Tax jurisdictions around the nation and globe increasingly are going after companies for revenues owed based on business activities within their borders facilitated by travel. Ernst & Young last year pointed out “a significant increase … in both business travel and nonresident income tax enforcement” by the state of New York. That’s not the only state that stands to gain by increasing audits.
What does this have to do with corporate travel? Travel departments often get roped in when there’s an audit or when a company has decided to get its act together in case of one.
“Inevitably, corporate travel gets stuck with this because if anyone knows how to get to the data, they do,” said Monaeo co-founder Nishant Mittal. A winner of this year’s Concur app center “partner of the year” award, Monaeo offers automation to track travel activity under the lens of possible tax liability. Mittal and his partner created the company six years ago after getting caught up in the tax issue as travelers.The biggest challenge to better preparation is that no one owns the whole process, Mittal said. The head of tax typically handles enterprise tax issues. These include the management of permanent establishment and BEPS. Employee tax issues often fall within mobility, human resources or payroll. These include expatriate taxability, stock compensation allocation and payroll withholding. The former bucket of issues likely does not require employee engagement, while the latter may.
With a background in global mobility tax, Vic Arora co-founded Blackspark Corp. in 2011. He said he’s never seen a corporate travel department responsible for overseeing the issue. “They’re involved in the implementation side of things,” he said. “Generally we start working with leadership in tax and HR and payroll on the more advanced inquiries, where the company has a mandate in place and a budget.”
Arora said on rare occasions companies will tackle the issue using a pre-travel authorization process, in which case corporate travel is involved. Even if companies do not go that far, he noted, “you certainly need a consolidated process where even data you don’t have can be collected. An open travel policy is not a defense with tax collectors.”
The process requires tracking and examination of travel and expense records for visibility into where employees have been and why. For tax purposes, Arora said, travel itineraries rank as the highest-priority data source followed by private charter information, card swipe data and expense details.
“These are also the sources that tax departments ask for during an audit,” Mittal said. “Ten years ago, it was not worth New York state’s time to go through a room full of paper receipts and itineraries and figure out how much to collect. The ROI on that effort was very low. Now, it’s ‘give me a thumb drive of your travel and expense data’ and they have technology to process that data. Governments are investing in this. It’s only going to grow.”
Accounting firms of course help clients with these issues, but Blackspark and Monaeo specialize in automating a largely manual process. They pull in the data and run it against databases of tax codes and jurisdictions. They can then warn companies about potential liabilities, or at least make sure they’re accounted for at tax time.
Blackspark has not received a request for a mobile app, though Arora said it would build one if asked.
Monaeo provides an app to individuals and enterprises that uses GPS to track movements. Mittal said this offers more accurate information than expense and travel data, but also has drawbacks. Notably, some users are not comfortable being tracked. Risk management providers face similar issues. Another option for Monaeo clients is to load software on company laptops, he said. Employees still would opt in to use it.
Most organizations are checking expense records and time sheets, rather than putting the app on employee phones, said Mittal.
Both providers consult with clients before establishing pricing on subscription-based models.