Additional Geographic Assessor Topics (Listed Alphabetically)

To Change the Tax Equalization Setting:

1.In the Two City Comparison, click on the Tax Residence field of the Options panel.

2.In the Select Nation dialog, click the Tax Equalization button.

3.Click on one of the three options listed in the Tax Equalization dialog:

•Default (use default tax equalization)

•Always (always use tax equalization)

•Never (never use tax equalization)

4. Click OK to return to the Select Nation screen. If you need to change the country of tax residence, see Tax Residence.

5. Click OK again to return to the Two City Comparison.

Tax equalization is a policy followed by many employers of expatriate employees. The underlying theory is to ensure the expatriate assignment is “tax neutral” to the expatriate employee. In other words, while the expatriate employee is on international assignment, he/she pays the same amount of income and social security taxes (has the same hypothetical tax liability) as if he/she remained in the home country. Companies implement tax equalization so that expatriate employees are treated fairly and consistently throughout the world. The hypothetical tax is both calculated and paid by the company.

Worldwide tax burden for the expatriate employees may be higher or lower than what they would have paid had they not left their home countries.

The reasons for differing tax burden include:

Higher Tax Base: Employers typically provide additional compensation to cover increased housing, tax and cost-of-living expenses. In many cases, these additional compensation items are subject to tax in the home and host countries.

Tax Rate: Depending on the host country, international tax rates may be significantly higher or lower than the US rates.

US Foreign Earned Income Exclusion: The foreign earned income and housing exclusions reduce the US tax base (regardless of whether the foreign country taxes the expatriate’s income or not).

There are key differences among companies as to how the calculations of tax equalization are implemented. These concentrate around the following issues:

•What items of income are included in tax equalization? Policies concerning compensation only, investment income, spousal income and stock option income vary.

•What deductions are allowed when computing the hypothetical income?

•How is the sale of a principal residence or rental property handled?

•Are international service premium, hardship allowance and/or danger pay amounts subject to tax equalization?

In most international assignments, the expatriate employee is subject to additional taxes and complicated tax liability situations. It is standard practice to have international tax attorney consultation and calculations in global mobility policy and procedures.

ERI’s tax calculations are a simplified estimate designed to give a rough overview in a cost-of-living differential framework.

Explanation of "Default":

If the Base City and the Destination City are both in the United States or Canada, then tax equalization is turned "off." However, if the Base City is found in a country other than the United States or Canada, then tax equalization is turned "on."

If the Base City is in the US or Canada, and the Destination City is international, then the “Default” becomes the estimated effective taxes (national, state, local, or provincial) for the Base City and estimated effective US federal taxes only for the Destination City.

If the Tax Residency is changed to another country (even with the Base City in the US or Canada), then the estimated effective tax is calculated based on the individual paying taxes as a Third-Country National. The estimated effective tax rate is what a citizen of that country would pay to his/her country. The “Default” is to Always and can be overridden by manually entering a figure into the tax figure. It cannot be set to Never.

If both the Base and Destination Cities are international, then the “Default” is to Always, and both the Base and Destination Cities get the estimates for the Base City. This is the only choice (other than manually entering a tax estimate) for the Destination.

See Using GA FAQ #15 for more information about the option to "Never Use Tax Equalization."

See Two City Comparison - Background for more information.