EY survey highlights the urgency of assignee benefit package reviews

Announcing EY Mobility Survey No. 3, which explores policies and tax practices pertaining to the allowances, treatments, and taxation of the overseas assignees of over 200 Japanese companies

・Many companies noted difficulties in using the balance sheet approach, living expenses, exchange rates, payment levels, and hardship allowances for determining salaries and allowances for overseas assignees and in explaining these factors to assignees.
・In terms of notable challenges related to employee benefits, many companies cited setting limits for medical expense coverage during the assignment and the coverage of educational expenses for any accompanying children. Astronomical international school tuition rates create benefit policy challenges whenever children accompany assignees to regions in which international schools are the sole educational option; the survey provides insight into company coverage of such educational expenses with questions addressing the payment of overseas kindergarten and daycare expenses. A surprising number of respondents also indicated that the text of their benefit policies is outdated and differs notably from actual practice.
・Findings indicate that in cases where an assignee who resigned while on assignment has received severance pay and selective taxes were levied on the severance pay, many companies’ policy is to either provide some measure of support for the necessary procedures or to provide no such support.

We are pleased to announce the release of EY Mobility Survey No. 3, a joint project of Ernst & Young Tax Co. and EY Immigration Corporation which explores international mobility practices. The final installment in our three-part series focuses on policies and tax practices pertaining to overseas assignees, including allowances, salaries, benefits, regulations, and double taxation arising from overseas business trips.

Responses to questions about the latest trends in benefits paid to overseas assignees—including allowances, home leave, tuition for accompanying children, and housing-related expenses—demonstrate that many companies are aware of the need to improve their benefit benchmarking practices. Moreover, a full 34% of respondents indicated that the most recent significant revisions to (or drafting process for) their assignee regulations took place at least six years prior to the survey, with some respondents replying “ten or more years ago.” Some respondents also expressed that their rules and regulations are outdated and that the treatments outlined therein are misaligned with realities on the ground, highlighting an urgent need for companies to review and revise their policies and benefit programs.

This final installment of the EY Mobility Survey was conducted over two months from February to March of 2022 with the purpose of gaining insight into corporate management of allowances, treatments, and taxation of overseas assignees. EY surveyed and analyzed responses provided by 238 respondents (215 companies) primarily from administrative departments, including HR, accounting, executive functions and corporate planning.

EY Mobility Survey No. 3: Findings

Criteria for provision of allowances for overseas assignees and relevant amounts

1.Overseas work allowance
The most common response (34%) indicated payment of a fixed amount determined according to the assignee’s job title; another 31% of responses indicated payment of a fixed percentage of monthly or yearly income.
The survey examined amounts for the manager, section manager, and general employee levels. The monthly average amount paid was JPY141,861.
2.Hardship allowance
50% of respondents indicated that their company makes decisions based on indices published by consulting and research firms. 14% indicated using company-defined criteria and in-house research.
The survey examined payment amounts for section manager positions in New Delhi, Hanoi, Bangkok, Jakarta, Manila, and Beijing.
Survey results indicate that New Delhi had the highest amounts paid with an average value of JPY123,633, followed by Manila at JPY81,410 and Jakarta at JPY78,099.
3.Allowances for overseas assignees with no accompanying family
26% of respondents indicated that they provide all overseas assignees with no accompanying family an equal amount regardless of position or yearly income; another 26% indicated not providing this allowance.
The survey examined payment amounts for the manager, section manager, and general employee levels. The monthly average amount paid was JPY118,150.

Payment of overtime allowances for work performed overseas
The largest percentage (41%) of respondents indicated not paying overtime allowances when an assignee is working overseas even if said assignee would be eligible for overtime allowances in Japan (i.e., they are non-managerial employees), although this may be due to assignees working as managerial employees in assignment locations. Many companies will compensate for this lack of overtime allowance such as by promoting the individual or providing them manager-specific allowances.

Hypothetical (hypo) taxes on overseas salaries
While 40% of respondents indicated that they calculate hypo taxes using estimates, another 26% indicated performing tax equalization (TEQ, i.e., making exact calculations), indicating a divergence in trends among respondents regarding method and approach to hypo taxes. Since TEQ requires calculations to be conducted for each individual employee, companies also have room to consider utilizing tax specialists or outsourcing services for these tasks.

Challenges associated with configuring the balance sheet approach, living expenses, exchange rates, and explaining these factors to assignees
Our survey revealed that a major challenge associated with salaries and allowances for overseas assignees is the difficulty faced by the employees responsible for gaining the assignee’s understanding with regard to the framework and factors used to set the assignee’s salary and allowances—specifically the balance sheet approach, living expenses, exchange rates, and hardship allowances—which is particularly difficult when the assignee personally feels like their circumstances in the assignment location do not align with their compensation.

Reasons, objectives, and challenges for revising and creating new regulations for overseas assignees/plans for and timing of most recent revision of regulations
A majority of responses identified improving policies and procedures for assignees as the reason and objective for revising regulations for overseas assignees. With an increasing number of companies considering formulating policies that may be used globally as international mobility becomes ever more dynamic, a notable 17% of responses cited the acquisition of know-how for creating regulations that may be used globally as the greatest challenge their company faces, second only to the 43% of responses that cited understanding the standard practices of other companies as their greatest challenge. A common solution is to utilize external consulting firms or specialists to obtain information on global standards for allowances and payment levels since conducting such research in-house is often unfeasible.

Additionally, many respondents indicated that years have passed since their company last reviewed its regulations for overseas assignees and that those regulations are no longer in line with their actual practices, which suggests an urgent need for companies to regularly conduct reviews both to ensure appropriate treatment for assignees and to reduce company costs.

Trends and challenges regarding the implementation of overseas trainee programs
Tax risks top the list of concerns for many companies with the most common challenge identified by respondents being tax risks arising in Japan due to the allocation of trainee costs (14%), and an additional 9% identifying tax risks overseas as their greatest challenge. Another 27% of responses cited not having trainees or a program in place for them, although responses companies provided to open-ended questions reflect that, while their company is considering the implementation of a program for overseas trainees, they have not yet been able to do so due to lack of know-how for establishing such programs and setting policies therein.

Severance payments for assignees
Many companies have policies in place wherein the severance pay to be received by assignees are paid after the company repatriates the assignee to Japan and the assignee officially resigns, presumably to avoid complications in the handling of taxes in the assignment location and Japan. For instances in which companies are required to file income tax returns in assignment locations when an employee resigns during an assignment, many responses indicated that their company files returns correctly, but a significant number of the companies that have experienced resignations while on assignment (27%) indicated that they leave tasks related to filing tax returns to the host entity and consequently do not know the details of such tax returns. Confirming whether tax returns are being filed correctly in the assignment location is extremely important even in situations where the home entity does not pay income tax on behalf of the employee.

Taxation in assignment locations for short-term overseas assignees and long-term business travelers and double taxation between Japan and the assignment location
In response to questions about which entity bears the burden of tax payments when tax obligations arise in the assignment location, approximately 30% of responses indicated that Japanese headquarters bears the final burden. Moreover, in cases where double taxation occurs between Japan and an assignment location, over 30% of responses indicated that companies avoid double taxation by filing tax returns in Japan and applying the foreign tax credit. In light of the frequency of misstatements, such those arising from errors in how the number of tax-exempt days for short-term visitors is calculated or when the prescribed number of days for business travelers has unintentionally been exceeded, considerable caution is also warranted regarding the payment of taxes levied on business travelers, especially as overseas business trips are expected to resume in the near future.

Commentary from Megumi Fujii, Ernst & Young Tax Co. Partner:
“Our survey paints a clear picture of the precarious position of companies who want to improve their assignee benefits to increase interest in overseas assignments and assignee satisfaction, but who are simultaneously forced to identify ways to reduce costs. The data speaks for itself, as “cost reviews and reductions” was second only to “the desire to improve policies and procedures for assignees” as the most common reason and objective for the revision or drafting of regulations for overseas assignees.

Foreign-affiliated companies generally tailor assignee benefits to the objective of the overseas assignment and the employee’s job title, and moreover have a global headquarters that conducts centralized management of international assignments with a strong focus on cost management. In contrast, Japanese companies generally offer a generous set of benefits regardless of the objective of the assignment or the employee’s job title, and have a headquarters that is not actively involved in cost management. This approach usually results in an inability to ascertain total costs and more significant tax risks. Additionally, since the transfer of employees across national borders necessitates consideration of taxation in both Japan and the assignment country, and despite the intention of many companies to facilitate employee mobility as globalization continues apace, our survey has made it clear that tax risks are impeding those efforts.

The roots of these challenges lie both in the regulations that stipulate the allowances and benefits provided to overseas assignees as well as in the associated assignment contracts stipulating cost allocations between home and host offices. In regard to revising regulations and other policies, taking into account specialist knowledge pertaining to taxation, visas, labor issues, and other perspectives for both home and host locations is essential, as is considering all of these perspectives together when conducting reviews of regulations. EY is preparing a full analysis of the three surveys and will publish a summary of the key findings at a future date.”

Overview of survey findings:

Please click on the links below for the key findings from the survey.

Overview of EY Mobility Survey No. 3

The EY Mobility Survey was conducted as a three-part series, of which this is the final installment, with the purpose of gaining insight into corporate management of overseas assignees, business travelers, and employees on inbound assignments to Japan.

Purpose: To survey and analyze international mobility practices pertaining to allowances, salaries, benefits, regulations, and double taxation of overseas assignees.
Topics: Overseas assignee allowances, salaries, benefits, regulations, and double taxation on overseas business trips.
Survey period: Monday 14 February 2022 to Thursday 31 March 2022
Number of respondents: 238 (valid responses*: 215)

*The following standards were applied in cases where there were multiple respondents from the same company:

1.Responses from head offices were prioritized over those from overseas subsidiaries
2.Responses from human resource departments were prioritized over those from all other departments
3.Surveys from respondents with the most valid responses were prioritized when there were multiple respondents from the same department or group

Supplementary information:
All items from EY Mobility Survey No. 3 are listed below. (Items in bold are those included in the summary version)

1.Departments and roles of respondents
　90% of respondents were HR personnel from management departments, ranging from general employees to directors
2.Respondent attributes
　Corporate nationality and industry
3.Criteria for provision of overseas work allowances
　60% provide according to rank, yearly or monthly income, 10% provide all employees equally, over 10% provide no allowance
4.Amounts provided for overseas work allowances
5.Cities covered by hardship allowances, and factors in determining the criteria for amounts provided
　Half of respondents use indices from consulting firms, followed by 14% who use independent criteria and survey results
6.Hardship allowance amounts by city
7.Criteria for provision of allowances for unaccompanied assignees
　Approx. 70% of all companies provide allowances, with most using a uniform payment method for all employees
8.Allowance provision amounts for unaccompanied assignees
9.Criteria for provision of overseas position-based allowances
　Over half of companies provide no allowance, and the majority of those that do use the assignee’s position overseas, with less than 10% providing only for top management
10.Providing overtime pay when working overseas
11.Calculation methods for hypothetical taxes (hypo taxes)
 　40% of companies use estimates, while nearly 30% perform TEQ and make exact calculations
12.When overseas salary levels exceed assignee’s salary
13.Challenges regarding allowances and salaries for overseas assignees
  　Challenges in the balance sheet approach, living expenses, exchange rates, payment levels, allowances, operations, and taxation
14.Scope of provision for housing expenses
15.Handling of medical expenses not covered by overseas travel insurance, medical insurance, etc.
16.Scope of provision for kindergarten and daycare expenses for accompanying children
  　90% of respondents provide for a part or all expenses
17.Company-provided items when assignees temporarily return to home country
18.Frequency of payments for temporary return expenses (accompanied/unaccompanied/single-status)
19.Challenges concerning benefits for overseas assignees
20.Plans for reviewing/creating new regulations for overseas assignees, timing of most recent review
  　30% of companies have reviewed regulations in the past year or are considering doing so within the next year
21.Reasons and objectives for reviewing/creating new regulations for overseas assignees
  　Most common response (over 50%) was “to improve policies and procedures for assignees”
22.Challenges when reviewing/creating new regulations for overseas assignees
  　Over 40% face difficulties in understanding the global market, approx. 20% face difficulties in acquiring global standardization know-how
23.Challenges regarding overseas trainees
  　Cost burdens, tax risks, and other issues are wide-ranging
24.Resignations while on overseas assignment (selective taxation on severance packages in Japan)
25.Income tax returns in assignment country for severance pay provided during overseas assignments
  　Excluding non-applicable cases, most companies correctly filed and paid taxes in assignment locations
26.Turnover rates after returning from overseas assignments (compared to domestic workers)
27.Measures to prevent turnover for assignees and returnees and related challenges
28.Challenges concerning regulations for overseas assignees, programs for overseas trainees, and severance pay while on assignment
  　Example responses
29.Short-term overseas assignees and long-term business travelers (cases in which 90 days or more per year are spent overseas)
30.Short-term overseas assignees and long-term business travelers (handling of tax payments in assignment locations)
  　Most often overseas subsidiaries provide advance payments with Japanese headquarters bearing the final burden
31.Handling occurrences of double taxation between Japan and assignment locations
  　Over 30% of companies avoid double taxation by filing a tax return in Japan and applying the foreign tax credit

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