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1 International Assignment Policies and Practices Survey 2012

InternAtIonAl executIve ServIceS

International Assignment Policies

and Practices Survey 2012

Swiss Headquartered companies

kpmg.ch

the information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. no one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2012 KPMG Holding AG/SA, a Swiss corporation, is a subsidiary of KPMG europe llP and a member of the KPMG network of independent firms affiliated with KPMG International cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. the KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

For Further Information

Peter BurnhamPartner, ZurichT: +41 44 249 22 26E: [email protected]

Judith MitchellPartner, lausanne T: +41 21 345 03 37E: [email protected]

www.kpmg.ch

2 International Assignment Policies and Practices Survey 2012 3International Assignment Policies and Practices Survey 2012

We are delighted to present the 2012 edition of our survey of International Assignment Policies and Practices of Swiss Headquartered companies. now in its sixth consecutive year, the survey continues to provide valuable trends and insights into how companies administer their global mobil-ity programs, and what mobility professionals see as the key challenges which lie ahead.

Although economists are predicting a slightly better than expected rate of growth for Switzerland during 2012, driven by domestic economic activity, for many companies which rely on exports, the situation remains some-what difficult, due to both continued global economic sluggishness and ongoing problems within the euro zone. Some industry sectors are suc-cessfully countering the weak european markets by increased exports to developing markets such as china as well as other Asian and South Ameri-can countries. In some cases, we are starting to see a growing interest in a number of African locations. these trends are reflected in the survey results as companies report generally stagnant numbers of international moves driven mainly by ongoing costs constraints, although china remains a growing location as do several other developing locations.

our survey questions have been written based on your input about the key issues affecting you. In this way we hope to make this survey as relevant as we possibly can and hope that you will find it valuable in helping you understand current trends and allowing you to benchmark your company’s policies and practices against those of other Swiss-based companies.

We trust that you will find this survey useful and thank you for your contin-ued support and participation.

Introduction

Peter BurnhamPartner and country leader

International executive ServicesSwitzerland

2 | Section or Brochure name

contents

Demographics

Assignment Policy trends

Social Security

Hypothetical tax and tax equalization

Assignment compensation

Income tax and social Security compliance

Assignee Management

Further Information

08

06

14

09

16

17

21

Key Survey Findings04

26

Judith MitchellPartner

International executive Serviceslausanne


As companies continue to expand their global reach and open up opportuni-ties in new locations, mobility professionals are constantly challenged to have policies that maintain equity across their global mobility populations. Shifts to more locally based, shorter term and commuter styled policies require constant refinement to maintain both equity amongst employees and attractiveness in the market.

Historically, a majority of outbound assignees have come from a handful of developed countries, initially sent out to establish businesses and train locals to eventually take over the running of the local operations. Predictably, the tide would eventually change and we would see employees from these devel-oping countries returning to the headquarters as assignees themselves. We are starting to see this trend evolve as the inbound population now includes assignees from countries that a few years back were considered developing. this in turn brings with it new challenges particularly for assignees and trans-ferees from countries outside of the eu. Issues with visas and the Swiss quo-ta system and how to manage compensation packages for individuals coming to Switzerland from non-traditional sources are all bringing new challenges to global mobility professionals.

Additionally, constant changes in tax laws and practice are bringing new chal-lenges. For example, the new uS disclosure and reporting requirements for uS citizens and green card holders and non uS nationals working in the uS, have created problems in opening or maintaining Swiss bank accounts. Besides the need for constant monitoring and additional administrative oversight, these new requirements also drive up the costs of compliance at a time when most companies are under pressure to drive costs down.

In times of economic uncertainty and financial stress, countries have been turning their attention to better policing the collection of tax revenue to bolster their economies. this in turn has put issues of tax compliance squarely under the microscope. Many survey respondents still identify short term visitors or extended business travellers as an area of concern from both a regulatory and tax perspective.

A number of companies cited exception management as one of the key drivers behind their recent policy changes.

Dealing with exception management can be a time consuming and often a frustrating process for mobility professionals. However we have detected a slight move away from absolute adherence to policy to one of considered flex-ibility. With cost control, adherence to policy and ensuring equity high on the agenda of most multinationals, it is not surprising that a number of companies have taken measures to add an element of flexibility into their policies and pro-cesses in order to better manage any exceptions they have to deal with. With-out flexibility, most exceptions need to go through a process of line manag-

Key Survey Findings

er or higher approval which can be both time consuming and emotional. this has resulted in some companies leaning towards a “menu” of benefits with-in a mobility policy, allowing the business units to choose the level of benefits they wish to provide to a particular assignee. Another approach is to require a certain core level of benefits and a standardised global approach, with coun-try-specific benefits such as additional housing costs, domestic staff, club memberships etc. being decided at the local host country level. While this in a sense is a move away from the traditional established view of maintaining strong central control with limited exceptions, it recognises the need to allow some flexibility to meet local and constantly changing situations especially in developing locations.

Managing income and social security compliance around their globally mobile population remains top of the risk agenda for most mobility pro-fessionals.

With many countries in the eu making frequent changes to their income tax legislation in an attempt to stem their budget deficits, and the tax authorities and tax legislation of developing nations becoming increasingly sophisticated, keeping up with the fast pace of change can test even the most experienced mobility professionals. Whilst tax advisors can help deal with the myriad of tax changes, one area where the solution has to be driven from within the com-pany is the area of compensation collection. Many of our survey participants cited their global compensation collection process as an area of weakness and one which they believed exposed their company to a certain level of risk. Inter-estingly, this is an area of concern in prior surveys yet little seems to have been done to adequately address it. cross border compensation gathering and accu-mulation continues to be a major challenge for many organizations, and in an era of greater tax authority scrutiny, it is an area that will need to be addressed as a priority. no companies surveyed operate a global employment company or appear to have a global compensation accumulation solution that adequate-ly addresses this issue.


Demographics

our survey participants represent a wide range of industry sectors and assignee population sizes, ranging from less than 10 assignees to over 1000.

over two thirds of companies reported that they had sent assignees for the first time to a new host country.

In which industry sector does your company operate?

6%11%

11%

5% 28%

11%

17%

5%6%

either remained stable or were decreasing slightly. A few companies reported increases, specifically in terms of short-term assignee numbers and assignments to china.

over two thirds of companies reported that they had sent assignees for the first time to a new host country. these included a diverse range of mainly developing countries, including Brazil, vietnam, Peru, Algeria, Ivory coast and Montenegro. As companies expand their global reach, mobility teams should expect to have to face more frequently the challenges of moving assignees to new locations. the principle difficulties cited by our survey participants when sending assignees to these locations for the first time were the legal difficulties of setting up assignment contracts, determining the correct tax and social security reporting and lack of structure in place within the foreign entity to support the assignees and achieve compliance. Personal security of the assignees is also one of the challenges identified.

the top host countries to which these companies are sending assignees are, not surprisingly, the uS, Switzerland and Singapore. A number of companies reported that china was now one of their top host locations. the majority of companies reported that their outbound populations had

■ Advertising and Marketing

■ Construction/Engineering

■ Consulting/Professional Services

■ Financial Services

■ High Technology

■ Industrial Products

■ Pharmaceuticals

■ Retail and Consumer Products

■ Other

How many assignees does your organization have globally?

17% 11%

17%

17%

22%

11%

5%

■ Less than 10

■ 10 to 50

■ 51 to 100

■ 101 to 200

■ 201 to 500

■ 501 to 1000

■ Over 1000


Assignment Policy Trends

nearly two thirds of our survey participants reported that in the last 12 months they had already implemented, or were in the process of imple-menting, significant changes in their assignment policies. Whilst the trend for more frequent policy review appears to be continuing, the drivers for the changes varied significantly from participant to participant. Within the financial services industry, cost control appears to be one of the main drivers for policy change. In other sectors, common drivers behind the changes were alignment of policies to ensure equality of treatment for all assignees, regardless of home country, and alignment to market practice. Some of the key policy changes which companies reported included:

• elimination or reduction of mobility premiums (paid monthly during an assignment)

• elimination of one time mobility premium paid at start or end of an assignment

• Introduction of a housing norm

• removal of housing norm

• Introduction of certain discretionary benefits as part of standard policy, in order minimise exceptions

the trend away from the balance sheet approach appears to be less marked than in prior years with less than half of companies seeing this trend continue. Almost all of the survey participants from the financial services industry, however, reported a continued trend away from the balance sheet approach which is in line with their drive for cost control noted above. Inter-estingly, the use of a housing norm seems to have been on the minds of some companies this year as they look for ways to further reduce the costs of assignments. Housing can be a big cost but also an emotional issue open to heated negotiation and debate within a company. We have seen some companies introduce a housing norm while others have removed it.

the trend away from the balance sheet approach appears to be less marked than in prior years.

If your company has multiple policy types, how do you determine which policy type should be used?

Decision of business unitDepends on home and host country locations

Depends on purpose of assignment28%

39%

28%

Whilst the idea of having a global employment company and global salary structure in place for “global nomads” (assignees without a specific home country) seems to be gaining in popularity and is being considered by a number of companies, few companies have yet to put any formal structure in place around these employees. Approximately 10% of our survey partici-pants reported that they had already developed a global salary structure for these individuals, and only 5% had a global employment company in place. However 50% of companies did report that they had an international pen-sion plan in which these global nomads could participate.

Social Security

Whilst the numbers of assignees who are unable to remain covered under their home country social security schemes whilst they are on assignment appears relatively small in absolute terms, when viewed as a percentage of a company’s total assignee population, these numbers can be quite sig-nificant. the approaches adopted by each company to counter this problem are quite varied. those companies who had an international pension plan in place were able to offer their assignees pension coverage through that plan, although it is not clear whether an international plan could always provide the same level of coverage, either upon retirement or in case of death or disability, as is provided through a Swiss plan.

Although the global network of social security agreements, as well as the eu social security regulations provide a certain level of continuity of ben-efits, it is to be expected that an employee who has worked in two or more countries over the course of his career could be financially disadvantaged from a pension and social security perspective compared to an employee who has spent his entire career working in the same country.

For companies looking to reduce assignment

costs, the introduction of a housing norm can lead to significant reductions.

35%

24%

6%

24%

■ Transfer on local terms and conditions

■ “Host-Plus” package (i.e. host-based with certain benefits provided)

■ More use of short-term assignments

■ Overall reduction in the number of assignees

■ Other

12%

6%

Other

If you are seeing a trend away from the balance sheet approach, which policies are you using instead?


What is your company’s approach to employees who cannot remain covered under their home country scheme, or who may lose all or part of their social security benefits as a result of an international assignment or transfer?

17%

39%

22%

the recent changes in Swiss pension plan rules which do not allow an employee to remain part of a Swiss plan if he or she is no longer affiliated to Swiss social security are clearly having an adverse impact on pension coverage for a number of assignees. Whilst the federal position is still not completely clear, a number of employers have already taken steps to remove the ineligible employees from the Swiss pension fund. others are waiting for a clearer position and have allowed the employees to remain in the fund for the time being.

How many globally mobile employees in your company are currently not covered under any country’s social security system?

10-25

25-50

Less than 10

6%

56%

22%

11%

Over 100

6%

Do not know

6%

11%

6%■ The company is not involved and does not

provide any advice in this respect

■ The company informs the employee but does not provide any assistance

■ The employee has the opportunity to join the company’s international pension fund

■ The company contributes to the cost of voluntary home country social security wherever possible

■ The company provides additional cash or benefits to compensate for potential loss of future benefits

■ Other


Are any employees of your company affected by the changes to Swiss pension legislation which mean they can no longer be a member of a Swiss pension if not affiliated to Swiss social security?

What is your company doing in respect of these employees?

9%36%

18%

36%

72% noHas en employee ever made a claim against your company for loss of social security benefits as a result of an international assignment or transfer?

28% Yes

28%of our survey participants

have had an employee make a claim for lost

social security benefits due to an international

assignment.

39% no

61% Yes

■ No action taken yet, the employees are still contrib-uting to the pension fund

■ Employees have been removed from the fund and NO replacement pension arrangements have been made

■ Employees have been removed from the fund and alternative pension arrangements have been made

■ Other

How does your company address the issue of health insurance for its outbound international assignees from Switzerland?

8%

20%

12%

24%

■ Remain covered in Swiss health insurance plan with international coverage added if required

■ Health insurance is provided under an international plan

■ Company pays the full costs of health insurance during the assignment

■ Assignee pays a “hypothetical” health insurance amount, or Swiss equivalent and company pays any additional amounts

■ Other

36%

Does your company protect its employees against loss of unemployment or disability insurance?

22%39%

17% 22%

■ No particular provisions are made

■ The employees are informed of the risks and left to make their own private arrange-ments

■ Private insurance arranged by the company, wherever possible

■ Other


As more and more employees transfer on local terms rather than as tax equalized assignees, it is important to consider the tax implications for employees who participate in the company’s stock plans. If an employee is living and working in one country when an award is granted and then moves to another country during the vesting or exercise periods, taxes could be due in both countries and in certain cases, double taxation could arise. By far the most common is a “hands off” approach with the employee being respon-sible for all actual taxes which arise. A few companies provide tax protection by limiting the amount of taxes for which the employee is responsible to that which he would have paid had he remained in the country of grant. In either scenario it is important for the employee to understand the tax implications, as well as for the company to have a process in place to ensure it remains in compliance with its own withholding and reporting obligations.

Hypothetical Tax and Tax Equalization

Although fewer employees than ever before are being assigned under the balance sheet approach, the issue of how to calculate hypothetical taxes for those employees that are tax equalized remains an important question. A clearly defined hypothetical tax policy is important in order to be able to explain to assignees the calculation of their tax liabilities whilst they are on assignment. Most companies adopt a relatively standardised approach to calculating hypothetical taxes, particularly in terms of the calculation of cantonal and communal taxes.

For outbound assignees, how do you calculate the cantonal and communal hypothetical tax liability?

11%

22%

17%

28%

■ Based on assignee’s canton and commune of residence prior to assignment

■ Based on the average rate for canton of residence prior to assignment

■ Based on employer’s canton and commune of residence

■ Based on average rate for the employer’s canton of residence

■ Other22%

If applicable to your company, how do you tax equalize your assignees without a home base (e.g. global nomads)?

17%11%

6%

11%

■ All have a Swiss salary structure and are tax equal-ized to Switzerland

■ Case-by-case basis

■ No such assignees

■ Tax equalized to country in which they last worked as a local employee

■ Other

56%

What is the company’s policy with respect to tax liabilities on employee share and option plans which are granted in one country, but which vest or are exercised once an employee has moved to another country?

17%

11%

11%

44%

■ Employee pays all actual taxes which arise at vest or exercise

■ Employee pays no more tax than he would have done in country of grant

■ Employee is tax protected only in cases of double taxation

■ No policy – handled on a case by case basis

■ Other

17%

of the companies that apply a hypothetical tax, around 50% base the rate on the employer’s canton of residence, and 50% on the employee’s canton of residence before the assignment.

Although local to local transferees are often

responsible for paying all of the taxes on their

equity awards, companies need to make sure they

are withholding and reporting the correct

taxes and income in each location.


72%of companies do not allow cashing out of assignment allowances.

Assignment Compensation

Whilst there appears to be a trend to allowing a certain amount of flex-ibility in the amount and type of benefits which can be provided within the framework of an international assignment policy, very few companies allowed employees to take cash allowances in lieu of provision of a non-cash benefit (such as shipment of household goods), and only then in very limited situations.

Despite the current high level of change to international assignment policies and benefits, most companies appeared to be quite satisfied with their com-pany’s approach to assignment compensation.

In your opinion, is your company’s approach to assignment compensation:

11%

78%

11%

Income Tax and Social Security Compliance

Income tax and social security compliance remains a time consuming and often cumbersome process. the majority of our survey respondents reported that collecting and reporting of global compensation, as well as tracking and reporting of equity compensation for globally mobile employ-ees is something that they see as one of their key compliance risks. Indeed, as relatively few companies have a truly global solution in place, this is not surprising, and without a globally managed process it is very dif-ficult to monitor compliance. the risks increase with the number of differ-ent sources of taxable allowances and benefits which assignees receive, with multiple sources including home and host country payrolls, expense reports, direct payments by the company to third parties and stock which is delivered directly to an employee’s brokerage account.

Does your company offer any cash incentives to its international assignees?

17%

50%

11% 6%

■ Yes, to all assignees as a percentage of base sal-ary for the duration of the assignment.

■ Yes, to all assignees, a one time payment at the start of the assignment.

■ Yes, but only for assignees to certain locations.

■ No

■ Other

17%

If your globally mobile employees do not need or do not use some of the benefits provided under your international assignment policy, does your company allow the employee to take the compensation in cash instead?

6%

72%

6%■ Yes, in certain circum-

stances

■ Yes, upon approval from business unit

■ No, never

■ Other

17%

■ More generous than it needs to be

■ About right

■ Not generous enough

78%of our survey participants

were satisfied with their company’s

approach to assignment compensation.


Which of the following do you see as potential compliance risks associated with your globally mobile population?

20%

14%

20%

12%

12%

20%

■ Income tax compliance

■ Social security compliance

■ Tracking and reporting equity compensation and host-paid benefits for glob-ally mobile employees

■ Collecting and reporting global compensation for employees

■ Legal issues (contracts, work permits, etc.)

■ Tracking of assignees (short-term business visi-tors, commuters, etc)

When an assignee is paid through the host country payroll but remains in Swiss social security, how do you manage the process of reporting the host country compensation and benefits for Swiss social security purposes?

4%

46% 25%

4%

■ Pay a sufficient amount of sal-ary through the Swiss payroll to cover the employee’s Swiss social security liabilities

■ Deduct the employee’s social security liability through the host payroll

■ Operate a “shadow payroll” in Switzerland to report all com-pensation and benefits paid in host country

■ Only the base salary is reported back to Switzerland for social security purposes

■ Other

21%

collecting and reporting global compensation remains high on the risk agenda for many mobility professionals.


Are you having to increase the base salaries of assignees Into Switzerland in order to comply with minimum salary requirements?

In terms of countries in which companies had the most concerns around compliance, china came top of the list, specifically in relation to shadow payroll reporting and reporting of equity compensation.

Despite the continuing financial crisis, particularly in europe, few compa-nies reported any increased difficulty in obtaining work permits for assign-ees, with the exception of Switzerland. the strength of the Swiss Franc against all other major currencies and the high Swiss salaries compared to those of other developed countries means that it is becoming increas-ingly costly for companies to bring assignees to Switzerland. this tends to be of particular concern for assignees who are brought to Switzerland for training purposes. A company may not wish to pay such assignees a Swiss equivalent salary for the period that they are in Switzerland, however this if often required by the authorities before they will grant work authorization for such employees.

44%of companies do not

have any defined responsibilities for

tracking and monitoring of business travellers

and commuters.

Are you finding it more difficult to obtain work permits for transferees Into Switzerland?

Has your company experienced increased difficulty in obtaining work permits in countries other than Switzerland?

Assignee Management

For companies with large numbers of international assignees, technology is a key component of managing certain aspects of their mobility programs. An integrated technology solution can help mobility professionals bring together all the assignment data which might previously have been stored in various spreadsheets in numerous departments. Increasingly, mobility professionals are being asked not just to ensure tracking and compliance for a company’s globally mobile employees, but to provide management with detailed cost analyses, estimates and accruals. Having an automated process to be able to quickly and reliably produce such information at short notice has become a goal for many large companies.

As cost control remains high on the agenda for most companies, it is somewhat surprising to see that less then half of our survey participants already had a cost tracking system in place. All of the larger companies from the financial services industry responded that they already have a cost tracking process in place, which reflects the importance of cost con-trol to them.

61% no

39% Yes

44%

56% Yes

no

61%

Yes39%

no

Who in your organisation is responsible for tracking and ensuring compliance for business travellers and commuters?

11%

33%

11%

■ Mobility

■ HR

■ Individual business units

■ No specific responsibilities have been defined

44%


Which of the following statements best describes your company’s overview of costs related to international assignees?

6%

22%

■ We have a global overview of total costs per assignee

■ We are able to generate/obtain detailed reports of all costs per assignee, per coun-try, per business unit, etc.

■ No centralised tracking of assignee costs – this is done at local level only

■ Processes are currently being put in place to be able to track assignee costs on a global basis

■ No current process in place

■ Other

33%

6%

22%

11%

Which technology tools are you using to manage your international assignees?

6%

39%

■ KPMG, E&Y, PwC, or Deloitte software

■ Mercer, ECA or AirInc

■ In-house application

■ Spreadsheets

■ None

■ Other

11%

11%

28%

6%

If you have a technology solution, how long has it been in place?

11%

11%6%

Less than 2 years

2 to 5 years

More than 5 years

In your opinion, what is the main reason for having a software solution?

6%

39%

■ Improved productivity.

■ Lower fees from tax service providers

■ Improved processes/organisation

■ Quality assurance

■ Risk management

■ Other

28%

11%

11%

6%

over half of our survey respondents view

improved processes, quality assurance and

risk management as the main benefits of a

technology solution.

66%of the companies in our survey do not have a global overview of their assignee costs.


Does your current technology solution meet your needs?

11%

39%

■ Yes, 100%

■ Yes, around 75%

■ Yes, Around 50%

■ No39%

11%

What do you see as the biggest challenges you face today in the area of global mobility?

33%

■ Managing compliance risks (income tax and social security)

■ Incentivising assignees to move to high risk/hardship locations

■ Ensuring equity among assignees and maintaining adherence to policy

■ Reintegration to home coun-try following the end of an international assignment

■ Other

11%

11% 33%

11%


About KPMG’s Global Mobility Services

KPMG has created a range of services, supported by leading edge technol-ogy, which can help our clients ensure that they can manage all aspects of their globally mobile employees effectively. With over 30 years as a dedicated global mobility consulting practice and employing approximately 1,600 professionals in over 160 countries, our firm serves over 1,000 cli-ents with 80,000 expatriates on assignment at any one time. We have a deep and comprehensive understanding of the issues surrounding globally mobile employees in numerous industries from both the employer’s and the employee’s perspective.

Whether expanding your global operations or considering acquistions, mergers or downsizing, we offer professional advice and guidance on a wide range of issues affecting a mobile workforce, from international human resources management and personal tax compliance to sophisti-cated tax advice.

For Further Information

Peter BurnhamPartnerKPMG AGBadenerstrasse 172cH-8026 Zurichtel. +41 44 249 22 26Fax +41 44 249 29 [email protected]

Judith MitchellPartnerKPMG AGAvenue du theatre 1cH-1005 lausannetel. +41 21 345 03 37Fax +41 21 345 03 [email protected]

If you have any questions regarding this report please contact:

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