From Taxes

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Join Us At “A Global Workforce: Cases and Controversies”

Every October, America’s leading tax professionals gather at the Tax Executives Institute’s Annual Conference. Over three days they attend seminars and panels, network during lunches and cocktail hours, and discuss the most pressing issues facing tax leaders in organizations today.

This year the conference focuses on examining tax transparency. Technology has played a crucial role in enabling new levels of transparency, as data becomes increasingly digital and accessible. Countries, states, and regulatory agencies are all sharing data at unprecedented levels.

At the same time, tax practitioners are requesting more transparency from regulators about increasingly complex, and at times contradictory, guidelines. As organizations increasingly have a mobile workforce traveling across jurisdictions, tax functions also need visibility into their own company’s data to do their job effectively.

On Wednesday October 19, the conference will culminate with a panel discussion between Monaeo Co-Founder and CEO Anupam Singhal and Richard Tonge, Managing Director at Grant Thornton.

“A Global Workforce: Cases and Controversies” will discuss the tax issues involved in managing a global workforce and how technology can help organizations navigate the new push towards transparency. Drawing upon case studies and client examples, attendees will leave with not only an overview of the most urgent tax challenges created by employee mobility, but also pragmatic tips for identifying and addressing exposures at their own organizations.

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Monaeo Discusses Technology and Multistate Taxation at National Payroll Week

In many companies, the burden of complying with multistate withholding laws sits on the shoulders of the Payroll Department. Using the right technology can ease that burden.

On September 16, 2016 Monaeo co-founder Nishant Mittal will speak at the American Payroll Association New York Metro Chapter’s annual seminar on “Multistate Taxation Technology Options.” The annual seminar gathers close to 100 of New York’s leading payroll executives for a full day of education and networking.

Our talk will cover how complex regulations and increased audit rates are creating massive exposures for companies across the country – and around the world. We’ll discuss how Payroll is on the front lines of multistate withholding and best practices for using software to increase compliance and efficiency.

For more information on how Monaeo’s technology can help your company assess and reduce audit risk, request a free consultation.

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How Brexit Will Affect Tax Departments

On Friday June 24, the world woke up to the news that the United Kingdom had voted to leave the E.U.

The resulting economic uncertainty has sparked market volatility, as everyone struggles to predict the consequences of such an unprecedented move.

It’s important to note that there are no immediate tax consequences of the referendum. Parliament hasn’t triggered Article 50, and even once Article 50 is set in action, the U.K. will have two years to hammer out a plan for exiting the E.U.

When the United Kingdom does strike out on its own, it will impact businesses headquartered in Britain, as well as those who operate within its borders. While much is still uncertain, the articles below represent some of the best attempts to decipher the tax and mobility implications of Brexit for companies.

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Tax Risks Are A Key Issue For Concur Fusion Attendees

Last month, hundreds of Concur clients and partners convened in Las Vegas for three days of workshops, panels, and roundtable discussions about managing the travel challenges created by employees on the go. As a Concur partner, Monaeo led discussions on how companies can best manage the tax risks created by their business travelers.

The Global Business Travel Association predicts that business travel spending in the U.S. alone will grow 3.2% in 2016. Business travel means growth for companies – but it can also mean costly tax exposures.

Every time company employees cross state or country borders they can create tax liabilities. That’s because each jurisdiction has its own unique set of rules for when non-resident workers are required to pay taxes. In New York, for example, a company is responsible for withholding payroll taxes for non-resident employees who work in the state for more than 14 days in the calendar year.

For Fusion attendees, tax compliance was a big issue. At a microforum on tax risks, Monaeo co-founder Nishant Mittal led a group discussion of how companies are tackling this issue – and the challenges they are facing. As we listened to participants tell stories of the pain that their travel and finance departments were experience because of tax risks, a few patterns emerged:

Companies of all sizes are facing this issue

One attendee spoke about how her company had recently undergone a state audit. The company wasn’t large compared to many Concur clients – in fact, it had fewer than 500 employees – but it was a consulting firm where many employees spent the majority of their time on the road. The audit had cost the firm significant funds, but the employee was equally upset about the drain on her team’s time. “I have a spreadsheet with 50 tabs that I use to keep track of this,” she explained. Not only were such manual methods time-consuming, she had to be vigilant about expensive errors that could arise from a single mistyped number.

It’s not just New York

It’s unquestionable that New York pioneered the widespread withholding tax audit. However, as technology advances and companies increasingly have digital records, more and more states are following suit. We heard stories of companies being audited not just in New York, but also by Connecticut, Philadelphia, Georgia, California, and numerous other states and localities.

The fees and penalties can continue after the audit is finished

One attendee discussed how her company was still paying fees and penalties years after the audit. Companies may also find themselves being audited in subsequent years. Audits can also “spread” – often a state audit of one company will lead to audits of that company’s primary partners or vendors.

What can travel managers do when confronted with these risks? The first step for any company is to understand your risk. For those companies that use Concur, existing travel and expense data can be a rich source of information. Once you understand where you have exposures and how large those exposures are, then your company is well-armed to manage and reduce those tax risks.

Interested in learning more about how Monaeo’s Risk Analyzer can quickly and accurately quantify your tax exposures? You can request a free consultation here here.

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10 Signs Your Company Is At Risk Of A State Or Local Withholding Audit

Is your company at risk of a payroll withholding audit?

Budget deficits have lead to a steady rise in state and local corporate audits over the past five years. Regulatory authorities are increasingly turning their attention to nonresident workers and the companies that employ them. In the words of Brian Gordon, a thirty-year veteran of the New York State Department of Finance and Taxation, “Politically, who better to go after than those who do not even claim to be residents of the state?”

Unsurprisingly, a KPMG survey found that nonresident state withholding is either a major or growing issue for the majority of companies surveyed. Tax departments face the challenge of trying to understand whether their company has exposures, with limited visibility and a lack of data. Below are 10 potential indicators that your company may have multi-jurisdiction tax exposures.

10 Signs Your Company Is At Risk Of A Withholding Audit:

  1. Your travel and expense records show that you have employees making frequent trips to other jurisdictions.
  2. Your company headquarters are located in a state or locality that regularly conducts withholding audits.
  3. Your company’s public presence (such as press releases, event announcements, or public filings) reveals that your senior executives are traveling on behalf of the business to a particular state.
  4. You are paying sales and use taxes, but not income tax withholding, to a state or locality.
  5. Your company has employees traveling to a state or locality that is actively conducting withholding tax audits.
  6. One of your company’s clients is undergoing a state or local audit.
  7. Your company’s vehicles are often seen in a state or locality (for example, New York City has been known to use parking tickets to identify audit targets).
  8. Your company owns property that employees use within a state or locality.
  9. A parent company operates a subsidiary in one or more states (other than the state of the parent company).
  10. Your AP records show travel and other costs paid on behalf of employees to states where they do not reside.
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Compass Magazine Outlines Risks of Business Travel and How Monaeo Can Help

“Hungry for revenue, governments tax time spent inside their borders.” 

Compass Magazine has published a feature by Charles Wallace on the growing compliance risks that business travel creates for companies. We were delighted to see Monaeo featured as a leading solution helping business travelers and Fortune 1000 companies move towards compliance.

In recent years, authorities have begun closely scrutinizing business travelers and the tax exposures that they create when spending time within the borders of a country or, domestically, within other states. Soon, writes Wallace, it will be even harder to fly under the radar. More than 100 countries have joined The Global Forum on Transparency and Exchange of Information for Tax Purposes. The forum is working towards automated exchange of immigration reports, hotel stays and airline reservations, providing authorities with the data they need to catch non-compliant firms and travelers.

Wallace points out that now companies are harnessing technology to help travelers and their employers also access that same data, so that they can be compliant and be better prepared to defend against audits. The article highlighted Monaeo’s mobile app as a solution catching on in the market, used by Fortune 1000 industry leaders across verticals.

Monaeo users have a range of data sources to choose from when deciding how to document their travel across state and country lines. In addition to user-friendly mobile, tablet and laptop apps, travelers can also leverage automated analysis of travel and expense reports or simply input their location by hand. It turns out that most executives prefer the option that Compass spotlighted: our mobile app, which does the work on the user’s behalf.

Monaeo is first and foremost a technology company, with 100% of our resources are devoted to building the best, most intuitive and robust software on the market. Monaeo’s independence from tax advisory services means that we don’t squeeze additional revenue out of customers through billable hours, or use our app as a gateway to selling additional services. It’s this laser focus on product design that has led to Monaeo’s best-in-breed data analytics and unique built-in privacy protections.

The full article in Compass Magazine can be found here.

Want to stay up-to-date on the news affecting business travelers? Sign up for our newsletter and receive access to the latest research from leading tax and law advisors.

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Does The Pfizer-Allergan Deal Validate Tax Inversion?

Written on January 22, 2016 by Natalie Boatner

If you’re keeping up with recent events in tax inversion trends, then you’ve likely seen extensive coverage of the Pfizer-Allergan merger. The $160 billion deal would shift Pfizer’s New York headquarters to Ireland and, in the process, substantially reduce Pfizer’s U.S. tax bill. For many, the acquisition highlights flaws in U.S. tax law and the existing corporate tax structure. Understanding the mechanics behind the practice of tax inversion, and the Pfizer-Allergan move in particular, can help us better understand what tax inversion means for companies and for the U.S.

Tax inversion, or corporate inversion as it is sometimes called, is a practice in which a corporation whose legal domicile is within a high-tax nation relocates, often via merger, to a legal domicile with lower tax rates. Despite relocating, the inverted corporation will often maintain its physical headquarters and/or material operations in its higher-tax domicile nation. The U.S. charges higher corporate income tax than most of the world with state and local taxes, it amounts to close to 40% in 2015. This means that there is a higher cost to capital, and that net growth means a corporation must earn the cost of capital or greater to generate actual revenue, whether or not the company is growing.

What’s more, the U.S. is one of only a few developed countries still operating on a global taxation model, as opposed to a territorial model. In the global model, income generated anywhere is taxed at the U.S. rate (which is higher than the corresponding tax in other nations). In the territorial model, the tax rate of income is applied based on the tax rate of the nation in which the income was generated. If this wasn’t enough, there is a clause in the tax code that states that the additional U.S. tax on income generated overseas is only paid when that income is repatriated. This causes a phenomenon known as “trapped” income. In 2015, the amount of “trapped” income was estimated to be $2.6 trillion.

So why is this important, and why are people so upset about Pfizer merging with Allergan? The deal will be the largest instance ever of an American company relocating to reduce its tax burden. The U.S. could miss out on billions of dollars of tax revenue, as well as see a plunge in domestic jobs. Allergan is incorporated in Ireland—a nation that operates on a global tax model. Ireland’s corporate tax rates, at 12.5%, are substantially lower than America’s 40%, eliminating negative effects of relocation. When Pfizer merges with Allergan and shifts its incorporation to Ireland, it untraps a few billion in revenue, and potentially its value and market shares from the revenue saved on corporate taxes. (Although several investors have been disappointed in the projected size of cost reductions.)

While there is no definite reason to believe major reforms will occur after three decades of severe corporate taxation, there has been very loud rhetoric in the political sphere surrounding the Pfizer-Allergan merger. Increasingly, politicians are decrying inversion and addressing the need for reform. But, it’s safe to assume that the flaws in the international corporate tax structure will not be instantly solved by whichever new regime steps into office next year. Pfizer’s CEO claims the new deal will help put the company on equal footing with its competitors. Many eyes are watching to see if his promise holds true in the coming years.

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The Law That Could Put Millions of Americans’ Passports In Jeopardy

Written on January 20, 2016 by Natalie Boatner

Americans living abroad have a new cause for worry when they file their 2015 tax returns: making a mistake could cost them their passports. For over eight million Americans living abroad, compliance with the Foreign Account Tax Compliance Act (FATCA) has created headaches since 2010. Now a piece of new legislation called the Fixing America’s Surface Transportation, or FAST, act has many Americans contemplating relinquishing their U.S. citizenship for fear of financial or criminal penalties imposed by the IRS.

Critics have long argues that FATCA’s reporting requirements are unrealistically complex and disadvantage Americans abroad. FATCA targets non-compliance by American taxpayers abroad but it relies mainly on individual reporting by taxpayers and on reporting by foreign financial institutions regarding taxpayers’ holdings.

The FAST act increases the potential penalties for expats who fail to comply with FATCA. The long document has two important provisions buried inside its tax code. These two provisions mean that the IRS can now impact the denial, renewal, or attaining of a U.S. passport.

The first passport provision gives the U.S. Secretary of State the power to revoke or deny the application for or renewal of a passport if the IRS identifies the taxpayer as seriously delinquent. The second provision gives the same power to the Secretary of State if the applicant fails to provide a valid, correct social security number. If a passport was issued, it can be revoked if the invalid or incorrect social security number was provided willfully, recklessly, or negligently.

The problem lies in the definitions of the terms “seriously delinquent,” and “recklessly, or negligently.” Under the provisions, seriously delinquent means any outstanding federal tax debt exceeding $50,000. This includes interest and penalties, and is actually fairly easy to achieve among American expats. Recklessly and negligently are under the discretion of the IRS and State Department to define on a case-by-case basis.

For American expats and foreign nationals abroad already struggling with international taxes under FATCA, FAST is likely going to make things more complicated. It is of the utmost importance to fill out your passport paperwork carefully, as even minor errors can rack up major travel, lodging, lawyer, and visa fees. Even more helpful would be to employ a tax lawyer or an accountant. The most important thing to do is stay informed. The FAST Act can be read in full here.

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Moving Your Corporate HQ? Here’s Why You Might Want to Avoid Washington and Texas

Data in a recent study highlights the stark divergence in effective tax rates for new and mature companies across states. New companies choosing a location for their headquarters may want to steer clear of Washington and Texas, where mature companies have a significant tax advantage.

Recently, the Tax Foundation and KPMG published a report on how the tax burden varies for different company types across the 50 states and Washington, D.C. We delved into the report’s data to discover which states might be the most attractive destinations for company headquarters.

It’s hardly surprising that New York has the highest effective tax rate on corporate headquarters, while Wyoming and Nebraska have the lowest burdens for new and mature companies, respectively. However, the gaps between the tax levels for new and mature companies in each state were striking.

In the majority of states, mature companies have the advantage with lower effective tax rates. Washington and Texas tie for having the largest gap favoring mature companies, 6.5%.

However, 18 states provide new companies with attractive incentives and effective tax rates lower than those for mature companies. In fact, the effective rate for a mature company with its corporate headquarters in New Jersey is more than six times higher than that for a new company.

Alabama and Iowa provide the most equitable tax environments, with less than 0.5 percentage points separating the effective tax rates for new and mature companies in each state.

A number of variables should be considered when calculating the effective tax burden. Often, the statutory tax rate is just the starting point. A company must also consider incentives, apportionment, throwback rules and several other factors that all can impact the effective tax burden. A state may appear to have a low tax rate, yet still be the most costly location for a company to place its headquarters. And, of course, many companies will still need to pay taxes to other states because of nexus or sales tax.

The report comes at time when several high-profile companies, most notably GE, are considering moving their headquarters to states with more favorable tax laws. GE has said that it will make a final decision regarding the move by the end of the year.

The table below highlights the effective tax rates (and differences) for each of the states and Washington, D.C.

Effective Tax Rates on Corporate Headquarters by State

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4 Key Questions About Nexus

An article in Forbes asked, “Why is multi-state tax compliance so hard?

One answer to that question can be found in a single word: nexus. The most thought-provoking sessions at the Tax Executives Institute Region VIII conference last month covered the gray areas of state nexus. Below are 4 key points that the panelists highlighted:

  • Do you want nexus or don’t you? One session began with this simple question. In general, tax executives try to manage away from nexus. You try to limit the employees and properties that you have in other states. But, one speaker argued, sometimes nexus can be good. If you’re already planning to enter a state within the next few years, you may want to claim nexus now. Why? Because claiming nexus can give you the right to NOLs (net operating losses) in that state. Of course, this takes planning ahead and knowing what your operations are going to do a couple years in advance.
  • The right to apportion. What if most of your operations are in one state and you happen to not have nexus in any other states? If you had the right to apportion, perhaps you can more proactively manage your taxes across states.
  • Filing methodologies. Consider the different filing methodologies you can elect. Around half the states allow some form of elected consolidation or accommodation. As you evaluate filing methodologies, it’s important to keep in mind elected consolidation, accommodation, apportion and nexus.
  • How does the state define business income? In some instances, courts have found that the definition of what qualifies as income doesn’t include a functional tax, and then a state has to amend its statute. There are multiple factors to consider here, not just marketing sourcing.

All of the speakers agreed that its critical to understand where you have nexus and where you don’t. If you’re claiming nexus, make sure that you have the economic substance in a state to legitimately create nexus. In some instances, states have gone after companies for falsely claiming nexus.

For more information on how business travel can create nexus and managing those risks, download our free whitepaper “On the Road and at Risk”