# Employer wants to pocket my tax refund!



## Tommy (6 Sep 2002)

Hopefully some of you regular contributors may help with this one.  I've been asked to go to the US to work for my employer for between 6 to 12 months.  I've been told that in order to be let go I must sign an agreement ensuring I'll be tax neutral due to this trip.  Basically, I will be due a tax rebate on return due to foreign earnings deduction and I am compelled to hand this over.  I feel this will be my money and am reluctant to do so but what can I do ?  No signature, no trip.


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## rainyday (6 Sep 2002)

*Re: Tax equalisation treatment !*

Tell 'em to shove it, would be my first reaction. - Your tax rebate is your money - Are they offering any bonus, compenstation for disturbance, free flights for your partner or anything extra to compensate you? 

However, in the light of today's difficult employment market, you probably need to consider the long term impacts of your decision. Could your employer easily replace you with other(s) for this trip?


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## Tommy (6 Sep 2002)

*Re: Tax equalisation treatment !*

This sounds totally bizarre. Your tax affairs, and in particular your entitlement to tax reliefs, allowances and credits, are confidential to you and your employer has no business enquiring into this. If you decide to apply for the FED refund to the Revenue, the Revenue will correspond with you - not your employer. The same would apply to every other tax relief, eg. medical exps, that you claim.

Because of this, I don't know how they could enforce an "agreement" that you would have to surrender any tax rebate to them - simply because your employer would never be able to verify if you actually had been paid the refund.

It seems to me that your employer is trying to negotiate an effective decrease in pay with you. If they want to do that, this seems like a fairly daft and cumbersome way of doing so. 

It's up to yourself how you negotiate the terms of your trip. However, if they do need to have you based over there, it seems like serious penny-pinching to try to force you to pay your tax saving to them. Strange...

Best of luck anyway

Tommy
www.mcgibney.com


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## rory (6 Sep 2002)

*Re: Tax equalisation treatment !*

In order to claim the tax refund, don't you need to provide documentation to that effect to the Revenue? I think companies try to enforce this unjust practice by refusing to provide this to the employee.


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## Tommy (6 Sep 2002)

*Re: Tax equalisation treatment !*

In order to claim FED tax relief, I would imagine it would be sufficient for an employee to produce the following:

- a P60
- evidence of employment during the period of foreign employment, e.g. payslips
- actual evidence of being abroad during this time - receipts for accommodation & other expenses, copy flight tickets, entry in passport etc

If an employer fails to give an employee a P60 or wage payslips, they are guilty of offences under employment law. 

On the wider topic, I would imagine both the Dept of Enterprise and Employment and the Health & Safety Authority (re possible intimidation etc) would be very interested to hear about this query.

Tommy
www.mcgibney.com


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## dilemmified (6 Sep 2002)

*Re: Tax equalisation treatment !*

Maybe I should share a little more info at this point which may clarify things.  I'm not the only one affected, there are quite a few of us travelling regularly for a large multinational corp.  There are excellent benefits to this such as cash payments, long term accommodation and car supplied etc.  The conflict arose when others returned from previous trips and after having their tax returns prepared by an external accountancy practice, received sizeable cheques from the revenue due to FED.  So OK, they signed the agreement and lapped up the benefits, but who owns the refund ?  They were told that witholding the money was a disciplinary issue up to and including termination.
Any clearer ??


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## rainyday (6 Sep 2002)

*Re: Tax equalisation treatment !*

Hi Dilemafied - Can you clarify if the treatment of the refund was covered in the agreement you signed initially covering the accomodation etc? If not, I really think you should be talking to a solicitor...


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## Tommy (7 Sep 2002)

*Re: Tax equalisation treatment !*

I can't see how an "agreement" that compels an employee to pay <!--EZCODE BOLD START-->* their*<!--EZCODE BOLD END--> tax refund to their employer could be in any way be lawful. If its not lawful, then its not enforceable. 

It shouldn't really matter whether any employee signed any such "agreement."


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## Homer (7 Sep 2002)

*Re: Tax equalisation treatment !*

I don't think it's as black and white as everyone seems to think it is.

Many multinational companies have programs for dealing with international transfers.  Usually the rules for how these programs operate are set at head office level and are applied on a consistent basis throughout the world.

It is quite usual for these programs to provide for tax equalisation.  This ensures that the ex-pat does not lose out (or gain a windfall) as a result of moving from one tax jursidiction to another.  This is quite reasonable and does not in my opinion justify the somewhat aggrieved responses that have been posted so far on this topic.

Dil has pointed out that there are some very generous elements to the ex-pat package.  Again, this is quite common as it compensates people for the inconvenience of having to uproot themselves and, in many cases, their families at the company's behest.  I'm fairly sure that the employer will make all the conditions attaching to the assignment known to the employee at the time they are asked to accept same.

For short term assignments, I wonder if the company would be prepared to treat the assignment as a temporary move to another company within the group rather than an official ex-pat assignment?  In such a case, the individual would be provided with a host country package while on the assignment and would be responsible for looking after their own accommodation, travel, etc.  They would then be free to hold onto the benefit of any tax rebate on returning to Ireland. They would also need to ensure that it was set up as some form of leave of absence in order to avoid loss of pension rights, etc.

It's quite likely that, if you did the sums on this, the tax rebate would not be sufficient to cover the additional expenses incurred, although this might depend on whether the individual could save on Irish accommodation costs (e.g. by renting out their home) while abroad.

I don't think it's reasonable for employees to expect to 'have their cake and eat it.'  Neither is it reasonable for an employer to bully an employee into accepting an assignment that they don't want or on terms where the individual is losing out compared to if they stayed in Ireland.  But I don't think that's what's happening here.

Regards
Homer


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## Brendan Burgess (7 Sep 2002)

*Re: Tax equalisation treatment !*

As I was reading down this question and the opinions expressed, I was beginning to frame a contrary opinion.

Yet again Homer, you have stolen my thunder and most eloquently!

Well done

Brendan


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## ClubMan (7 Sep 2002)

*Re: Tax equalisation treatment !*

<!--EZCODE BOLD START-->* I don't think it's as black and white as everyone seems to think it is.*<!--EZCODE BOLD END-->

Maybe not - but surely an individual's dealings with the Revenue are his/her own private business even if they are normally (e.g. PAYE) done with full visibility to the employer? In this particular case it seems very strange that (on the basis of the previous posts) the employer doesn't seem to have explained the rationale and justification for this approach to foreign assignments.


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## Homer (7 Sep 2002)

*Re: Tax equalisation treatment !*

Hi ClubMan

I agree that the employer should be prepared to explain the rationale behind the approach they are taking.  I also believe that, if they let employees go on foreign assignments without explaining all elements of the reward package, they may find it difficult to justify asking an employee to subsequently return a tax refund to them.

However, my experience of dealing with US multinationals is that they tend to have very clearly defined policies for dealing with cross-border assignments and generally go to some pains to explain in detail how the program works, including the tax equalisation aspects.  That's not to say that a failure by the employer to explain things properly could never happen .

In response to the question you raise, I agree that an individual's dealings with the Revenue are generally his/her own business.  However, if the employee agrees to accept an assignment, one condition of which is that they will be subject to tax equalisation, they are thereby agreeing that their tax situation becomes the employer's business for the duration of the assignment.

I've no particular axe to grind on this, never having been on such an assignment, but I've worked with people who have.  Most (but certainly not all) people find that they gain financially and in other ways as a result of the assignment. 

Regards
Homer


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## Observer (9 Sep 2002)

*Re: Tax equalisation treatment !*

I have to say I don't like the sound of this practise at all.  I am particularly interested in how the employer expects to enforce it.  As the value of the FED will depend on a multitude of things such as the employees tax band, marital status, other sources of income, allowances etc, it seems that the employee is, in effect, forced to open up his/her tax affairs completely to the employer. (On pain of dismissal!! - I'd love to see that one tested in the courts).  This is just wrong and I am surprised at the willingness of some here, including Brendan, to condone it.

It is the employer, rather than the employees that seems to want to have the cake and eat it.  No doubt this company is already benefitting handsomely from the Irish corporate tax regime.  How mean and petty then to try to claw back any tax advantage that might (legitimately) fall the way of their employees.  If the employer is so mean minded in this regard, it will be likely to be equally mean-minded in other ways too.  

Perhaps its time to start looking for another job?  And an employer that treats its workforce with more respect?


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## Tommy (9 Sep 2002)

*Re: Tax equalisation treatment !*

If indeed this sort of arrangement is commonplace among Irish-based multinationals, I can't help thinking that it is an abuse of the FED tax relief mechanism. The FED tax relief allows a tax saving to employees, not employers, and is explicitly designed to do so. On that basis, it is an abuse of the scheme for employers to try to recoup that benefit from their staff. 

Imagine the fuss if I, as an employer, tried to deny my staff the extra tax benefits arising in their paypackets in last year's budget!  

If this practice is widespead, it will inevitably lead (in time) to the scrapping of the FED relief. In justifying his decision to raise the standard VAT rate from 20% to 21%, Charlie McCreevey said in his budget speech that retailers had failed to pass on to consumers the benefit of the 1% drop in VAT a year earlier. If the benefits of the FED are not being passed on to employees, then similarly, the simple solution for the Dept of Finance would be to scrap it. And guess who would be the biggest losers if this were to happen? - yes, both the employees of multinationals, and the companies themselves.

Tommy
www.mcgibney.com


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## Spiderman (9 Sep 2002)

*Tax*

This practice has been going on for many years with international companies who send employees abroad for specific training, for periods ranging from six months to a couple of years. 

Homer has put it excellently, so i shall not try to enhance what he wrote.

The tax equalisation calculations are usually done by a Big5 accountancy firm who are well experienced in tax equalisation for both expats and impats. The theory is that the employee should be no better or worse off from a tax standpoint, and that may involve surrendering a tax rebate from the tax authorities in either country. If the net result is that the employee is worse off, then the employee has, of course, a right to object. It would be very surprising if the employer did not deal appropriately with that objection.

The incentive package usually includes a consultation with the aforementioned accountancy firm to enable the employee to review and approve the tax calculations. The employee also has the option to have the calculations checked by an independent tax expert, but that rearly happens, because most employees are usually satisfied after the consultation.

This practice is not illegal or sinister, it is normal business practice and it should not be assumed that the employers are out to screw the employees. 

(Before anyone says it, Big5 firms are not perfect and  are not, in this case, independent, but they are pretty good at this stuff).


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## Spiderman (9 Sep 2002)

*Tax*

Sorry. Second sentence, fourth para should read "....but that rarely happens..."

Must remember to use spell check!


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## Kathy (9 Sep 2002)

*> Re: Tax equalisation treatment !*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> "Imagine the fuss if I, as an employer, tried to deny my staff the extra tax benefits arising in their paypackets in last year's budget! "<hr></blockquote><!--EZCODE QUOTE END--> 

Some employees (particularly, for example, nannies) expect their salaries to be quoted net so the tax benefit accrues to the employer - cost of living and references to comparative salaries are done at an annual review.  After the last budgets, we left our nanny's after-tax salary unchanged and she was okay with that.

My view on the main debate here is that if an employee would expect their employer to compensate them if they were to lose money as a result of going abroad, they have no right to expect to pocket any tax advantage if the reverse happens.


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## ClubMan (9 Sep 2002)

*Re: > Re: Tax equalisation treatment !*

<!--EZCODE BOLD START-->* My view on the main debate here is that if an employee would expect their employer to compensate them if they were to lose money as a result of going abroad, they have no right to expect to pocket any tax advantage if the reverse happens.*<!--EZCODE BOLD END-->

Based on the discussion so far I disagree on this general principle. I believe that the remuneration package contractually agreed between an employer and employee should be separate from and not impinge upon the individual's private tax affairs with the relevant tax authorities.


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## Kathy (9 Sep 2002)

*Re: Tax equalisation treatment !*

So, Clubman, if an employee is asked to go abroad and loses money as a result, you think that's okay?  Often the tax loss won't be obvious until a year later and it's not always possible to renegotiate your remuneration package retrospectively with your employer.  Refusing to go is not always an option.


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## ClubMan (10 Sep 2002)

*Re: Tax equalisation treatment !*

<!--EZCODE BOLD START-->* So, Clubman, if an employee is asked to go abroad and loses money as a result, you think that's okay?*<!--EZCODE BOLD END-->

I don't see how my point about the remuneration package between employer and employee being separate from the employee's private tax affairs with the relevant tax authorities implies this.


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## rainyday (10 Sep 2002)

*Re: Tax equalisation treatment !*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> employee would expect their employer to compensate them if they were to lose money as a result of going abroad, they have no right to expect to pocket any tax advantage if the reverse happens.<hr></blockquote><!--EZCODE QUOTE END-->

Hi Kathy - I disagree - Even ignoring the tax issue, employees have every right to expect that their employer will compensate them for spending extended periods abroad.


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## Tommy (10 Sep 2002)

*Re: Tax equalisation treatment !*

It is generally accepted practice that an employer compensates employees for all out-of-pocket expenses incurred by the employee in carrying out the duties of their employment. In many cases, the employee will actually (and legitimately) gain some sort of financial benefit by following whatever procedures are in place for recouping such expenses. Motor expenses (paid at Civil Service rates) is a good example. 

Any employer that would propose "equalising" the benefit of  legitimate motor expenses paid to employees would be ridiculed and mocked from a height. The situation with the FED is even more clear-cut. If the Minister for Finance wants to introduce a FED-equivalent tax break for employers, let him do so. In the meantime, it is simply wrong for employers to appropriate a tax benefit designed for the benefit of their staff. It is outrageous if this is done "on pain of dismissal"

Tommy
www.mcgibney.com


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## General Manager (10 Sep 2002)

*Employer keeping tax refund*

I am the General Manager of a small US multnational in Ireland.
We very regularly send employees to US on training stints of anything from 4 to 8 weeks (could be that an individual dose up to 4 seperate stints in a year possibly 32 weeks in US altogether.
We simply continue to pay salary in Ireland in the normal manner as if he/she were here and pay all expenses incurred in USA on a vouched basis (this is done by the parent company in the US) and billed back to the Irish operation.

Are we doing anything illegal here from a tax point of view.


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## Tommy (10 Sep 2002)

*Re: Employer keeping tax refund*

No - on the face of it, this seems to be correct.

Tommy
www.mcgibney.com


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