July 24, 2020

COVID-19 – A Case for Action #10: Breaking State Residency

This is part of a special Global Mobility Tax client alert series – sharing stories and information we are encountering in these extraordinary times.

The COVID-19 global pandemic calls for quick action based on government directives in the interest of public health and safety. In this environment, arriving at practical mobility solutions can be challenging. Here’s how Global Mobility Tax has supported mobility programs in recent weeks:

Action #10: Breaking State Residency & Benefits of Understanding Taxation Rules in other countries.

SITUATION: A new and growing mobility program sent a taxpayer, a US citizen, and California Resident, on a long-term assignment spanning 3 years to the Netherlands. After engaging GMT, we was discovered that the taxpayer was on actual withholding for federal and state and that a hypothetical tax had not been implemented. In addition, prior tax planning had not been implemented and Netherlands Tax Law was not looked into prior to sending the employee abroad. Two tax savings strategies of Hypothetical Tax and the Netherlands 30% rulings were not being implemented.

ACTION: After careful review of the situation, it was determined the taxpayer would be able to break California tax residency and the company could optimize the assignment tax savings because the taxpayer met the criteria for the 30% tax ruling in the Netherlands. A plan was put in place to calculate the hypothetical tax breaking California tax residency and implement the 30% tax ruling.

IMPACT: The company was able to significantly reduce assignment tax costs, understand the importance of planning ahead and now has put in place a plan for later assignees to make the assignment process better and more cost efficient.

SAVINGS: We saved over the company over $100,000 in taxes over the 3 year assignment, while greatly reducing internal administration costs.

We are here to provide you and your program with practical solutions, tax planning and optimization.