these companies admit that they do not have systems in place to track such people.

Stealth expats come in two main varieties: one is the cross-border commuter, a growing phenomenon particularly in the European Union (EU), where the relaxation of border controls and spread of low-cost airlines have made weekly commuting between cities such as Brussels, London and Paris almost commonplace. The other is the accidental expat—someone who goes on so many business trips or temporary assignments that he inadvertently incurs new fiscal liabilities or overstays his welcome as a foreign worker.

The traditional expat, the man with “FILTH” stamped on his personnel file (Failed in London; Try Hong Kong), is probably declining, says Jill Storey of KPMG. Companies dislike them because they cost up to 50% more than their counterparts back home. And expats today find it ever harder to persuade spouses, who may also have a career, to follow them into the remoter parts of the corporate jungle.

Stealth expats, though, are increasing for several reasons. The popularity of offshoring and cross-border joint-ventures requires more executives to go on short-to-medium-term assignments abroad—a flow that goes in all sorts of directions. A large number of software engineers who live in India spend big chunks of time on assignments in Britain and America, where there is high demand for their skills.

Multinationals are organised more along business lines these days than on geographic lines. Country managers are increasingly likely to have been hired locally—many firms insist that expats revert to local employment conditions if they stay in one place for more than five years—while business units are run by globe-trotting teams, the members of which may live in a number of different countries.

The tax rules applicable to stealth expats can be fiendishly complex. Income-tax liability across the EU still kicks in at very different stages. A self-employed British-born consultant who lives near Toulouse, but works mostly in Brussels and London, is taxed by Britain's tax authorities. As long he does not have a French client, le fisc will leave him alone.

Anyone who spends more than 90 days in Britain in any one fiscal year (between the arcane dates of April 6th one year and April 5th the next) can become liable to British income tax. This used to be something watched carefully by airline pilots. Increasingly, though, their passengers too need to check that they are not being accidentally trapped in fiscal snares.

To avoid such traps, HR departments are starting to track employees' foreign movements more systematically. Some are linking up with the firm's travel agent, when there is one; others may use mobile-phone bills as an audit trail. Mr Friedman says that global mobility will continue to rise, as will the pay of those who take on the demanding job of a stealth expat. Governments will need some stealth of their own if they are to catch up with the reality of these taxpayers' working lives.


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