Strategy

There’s Risky Business Abroad

Companies don't do well managing compliance issues when they send workers overseas, a KPMG survey finds. Yet they're about to increase the practice.
Alan RappeportSeptember 18, 2007

An international assignment may feel like a holiday for jet-setting business travelers, but for the company sending them it can be a pure risk-management headache.

Concerns over taxes and compliance with immigration regulations — not to mention more mundane worries about illness, injury, and other travel-related exposure — present corporate executives with significant risks when they send employees abroad. And a new survey by accountancy KPMG LLP finds companies conceding that they often do a poor job of keeping track of the compliance-related issues encountered by expatriates, whether they are extended business travelers or workers being stationed outside the U.S. on short-term assignments.

More than, say, the risk of employees losing baggage on international flights, compliance risks are on the minds of KPMG’s 160 respondents, executives in corporate tax and human resources departments. Some 93 percent of those polled express concern about tax-related issues, with 75 percent rating immigration risks as a top worry.

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“While we knew that companies faced compliance issues around short-term international assignments, we were not expecting that so many companies had identified risks but were still not taking steps to effectively manage those risks,” said Ben Garfunkel, national partner in charge of the KPMG International Executive Services practice.

Half of companies lack a “compliance framework” to account for risks surrounding short-term assignments, the survey concludes, while 31 percent do not even bother to track how long employees are away on such trips. Ignoring foreign laws can be costly, with penalties ranging from deportation to incarceration.

“Companies have invested significant resources over the past few years to get a handle on corporate risk, but C-level executives should take seriously these hidden tax and immigration risks by investing in people, processes and technology to manage this area,” according to Garfunkel. The survey finds that only 13 percent of respondents think that the CEO “has visibility around these risks,” while 22 percent name the CFO as the person with the greatest visibility.

KPMG expects the risks associated with international assignments to increase. The survey finds that 31 percent of companies in the survey plan to increase the number of extended business trips for employees, with 38 percent saying they would boost the number of short-term assignments.

Of companies surveyed, 93 percent currently have employees engaged in extended business travel, defined as work abroad for between 30 and 180 days. Short-term assignments are defined as overseas postings longer than six months but less that 12 months, and 91 now percent have workers in that category.

The time seems ripe for it. “Often, shorter term assignments are used because of specific business needs that sometimes develop unexpectedly,” said Achim Mossmann, national director of Global Mobility Advisory Services at KPMG. “Business managers may decide to extend business trips for their employees without even realizing the tax or immigration ramifications. With no formal tracking system in place, the employee goes unnoticed until a problem arises.”

He added that with the increased use of these short-term assigments, companies “should realize that manually tracking emplyees abroad or using a patchwork of existing tracking approaches may be too risky.”

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