Intermit L And B 1 In Lieu Of H 1 B V. 1.4

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Intermit L And B 1 In Lieu Of H 1 B V. 1.4

  1. 1. “ Intermittent L-1 Visas” and “ B-1 in Lieu of H-1B” : Two Little-Known Options for Business MEMORANDUM This Version: December 29, 2009 1
  2. 2. CONTENTS: I. Intermittent and Part-Time Alien Commuter L-1 Visas A. Description, p. 2 B. Purpose of the Category, p. 2 C. Limitations, pp. 3-4 D. Detailed Qualifications and Definitions, pp. 4-5 E. Tax and Withholding Issues for L-1 Non-Resident Aliens, pp. 5-6 F. Immigration Consequences of a Change from Intermittent L-1 Employment, p. 7 G. Taxation of U.S. Source Income – the “Commercial Traveler” Exception, pp. 7-11 1. Applicability to L-1 Visa Holders, pp. 7-9 2. NOTE: The Start-Up L-1 May Have Sec. 861(a)(3) Coverage as a Commercial Traveler, pp. 9-11 H. Reporting and Withholding Requirements on U.S. Employers, p. 11 I. Tax Withholding for Non-U.S. Workers Authorized for Employment. pp. 11-12 2
  3. 3. J. Social Security (FICA) Withholdings, pp. 12-13 K. Determining Tax Residence, pp. 13-14 _______________________________________________ I. Intermittent and Part-Time Alien Commuter L-1 Visas A. Description L-1 Intracompany Transferees may normally work in the U.S. on long-term assignments for a limited cumulative maximum period of either seven years (L-1A Executives and Managers) or five years (L-1B “Specialized Knowledge” workers)1. Then, there are L-1 visa holders who visit the U.S. intermittently for brief periods to direct company operations or carry out some essential short-term duty. These persons who work only part-time or commute from abroad may effectively extend their L-1 status indefinitely, provided their employment in the U.S. continues to be consistent with the requirements for L managers, executives or specialized-knowledge workers. Generically, those who qualify are known as “intermittent L-1s”, although the language of the statute and regulations carving out this exception is actually somewhat broader. B. Purpose of the Category A 2004 change in the law2 allows for the potentially indefinite duration of L-1 or H-1 visas for persons who do not reside in the U.S. Continued possession of such unlimited duration visas -- like the E-1/E-2 Treaty Trader/Investor visa, TN-1, and the O-1 Exceptional Ability visa -- are, obviously, a very valuable asset for the bearer. 1 8 C.F.R. §214.2(1)(12) imposes time limits of five years “in the United States” in a specialized knowledge L-1B capacity or seven years “in the United States” in a L-1A managerial or executive capacity. Exemption to these time limits are provided for categories of employees whose H or L employment in the U.S. is intermittent in character, being less than six months each year. 8 C.F.R. §214.2(h)(13)(v); 8 C.F.R. §214.2(l)(12)(ii). 2 See, Immigration and Nationality Act (I.N.A., hereinafter, “The Act’) as amended by the Omnibus Appropriations Act (OAA) for Fiscal Year 2005, Public Law 108-447, 118 Stat. 2809. Among the provisions of the OAA is the L-1Visa Reform Act of 2004 (L-1 Reform Act), signed December 8, 2004. 3
  4. 4. The USCIS regulation that allows the exception actually reads as follows3: (ii) Exceptions. The limitations of paragraph (l)(12)(i) of this section shall not apply to aliens who do not reside continually in the United States and whose employment in the United States is seasonal, intermittent, or consists of an aggregate of six months or less per year. In addition, the limitations will not apply to aliens who reside abroad and regularly commute to the United States to engage in part-time employment. The petitioner and the alien must provide clear and convincing proof that the alien qualifies for an exception. Clear and convincing proof shall consist of evidence such as arrival and departure records, copies of tax returns, and records of employment abroad. [emphasis added] C.. Limitations The major issue that arises with this category is inflexibility in terms of length of stay that is sometimes read into this little-used category. Another issue that may arise, particularly for alien commuters, is the need to maintain a foreign residence. Should the bearer of an intermittent visa extend his or her stay in the U.S. for a period of more than six months, or the alien commuter abandon a foreign residence, when detected by USCIS, US Customs & Border Protection, or the Consul this may trigger a presumption that the visa holder has abandoned that special status. A switch to full-time employment status in the U.S. may also cause problems for persons who claim status as commuters. The intermittent L-1 visa holder may have a number of reasons for wishing to spend more time working in the U.S. - a restructuring of worldwide business operations, tax advantages, change in job duties, personal or family reasons, etc. However, any stay that exceeds six month per year will likely result in the USCIS and the State Department not automatically renewing an intermittent L-1 or may cause problems upon reentry. Once the intermittent L-1 visa holder exceeds the normal five or seven years aggregate period of validity, any extended stay or a switch to full-time employment status, as with any substantive change in conditions of employment, should be accompanied by filing of an amended petition. The immigration attorney must be consulted beforehand if the intermittent visa holder or alien commuter anticipates a change, as follows: • longer periods of time in the U.S. than six months in any year for intermittent L-1s; • or, if an alien commuter’s employment here changes to full-time; • or, the maintenance of a foreign residence from which the commuter or intermittent L-1 visa holder is abandoned. A related issue arises for L-2 dependents of L-1 intermittent visa holders. Not infrequently, the accompanying spouse and minor children will arrive in the U.S. with the primary visa holder, but will stay for periods longer than six months. Normally, the period of admission and stay allowed dependents is dependent upon the maintenance of status by the primary visa holder, a 3 See, Title 8, Aliens and Nationality, Part 214, Non-immigrant Classes, § 214.2 Special requirements for admission, extension, and maintenance of status. (l)(12)(ii) 4
  5. 5. practice known as “coupling”.4 However, intermittent L-1s often travel frequently and while their own status is in full compliance with the rules, dependent family members may exceed the six month annual limit or the L-2 dependents may appear to be residing in the U.S. because of extended school schedules or domestic obligations. Under a strict USCIS interpretation, those dependents run a particular risk that at the time of renewal after the normal five or seven year maximum, an extension will be denied. A policy guidance memo indicates that while “parking” dependents in the U.S. while the principal is here only infrequently will not be tolerated, the Service is prepared to show flexibility on this issue when work schedules change: 5 This policy is meant to prevent an H-1B or L-1 alien from using only occasional work visits to the United States to “park” dependent family members in the United States for extended periods of time while the principal is normally absent. Note, an H-1B or L-1 worker who appropriately brings his or her family to the United States may from time to time be stationed temporarily outside the United States while leaving the family in the United States for purposes of continuity in schooling or similar arrangements. Loss of L status due to a finding that the alien has reached a time limit may not be as disruptive as it may at first appear. Provided that there was no finding of unlawful presence or misrepresentation, the L-1 principal or L-2 dependent may be granted a new period of status after a one-year period outside the U.S. During that period, furthermore, (s)he may reenter the United States periodically as a B-1 or B-2. [See, Section B below, regarding the related topic of B-1 in lieu of H-1B] Such entries are not considered interruptive of the one year period outside of the United States, but days present in the United States do not count toward the required one-year period outside the United States. In addition, if the dependent is otherwise eligible, under the 2006 Aytes memo, (s)he may change status to L-1 or H-1B without regard to the time previously in L-2 or H-4 derivative status. D. Detailed Qualifications and Definitions Although “seasonal” is not defined for purposes of L-1 or H-1B, the operative definition has been developed for the H-2B temporary worker category. Seasonal employment is “traditionally tied to a season of the year” and be of a “recurring nature.” It does not include employment that is permanent but has regular vacation or break periods. 8 C.F.R. 214.2(h)(6)(ii)(B)(2). 4 Confusion on this point is caused by regulations that hold H-4 and L-2 dependents should otherwise be granted the same periods of admission as the principal visa holder. 8C.F.R. '214.2(h)(9)(iv); 8'C.F.R. 214.2(l)(7)(ii). 5 See, Memo of Michael Aytes, Associate Director, Domestic Operations of the USCIS, Dec 5, 2006, http:// www.uscis.gov/files/pressrelease/PeriodsofAdm120506.pdf addresses the issue of “parking” of dependents of L-1 and H-1 intermittent visa holders. That policy memo and an accompanying change to the USCIS Adjudicators Handbook states that the Service discourages that practice. Adjudicator's Field Manual (AFM) Chapters 31.2(d), 31.3(g) and 32.6 (AFM Update 06-29). That policy may be enforced at the Service Center, Ports of Entry, or by Consulates. 5
  6. 6. Employment “in the United States” must be “intermittent”, not the employment abroad. 8 C.F.R.214.2(h)(13)(v); 8 C.F.R. 214.2(l)(12)(ii). Significant amounts of time outside of the United States working for the same employer, arguably amounts to intermittent employment in the U.S., regardless of whether that amounts to 183 or more days per year. [Nonetheless, see Section E, below, on U.S. tax status implications and filing requirements] However, extended employment in the U.S. or declaration of U.S. residency for tax purposes -- even if within the longer-term context of permanent assignment abroad -- may trigger a rebuttable presumption of abandonment of intermittent status. L-1 regulations expressly require that a foreign “residence” must be maintained for those claiming status as commuters. 8 C.F.R. 214.2(l)(12)(ii). Those who claim the exemption on account of intermittent or seasonal employment in the U.S. may not “reside continually” here. Similarly, H-1B, H-2B, and H-3 visa holders may as well claim the same intermittent exemption if they do not “reside continually in the United States” as may those “whose employment in the United States was seasonal or intermittent or was for an aggregate of six months or less per year.” In any case, eligibility must be established by “clear and convincing proof that the alien qualifies for such an exception. Such proof shall consist of evidence such as arrival and departure records, copies of tax returns, and records of employment abroad.” 8 C.F.R. 214.2(h)(13)(v).6 However, INA 1011(a)(33) defines “residence” as “principal, actual dwelling place in fact, without regard to intent.” “Part-time employment” used here applies to employment that occurs during part of the year, not to the USDOL definition of employment of less than 35 hours per week. Physical presence standard for calculation of time - the regulations state expressly that the calculation is based on time spent 'in the United States.” 8 C.F.R. 214.2(h)(13)(i)(B) and 8 C.F.R. 214.(l)(12)(i) E. Tax and Withholding Issues for L-1 Non-Resident Aliens L-1 Intracompany Transferees who work in the U.S. on long-term assignments are generally treated as tax residents, and are subject to most of the same taxation and withholding requirements as U.S. citizens and “green card” holders. Generally, an L-1 holder will file Form W-9 after the first 183 days of physical presence in the U.S. to declare tax residency. For persons who are U.S. tax residents, the requirement to declare and pay U.S. taxes on worldwide earnings normally applies, even if most or all of the individual's remuneration comes from non- U.S. sources. 6 See, alternative resource for reading 8 CFR § 214.2(h) at http://www.nafsa.org/_/file/_/amresource/8cfr2142h.htm 6
  7. 7. Persons whose L-1 employment is intermittent are generally not U.S. tax residents. Holders of intermittent L-1 visas may file Form 8233 to claim exemption from federal income taxes under the existing tax treaty between their country and the U.S., if one exists. Contrary to some misunderstanding, however, those whom the Internal Revenue Service classify as a Non- Resident Alien (NRA) may still be subject to some U.S. taxation, and in some cases, pay much higher effective rates than L-1 visa holders who are tax residents living in the U.S. year-round or for prolonged periods. Non-Resident Aliens are currently taxed at a nominal rate of 30 percent, and those receiving W-2 incomes must pay an additional 7.62 percent FICA tax for Social Security, plus state and local taxes. By comparison, the top individual rate in India also happens to be 30 percent.7 Furthermore, under current law and bilateral agreements, many Indian workers in the U.S. who pay FICA taxes will be unable to access the withholdings they’ve paid into the Social Security trust fund. This is not a very attractive proposition for intermittent L-1 holders from India, particularly for those whose incomes come as U.S. company salaries rather than investment incomes, the taxation of which is capped by the U.S.-India tax treaty. This tax disadvantage may cause some to consider altering the terms of their intermittent L-1s to become a U.S. tax resident. In effect, that would mean the L-1 holder who decides to become a tax resident stays in the U.S. for at least 183 days, and then files Form 8233. Those who wish to take advantage of a tax treaty also must obtain a Certificate of Coverage from their home governments.8 Tax residency is determined in three year cycles, and once established must be maintained (see, Sec. VIII, below). Those who do choose to become U.S. tax residents, however, may lose the ability to renew their L-1 status beyond the normal 5 or 7-year limit, so an immigration attorney should be consulted beforehand. Such a strategy may also require the filing of an amended L-1 petition to reflect changes in the nature and duration of duties described in the original filings with USCIS. F. Immigration Consequences of a Change from Intermittent L-1 Employment A change from intermittent to more long-term periods of work in the U.S. may be construed as a substantial change in the conditions of L-1 employment. As such, USCIS or the Consular post abroad issuing the visa may challenge the validity of the L-1 employment at the time of renewal, even though all other factors about the job and the applicant remain the same. The State Department has made it clear that L-1 visas could be issued to persons coming to the U.S. “to take up short term assignments.” An older, authoritative ruling states that an alien principally employed in an office outside the U.S. “may receive an L visa for the purpose of 7 For incomes over 850,000 Rs (approx. $20,000 at current exchange rates) there is a 10% surcharge. http://www.indianembassy.org/newsite//Doing_business_In_India/Fiscal_Taxation_system_in_India.asp 8 See: http://www.ssa.gov/international/inter_intro.html; and, http://www.ssa.gov/international/CoC_link.html 7
  8. 8. coming to the U.S. for one or two week intervals every several months, provided that the work is of L caliber. The key issue is whether the alien’s principal intent is consistent with L status, not the amount of time spent in the U.S.”9 The ruling also made it clear that commuting from a residence abroad to do temporary L-1 work inside the U.S. is acceptable, but living in the U.S. and commuting abroad to do the organization’s work abroad is not consistent with L-1 status. In other words, if the applicant intends to spend more time in the U.S. on an L-1 visa, (s)he must perform a commensurately greater percentage of the multinational company’s work here. This imposes a sort of proportionality test that can be satisfied by a showing that the L-1 visa holder doesn’t intend to merely spend more time here, but will also do most of his or her work here. To maintain L-1A status, the holder must be actively managing or directing a substantial function of the multinational enterprise. L-1A employment must be full-time (35 or more hours per week) and principally be directing or managing the U.S. business. See, U.S. Department of State Foreign Affairs Manual Volume 9 – Visas, 9 FAM 41.54 Notes Page 15 of 33, “Full-time Service Required but Not Entirely in the U.S.” 10 Passive investors and part-time workers are not eligible for an L-1. G. Taxation of U.S. Source Income – the “Commercial Traveler” Exception 1. Applicability to L-1 Visa Holders Income is generally taxed in the country where the activity occurs. Even if payment is made on a foreign payroll in a foreign currency, the pro rata portion of a foreign worker’s compensation for U.S. workdays is U.S. source income, taxable in the U.S., unless an exception applies. One such exception is the “commercial traveler” rule that treats compensation as foreign source if: 1) the individual is temporarily in the U.S. for 90 days or less during the calendar year; 2) the compensation for the U.S. services does not exceed $3,000 in the aggregate; and 3) the services are performed as an employee of a U.S. domestic corporation for a foreign affiliate, or as an employee of a foreign company not engaged in trade or business within the United States. As a practical matter, the third prong limits the applicability of this tax break only to intermittent L-1 visa holders, and few other non- immigrant visitors will be able to meet these requirements. Sec. 861(a)(3) of the Internal Revenue Code, the “Commercial Traveler Exception”, would seem to apply most readily to the intermittent L-1 worker who performs short-term employment in the U.S as a Non-Resident Alien (NRA). That exception applies to those, such as executives or managers or specialized knowledge employees, who travel briefly to a “domestic corporation” 9 Visa Office Advisory Cable No. R 281656Z MAY 98 (Sec. State, Washington, DC) 10 See, 9 FAM 41.54 Intracompany Transferees - Notes 8
  9. 9. providing labor or services “performed for an office or place of business maintained in a foreign country” 11. The full tax code definition, below, has significant limitations. It appears to preclude this tax exception from persons who come to the US as employees of foreign companies involved in trade or business within the U.S., such as B-1 visitors working for foreign corporations selling goods in the U.S. without U.S. affiliate companies. However, it would apply to multinational companies, such as L-1 entities, that maintain operations here and abroad. Sec. 861(a)(3) of the Internal Revenue Code, states: (3) Personal services Compensation for labor or personal services performed in the United States; except that compensation for labor or services performed in the United States shall not be deemed to be income from sources within the United States if— (A) the labor or services are performed by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year, (B) such compensation does not exceed $3,000 in the aggregate, and (C) the compensation is for labor or services performed as an employee of or under a contract with— (i) a nonresident alien, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or (ii) an individual who is a citizen or resident of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation. [emphasis added] In addition, compensation for labor or services performed in the United States shall not be deemed to be income from sources within the United States if the labor or services are performed by a nonresident alien individual in connection with the individual’s temporary presence in the United States as a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or a possession of the United States. At first reading, Sec 861(a)(3) would seem to provide an exception to all foreign employees of U.S.- affiliated companies on short-term, temporary assignment in this country whose earnings are less than $3,000. To claim the exception, however, “labor or services are performed in the U.S. for an office or place of business maintained in a foreign country . . .” The business visitor will be subject to U.S. tax if it is shown that the work performed in the U.S. was 11 Sec. 861(a)(3) of the Internal Revenue Code, http://www4.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000861----000-.html. 9
  10. 10. performed for the U.S. company. That may seem problematic, unless one realizes that most foreign executives on short-term assignment in the U.S. are, in fact, carrying out temporary assignments for their home companies. This is not actually inconsistent with the way that L-1 “employment” is conceived, as L-1 employment is by definition controlled by (and thus performed for) the foreign employer, regardless of which entity issues the check. Matter of Tessel, 17 I. & N. Dec. 631 (BIA 1981) and Matter of Pozzoli, 14 I. & N. Dec. 569 (BIA 1974). It follows, no such exception is available to business travelers working for foreign companies that do business here without an established U.S. office. That may leave some B-1 business visitors without coverage by the Commercial Traveler Exception subject to U.S. taxation. Foreign business travelers who work for companies which do no direct business or trade here may also be exempt, but it is not entirely clear whether Sec. 861(a)(3) accords them any coverage. 2. The Start-Up L-1 May Have Sec. 861(a)(3) Coverage as a Commercial Traveler Normally, a NRA L-1 holder, if all three conditions apply, will be covered by the Commercial Traveler rule. By definition, according to the FAM (and less explicitly in the USCIS regs), an L-1 (even company directors) must be employed by a U.S. “sponsoring entity”, and that must be more than just a representative office. The U.S. entity employing an L-1 would have to maintain some sort of demonstrable commercial presence in the U.S. as well as abroad, although the regulations do not require an ongoing flow of trade with any particular foreign country or direct investment from abroad, as do E Treaty Trader/Investor visas. The U.S. Department of State Foreign Affairs Manual lays out rules that expressly require that the L-1 visa will only be issued to an applicant who will be “an employee” of a U.S. entity. 9FAM Section 41.54 Note 9.2, http://www.state.gov/documents/organization/87229.pdf , states the L-1 worker must be “controlled” by and thus have an “employment relationship to the foreign company’s office in the United States.” The regulations do not in any way forbid the L-1 visa holder from carrying out duties in the U.S. for, or as assigned by, a foreign affiliate company. Under USCIS regulations, a qualifying entity employing an L-1 nonimmigrant in the U.S. is defined at 8CFR Sec. 214.2(l)(1)(ii)(A) Intracompany transferee as an “employee” of “a firm or corporation or other legal entity or parent, branch, affiliate, or subsidiary thereof, and who seeks to enter the United States temporarily in order to render his or her services to a branch of the same employer or a parent, affiliate, or subsidiary thereof .” The controlling regulation, 8CFR 214.2(l)(3)(ii), further requires “evidence that the alien will be employed in an executive, managerial, or specialized knowledge capacity, including a detailed description of the services to be performed.” 9 FAM 41.54 Note 9 defines “the existence of the ‘employer-employee’ relationship [a]s the right of control’”. While Note 9.1 says the source of payment - whether by the U.S. or foreign company - is irrelevant, Note 9.2 states that “a beneficiary who will be employed in the United States directly by a foreign company and who will not be controlled in any way by (and thus, in 10
  11. 11. fact, not have any employment relationship to) the foreign Establishing control by the petitioning company’s office in the United States does not qualify as an company is essential to maintenance of intracompany transferee.” Again, it must be emphasized that status, particularly for L-1B specialized there is nothing inconsistent about an intermittent L-1 carrying out workers at client sites. But, this is short-term duties for the foreign entity, while the employment of separate from the issue at FAM Note 9.2 the L-1 holder is actually working under authority of the U.S. of whether the foreign company company. The issue of “control” of foreign workers, particularly continues to exert some control over the those who are assigned to third-party sites, is an area of some L-1 employee in the U.S. The 07/28/05 complexity and developing jurisprudence. Yates memo, p. 5, [http://www.uscis.gov/files/pressrelease/LVis Therefore, it appears that virtually all NRA L-1 visa holders – aReform072805.pdf] interprets including some start-ups -- would come under the Commercial implementation of the 2004 H-1B and Traveler Exception, provided their stays are less than 90 days and L-1 Reform Act: their pro-rata income does not exceed $3,000 for the period of their presence in the U.S. Such income exceeding that amount “If the alien worker is “stationed may be at least partially exempt from direct U.S. taxation by bi- primarily” outside the L organization, as lateral treaty, such as that between the U.S. and India. described above, then there are two independent means by which the alien worker may be rendered ineligible for L status. H. Reporting and Withholding Requirements on U.S. The first means relates to the control and Employers supervision of the worker. Even if the alien worker is to be stationed The Internal Revenue Code places both reporting and “primarily” outside the L organization, that withholding burdens on U.S. businesses, as well as liabilities for fact alone does not establish ineligibility for non-payment of taxes that companies are required to withhold. A L classification. In order for the ground of company that files W-2 salary reports or W-8 investor earnings ineligibility to apply, records has concomitant duties as a Withholding Agent under IRS “control and supervision” of the worker at the regulations. These reporting and withholding requirements apply non-affiliated worksite must be “principally” across the board to the earnings of U.S. Citizens, L-1 workers, and by foreign investors, alike. Even the earnings of former employees of the unaffiliated employer. . . So long as the U.S. corporations living abroad who benefit from stock options or ultimate authority over the L-1 worker’s daily duties remains within the L pension plan benefits must be reported on the Form W-8BEN.12 organization, the fact that there may be some intervening third party supervision or input The company reports wage payments which are exempted between the worker and the L organization from withholding based on an income tax treaty on Form 1042-S, does not render the worker ineligible for Foreign Person's U.S. Source Income Subject to Withholding, for L-1B classification. . . that portion of the payments. The income reported on the Form 1042-S will not be duplicated on the NRA Form W-2, which also has to be filed at the time the alien commences work. Both forms must be provided to the IRS. Furthermore, a company must file Type sidebar content. A sidebar is a standalone 1099 statements for any independent contractor paid in excess of $600. NOTE: H-1B and L-1 employees must NEVER be paid supplement to the main document. It is often aligned as Form 1099 Independent Contractors. In any case, a U.S. on the left or right of the page, or located at the top or 12 See, http://www.appwp.org/documents/121800talisman_ltr.htm bottom. Use the Text Box Tools tab to change the 11 formatting of the sidebar text box.]
  12. 12. company must report the direct earnings of its directors, employees, and investors, whatever their immigration status, and wherever they might be. All cash-value compensation (beyond incidental expenses) paid by the U.S. business to a foreign worker after arrival in the U.S. is reported by the company as Misc., Nontaxable on the Form W-2. See, generally, IRS publication 515, Withholding of Tax on Nonresident Aliens and Foreign Corporations That may include per diem items such as temporary housing allowances, meals and travel expenses, if paid by the U.S. company. 13 There is a 2 year limit on the payment of per diems; after one year the assignment is presumed to be “indefinite” for tax purposes. Similarly, for calculation of individual tax returns, temporary, reasonable per diems calculated according to the GSA guidelines count as reimbursement for out-of-pocket business expenses of the employee, and they are not declared as taxable income by the employee. I. Tax Withholding for Non-U.S. Workers Authorized for Employment Aliens authorized for employment, such as H-1B and L-1 visa holders, are normally treated as tax residents, and usually withheld as for U.S. workers. Visa holders who are tax residents must obtain Social Security SSN numbers and file Form 1040 or Form 1040EZ. Non-Resident Aliens (NRAs) who received a salary or investment earnings while in the U.S. are required to file Form 1040NR (PDF) or Form 1040NR-EZ (PDF) if engaged in a trade or business in the United States, or have any other U.S. source income on which the tax was not fully paid by the amount withheld. The withholdings of Non-Resident Aliens are treated differently from those of tax residents, and in some cases less preferentially. U.S. earnings of NRAs are currently taxed at a base rate of 30 percent14, but this may be reduced for some according to treaty agreements the U.S. has with a number of countries, including a limited tax treaty with India that avoids double-taxation of income. U.S. tax filers are eligible for a foreign tax credit by filing Form 1116. The Indian tax code, for instance, has similar provisions for partial write-off of foreign taxes. Those Indian L-1 holders who have an ownership stake in their company, or receive a pension, might elect to take the favorable rates provided for certain types of investment and pension incomes by the treaty, in lieu of a salary. 15 The 15 percent tax cap on pensions is particularly favorable. Some types of service providers, along with scholars and researchers, also benefit from a reduced rate under that treaty.16 Because of the relatively unfavorable treatment of employee wages versus investment earnings under the tax treaty, Indian L-1 workers who are not U.S. tax residents would be advised to avoid taking U.S. salary. Those who have an equity stake or access to high value benefits, might elect to forego salaries altogether, and receive their full compensation as stocks, options or pensions. 13 See, tax treatment of a per diem allowance, chapter 11 of Publication 535, Business Expenses, http://www.irs.gov/pub/irs-pdf/p1542.pdf 14 See, IRS Publication 515, Ibid., p.3 15 Id., 38 16 Id., 44 12
  13. 13. Those contemplating restructuring their compensation packages to more favorable terms should obtain the advice of an international tax attorney or other specialized knowledge tax advisor. J. Social Security (FICA) Withholdings A U.S. employer must withhold FICA from non-Resident Alien H-1B and L workers, regardless of nationality.17 The employee contribution portion of the FICA tax currently stands at a rate of 7.62 percent. The current tax treaty with India does not provide for transfer of Social Security tax payments. Therefore, Indian nationals who accept payment from the U.S. company for work in the U.S. will not be able to later recover the FICA portion of their withholdings, unless and until they become LPRs who have paid into the system for 10 years. L-1 visa holders should not be paid as 1099 Independent Contractors, as this may cast doubt on their claimed status as employees of the company or its foreign parent, subsidiary or affiliate. Some NRAs who are paid a salary by the U.S. entity may find themselves taxed at a higher effective rate than U.S. workers and L-1 U.S. tax residents with the same income. The 30 percent withholding rate exceeds the norm for all but the top U.S. bracket earners. NRAs also cannot take most deductions. An additional rate of 7.62 percent FICA withholding (likely with no attendant benefits) will also apply to Indian nationals, as there is no totalization agreement with India regarding Social Security wages. 18 By comparison, a single US tax resident making $78,000 per year is in the 25 percent federal bracket, and if married and taking a standard deduction the effective rate is lower. NRAs may not take standard deductions or exemptions for family members, and must declare themselves as “single” on Form W-4, regardless of actual circumstances. In such a case, the salaried L-1 employee might opt to declare as a U.S. tax resident as soon as possible. In effect, that would require the Intermittent L-1 holder to remain in the U.S. for 183 or more days the first year of an assignment here. Likely, the combination of continued stay and U.S. tax residency will result in the loss of the intermittent L-1 exception. During that first year, the employee might be taxed at a dual rate. It may also necessitate the filing of an amended L-1 petition with USCIS, as the terms of employment originally described may have substantially changed. In the alternative, where a prolonged stay in the U.S. is not possible, such an individual should be paid by the foreign affiliate or might possibly benefit from becoming a third-country tax resident where a more favorable rate applies. 17 See, Aliens Employed in the U.S. – Social Security Taxes, http://www.irs.gov/businesses/small/international/article/0,,id=131635,00.html 18 As there is not yet a bi-lateral agreement with India on Social Security, FICA payments may not be recovered until, and unless, the Indian national becomes eligible for benefits after 40 consecutive quarters (10 years) of U.S. employment with payments into the system. 13
  14. 14. K. Determining Tax Residency There are two, alternative tests to determine whether a person is a Tax Resident. That is summarized as follows: (Please see Appendix 1 for the full IRS definition, as stated in IRS Circular 851, http://www.irs.gov/taxtopics/tc851.html) Determine whether you are a U.S. tax resident 1) The “Physical Presence Test”: • Been physically present in the United States on at least 31 days during the current year, • And, 183 days during the 3 year period that includes the current year and the 2 years immediately before (special rules apply, see Appendix 1). Or, 2) The “Substantial Ties Test”: • Been present in the United States for 183 days or more during the current calendar year, • And, abandon one’s tax home in a foreign country during the year, • And, develop a closer connection to the United States than one’s home country (some limitations apply, as specified in Appendix 1). 14
  15. 15. APPENDIX 1 To meet the substantial presence test, you must have been physically present in the United States on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count all of the days you were present in the current year, and one–third of the days you were present in the first year before the current year, and one–sixth of the days you were present in the second year before the current year. Do not count any day you were present in the United States as an "exempt individual" or commuting from Canada or Mexico to work in the United States on more than 75% of the workdays during your working period. An exempt individual may be anyone in the following categories: • A foreign government–related individual, • A teacher or trainee with a J or Q visa who substantially complies with the requirements of the visa, • A student with an F, J, M, or Q visa who substantially complies with the requirements of the visa; or • A professional athlete temporarily present to compete in a charitable sports event. Also, do not count any days you intended to leave, but could not leave the United States because of a medical condition that developed while you were in the United States. Even if you meet the substantial presence test, you can be treated as a nonresident alien if you are present in the United States for fewer than 183 days during the current calendar year, you maintain a tax home in a foreign country during the year, and you have a closer connection to that country than to the United States. This does not apply if you have applied for status as a lawful permanent resident of the United States, or you have an application pending for 15
  16. 16. adjustment of status. Sometimes, a tax treaty between the United States and another country will provide special rules for determining residency for purposes of the treaty. An alien whose status changes during the year from resident to nonresident, or vice versa, generally has a dual status for that year, and is taxed on the income for the two periods under the provisions of the law that apply to each period. II. B-1 in lieu of H-1B CONTENTS: A. Description, p. 18 B. Purpose of the B-1 Category, Generally, pp. 19-20 C. Purpose of Subcategory: B-1 in Lieu of H-1B, pp. 20-26 1. B-1 AVAILABLE WHEN OTHER NON-IMMIGRANT VISA POSSIBLE 2. B-1 VISA HOLDERS – GENERALLY a. B-1 Consultants b. B-1 Service Contract Workers c. B-1 in Lieu of H-1B D. Operational Issues, pp. 26 – 33 1. OPERATIONAL ISSUES IDENTIFIED AND RECOMENDATIONS RELATED TO BILLING FOR B-1 WORKERS 16
  17. 17. 2. Other Operational Issues and Recommendations Regarding B-1 Workers – Billing and Expense Accounting 3. Assignments of Non-Immigrant Workers - The Use of a Mix of B-1, L-1 and H-1B to Cover “Gaps” in Compliance 4. B-1, L-1 and H-1B Compliance Issues Identified and Shared Solutions for Compliance Issues 5. Recommendations Regarding Assignments and Roles Allowed Various Categories of Non-immigrant Workers E. HISTORY OF INTERPRETATION OF B-1 LIMITATIONS, pp. 33-36 F. B-1 Service Contract Workers: “Specialized Knowledge” Definition and the GSTechnical Services Ruling, pp. 36-39 G. RELATED ISSUE OF CONTROL: Longer-Term Assignments to Client Sites, pp. 39-42 APPENDIX II 17
  18. 18. A. Description The B-1 Visitor for Business non-immigrant visa category is usually known for its prohibitions on most forms of gainful employment in the United States by B-1 visa holders. In fact, State Department regulations allow for a number of exceptions to that general rule, and the range of activities actually permitted by B-1 visa holders can be much wider, inclusive and more complex than often imagined and described in the non-specialist literature. B-1 visas may be issued for short-term visits for practically any legitimate business-related reason that is otherwise encompassed by other non-immigrant E, H, and L employment-related visa categories. Of particular interest is the “H-1B in lieu of B-1” category. Provided that the applicant qualifies under H-1B requirements, and continues to be paid abroad by an “employing entity” outside the United States, the U.S. Department of State Foreign Affairs Manual (FAM) states that a B-1 visa may be issued to carry out H-1B duties. Under a specific exception, B-1 visas may thus be issued “in lieu of H-1B” for persons otherwise eligible for that status. In addition, B-1 visas are specifically available for those coming to the U.S. for other business purposes, including workers entering to carry out service contracts for equipment manufactured abroad. A separate and more restricted category applies businesspersons who intend to attend conferences and consultations with colleagues in the United States, or to negotiate contracts, litigate, or conduct independent research. These are the three major categories of B-1 entrants we will discuss below, with reference to the operational issues, duties and compliance issues that companies employing them abroad encounter. We will first discuss the limitations imposed on most B-1 entrants who are granted visas under FAM 41.31 Note 8 to carry out consultations with business associates inside the U.S. This B-1 subcategory is normally restricted from any performance of gainful employment resulting in value-added to goods for sale. In addition to that tightly-regulated group, Note 9, in addition, creates notable exceptions to that B-1 bar to gainful employment for specific occupations, including corporate board members, some professional athletes, and prospective investors. The second category of exceptions are laid out in Note 10 that offers specific exception for Commercial Service workers and, thirdly, for H-1B specialty workers, who may be employed in the U.S. for specified purposes, provided that they are employed and paid abroad by a foreign employer. 18
  19. 19. NOTE: The reader needs to be aware, however, that the B-1 in Lieu of H-1B subcategory may not be available at all issuing posts, and that indeed, even if such visas are issued, problems may be encountered upon arrival at the Port of Entry, as the Department of Homeland Security has stripped out the same authorization from its own instruction manuals proving guidance to Immigration Inspectors. Those seeking admission in that B-1 subcategory to perform H-1B services in the U.S. for a foreign employer will need to be well prepared if they are to have a realistic expectation of being allowed admission. Furthermore, denial of admission at a port of entry can have serious negative consequences for the applicant, and by extension, may also prejudice future chances of admission for that person and potentially others working for the same company. B . Purpose of the B-1 Category – Generally The Immigration and Nationality Act ("INA") defines a visitor for business as an alien having a residence in a foreign country which he has no intention of abandoning who is visiting the United States temporarily for business. Based on this definition, a visitor for business must establish that he or she will: • Maintain a foreign residence that has not been abandoned (i.e. sold, rented to someone else, etc.); • Enter the United States for a specific finite period of time; and • Seek admission solely to engage in legitimate activities relating to business (the term “business” is undefined by the Act, however, it has been interpreted by the DHS to include the 25 business-related activities listed at Appendix 2. That is not an exclusive list. In addition, the Department of State Foreign Affairs Manual (FAM) expressly allows for issuance of a B-1 visa “in lieu of” H-1B (9FAM 41.31 N11). See, Appendix 3. • The generally recognized purpose of the B-1 visa is stated in the FAM19: 9 FAM 41.31 N7 ALIENS TRAVELING TO UNITED STATES AS VISITORS FOR BUSINESS (CT:VISA-1235; 06-25-2009) a. Aliens who desire to enter the United States for business and who are otherwise eligible for visa issuance, may be classifiable as nonimmigrant B-1 visitors provided they meet the criteria described in 9 FAM 41.31 N8 19 See, http://www.state.gov/documents/organization/87206.pdf 19
  20. 20. through 9 FAM 41.31 N11. Engaging in business contemplated for B-1 visa classification generally entails business activities other than the performance of skilled or unskilled labor. Thus, the issuance of a B-1 visa is not intended for the purpose of obtaining and engaging in employment while in the United States. Specific circumstances or past patterns have been found to fall within the parameters of this classification and are listed below. The basic purpose of the B-1 has not changed and is consistently understood by the two agencies that administer the program, DHS/Customs Border Protection (DHS/CBP) and the US Department of State Bureau of Consular Affairs (DOS). However, activities permitted of B-1s have changed over time, as have the rule books, so that today, the current rulebook for CBP inspectors differs from the rule followed by consuls in the DOS Foreign Affairs Manual (FAM) on the “B-1 in lieu of H-1B” issue. This provision was dropped from the DHS rule book used at ports of entry when legacy INS became DHS/CBP in 2005. Inevitably, this has complicated decision-making for B-1 visa holders, their employers abroad, and the U.S. companies that receive them, and added a layer of uncertainty in the process that did not exist when DOS and INS rules more closely coincided. As a result, there is also the unfortunate reality that some B-1 visa holders are turned away when the CBP does not recognize the “in lieu of” ground for admission. CBP does not seem to have a consistent policy about this, and not all consulates will issue B-1 in lieu of H-1B visas, which are generally difficult to obtain. C. Purpose of Subcategory: B-1 in Lieu of H-1B 1. B-1 AVAILABLE WHEN OTHER NON-IMMIGRANT VISA POSSIBLE Title 9 of the State Department Foreign Affairs Manual (9 FAM) authorizes U.S. Consuls at Section 41.31 Note 6.2 to issue visas in more than one category if the applicant is eligible under multiple categories.20 One particularly liberal application of that principle is the “B-1 in Lieu of H-1B” basis for visa issuance. 9 FAM 41.31 N6.2 Choice When More Than One 20 See, http://www.state.gov/documents/organization/87206.pdf 20
  21. 21. Classification Possible (CT:VISA-701; 02-15-2005) When it appears that an alien can properly be classified under two or more nonimmigrant classifications, you should explain to the alien the terms and requirements of each, including documentary requirements, maximum lengths of stay which may be authorized upon admission, and any other pertinent factors. You should then base the classification of the visa on the alien’s stated preference. (See Visa Reciprocity and Country Documents Finder.) 2. B-1 VISA HOLDERS GENERALLY - LIMITATIONS The overarching purpose and contours of the B-1 visa, generally, are stated in Note 7 authorizing short-term visas for business purposes. That section also articulates several major limitations on admissions that usually apply in that category. Included in the statement of purpose is that B-1 activities do not include “the performance of skilled or unskilled labor”, unless the visa issued is one of several specified categories for which an exception is explicitly allowed in other sections of the FAM. The next general limitation set out in Note 7 for an “appropriate B-1 activity” is “the actual place of accrual of profits, if any, was in the foreign country.” That means that the B-1 visa bearer is not allowed paid work or to perform services for a U.S. company, and that any gains from business activities here must be realized by a commercial entity abroad. Thirdly, the activities performed on a B-1 in the U.S. are “incidental to work that will principally be performed outside of the United States." That means that any B-1 activity must be in support of an ongoing business entity located abroad. Independent business activities or projects are not B-1 appropriate, except for research. Finally, any novel or unusual situations and visa requests in the B-1 category are to be referred to State Department Visa Office in Washington, DC for an Advisory Opinion, which can delay issuance. 9 FAM 41.31 N7 ALIENS TRAVELING TO UNITED STATES AS VISITORS FOR BUSINESS (CT:VISA-1235; 06-25-2009) a. Aliens who desire to enter the United States for business and who are otherwise eligible for visa issuance, may be classifiable as nonimmigrant B-1 visitors provided they meet the criteria described in 9 FAM 41.31 N8 through 9 FAM 41.31 N11. Engaging in business contemplated for B-1 visa classification generally entails business activities other than the performance of skilled or unskilled labor. Thus, the issuance of a B-1 visa is not intended for the purpose of obtaining and engaging in employment 21
  22. 22. while in the United States. Specific circumstances or past patterns have been found to fall within the parameters of this classification and are listed below. b. It can be difficult to distinguish between appropriate B-1 business activities, and activities that constitute skilled or unskilled labor in the United States that are not appropriate on B status. The clearest legal definition comes from the decision of the Board of Immigration Appeals in Matter of Hira, affirmed by the Attorney General. Hira involved a tailor measuring customers in the United States for suits to be manufactured and shipped from outside the United States. The decision stated that this was an appropriate B-1 activity, because the principal place of business and the actual place of accrual of profits, if any, was in the foreign country. Most of the following examples of proper B-1 relate to the Hira ruling, in that they relate to activities that are incidental to work that will be principally be performed outside of the United States. c. You may encounter a case involving temporary employment in the United States, which does not fall within the categories listed below. You should submit such cases to the Office of Legislation, Regulations, and Advisory Opinions Division (CA/VO/L/A) in accordance with the procedures in 9 FAM 41.31 N12 for an advisory opinion (AO) to ensure uniformity and proper application of the law. a. B-1 Consultants The first specific category of B-1 we will be dealing with in detail below are visa holders coming to U.S. for consultations and related purposes, or employment incidental to their professions abroad as laid out in FAM Notes 8 and 9. The work-related activities of this “consultant” subcategory are the most restricted of the three we will discuss here. The primary emphasis for this subcategory of B-1 admission is that the visa holder will not carry out “gainful employment”, and are forbidden to perform “skilled or unskilled labor” of any kind while in the United States. This effectively bars such consultants from any sort of hands-on function that might add value to any good that might be sold, except as may be incidental to the functions of observation or exchange of information during business consultation or independent research. Notes 9 and 10 that follow, meanwhile, offer significant exceptions to that bar to gainful employment for specific occupations and groups, particularly commercial contract workers and H-1B specialty workers. Note 9, in addition, creates notable categories of exception to that B-1 bar to gainful employment for specific occupations, including corporate board members, some professional athletes, and prospective investors. Most significantly, Note 10 offers specific exception for Commercial Service workers and for H-1B specialty workers. 9 FAM 41.31 N8 ALIENS TRAVELING TO UNITED STATES TO ENGAGE IN 22
  23. 23. COMMERCIALTRANSACTIONS, NEGOTIATIONS, CONSULTATIONS, CONFERENCES, ETC. (CT:VISA-701; 02-15-2005) Aliens should be classified B-1 visitors for business, if otherwise eligible, if they are traveling to the United States to: (1) Engage in commercial transactions, which do not involve gainful employment in the United States (such as a merchant who takes orders for goods manufactured abroad); (2) Negotiate contracts; (3) Consult with business associates; (4) Litigate; (5) Participate in scientific, educational, professional, or business conventions, conferences, or seminars; or (6) Undertake independent research. 9 FAM 41.31 N9 ALIENS COMING TO UNITED STATES TO PURSUE EMPLOYMENT INCIDENTAL TO THEIR PROFESSIONAL BUSINESS ACTIVITIES (CT:VISA-701; 02-15-2005) The statutory terms of INA 101(a)(15)(B) specifically exclude from this classification aliens coming to the United States to perform skilled or unskilled labor. Aliens coming to the United States for the purpose of pursuing employment which does not qualify them for A, C, D, E, G, H, I, J, L, O, P, Q, or NATO status must be classified as immigrants. Exception is made for aliens who may be eligible for B-1 business visas provided they meet the criteria of one of the categories listed below: These exceptions to the general B-1 bar on gainful employment are described at 9 FAM 41.31, Notes 9 and 10, pp. 7-17, as: Religious Workers and related Service Workers; members of Boards of Directors of U.S. corporations; personal/domestic employees of U.S. Citizens residing abroad, and servants of persons arriving in non-immigrant status; professional athletes competing in prize contests; yacht crewmen and coasting officers; prospective E-2 investors; horse racing grooms and workers; and Outer Continental Shelf workers. Other exempted occupations are aircrews, international exhibit employees, and foreign government officials. Most significantly, 9 FAM 41.43 N. 10, “Other Business Activities Classifiable as B-1” describes a further category of exceptions: “While the categories listed below generally may be classified under the proper applicable nonimmigrant class, i.e., A, E, H, F, L, or M visas, you may issue B-1 visas to otherwise eligible aliens under the criteria provided below.” 23
  24. 24. b. B-1 Commercial or Industrial Workers The second major, relevant category of exemption is the allowance at N. 10.1 for issuance of a B-1 visa to Commercial or Industrial Workers coming to do installation, repair or warranty work or to train U.S. workers to carry out these duties. These duties must involve “specialized knowledge”, akin to the L-1B standard, “essential to the seller’s contractual obligation to perform such services or training.” This also implies a requirement for an expressed service contract between a U.S. customer that has already purchased such a good with a foreign vendor or manufacturer. The Note bars B-1 from performing construction work, but would otherwise seem to allow other technical activities related to installation, maintenance, or repair of a foreign sourced good. NOTE: Like the B-1 in Lieu of H-1B, this visa subcategory may also be very difficult to obtain from U.S. Consuls, and it has also been abused. As discussed at Section __, below, the issue of demonstrating ongoing foreign operational control of the work performed by such B-1 workers is paramount. Consuls are unlikely to issue such B-1 visas to companies they believe will misuse it to staff service outsourcing operations to third-party sites in the U.S. that would ordinarily require or otherwise evade L-1B or H-1B compliance requirements: 9 FAM 41.31 N10.1 Commercial or Industrial Workers (CT:VISA-701; 02-15-2005) a. An alien coming to the United States to install, service, or repair commercial or industrial equipment or machinery purchased from a company outside the United States or to train U.S. workers to perform such services. However, in such cases, the contract of sale must specifically require the seller to provide such services or training and the visa applicant must possess specialized knowledge essential to the seller’s contractual obligation to perform the services or training and must receive no remuneration from a U.S. source. b. These provisions do not apply to an alien seeking to perform building or construction work, whether on-site or in-plant. The exception is for an alien who is applying for a B-1 visa for supervising or training other workers engaged in building or construction work, but not actually performing any such building or construction work. c. B-1 In Lieu of H-1B 24
  25. 25. Thirdly, of greatest interest to us here, the visa subcategory category, “B-1 in Lieu of H-1B” referenced at 9FAM 41.53 N.5.4. That reference states simply: “For a discussion of whether or not a B-1 in lieu of H classification may be used, (see 9 FAM 41.31 N11).” 21 There, at p. 18 of 32, we are additionally told that this category is appropriate when the recipient performs H-1B-caliber work and is employed by a foreign firm, “the employing entity must pay the employee’s salary, and the source of the employee’s salary must be abroad.” There is no reference in the FAM with regard to this subcategory of H-1B numerical limits, LCA prevailing wage requirements, H-1B dependency, debarment, or any of the usual requirements and preconditions that go along with the normal H-1B process NOTE: Consuls may at their broad discretion apply eligibility standards for issuance of this B-1 subcategory that in some respects rise to the level of USCIS adjudications. The consul will look carefully at the company’s compliance record in the B, H, and L categories, and is unlikely to issue large numbers of B-1 in Lieu of H-1B visas to any particular firm, particularly if there is any indication that this category is being accessed to evade normal program requirements in the H-1B and other employment-related nonimmigrant categories. 9 FAM 41.31 N11 ALIENS NORMALLY CLASSIFIABLE H-1 OR H-3 There are cases in which aliens who qualify for H-1 or H-3 visas may more appropriately be classified as B-1 visa applicants in certain circumstances; e.g., a qualified H-1 or H-3 visa applicant coming to the United States to perform H-1 services or to participate in a training program. In such a case, the applicant must not receive any salary or other remuneration from a U.S. source other than an expense allowance or other reimbursement for expenses incidental to the alien’s temporary stay. For purposes of this Note, it is essential that the remuneration or source of income for services performed in the United States continue to be provided by the business entity located abroad, and that the alien meets the following criteria: (1) With regard to foreign-sourced remuneration for services performed by aliens admitted under the provisions of INA 101(a)(15)(B), the Department has maintained that where a U.S. business enterprise or entity has a separate business enterprise abroad, the salary paid by such foreign entity shall not be considered as coming from a “U.S. source;” (2) In order for an employer to be considered a “foreign firm” the entity must have an office abroad and its payroll must be disbursed abroad. To qualify for a B-1 visa, the employee must customarily be employed by the foreign firm, the employing entity must pay the employee’s salary, and the source of the employee’s salary must be abroad; . . . 21 See, http://www.state.gov/documents/organization/87226.pdf 25
  26. 26. In addition, the H-1B position may also be permanent, even if the B-1 assignment is by definition short-term and temporary. 9 FAM 41.53 N5.1 further advises that “An alien may be classified H-1B whether the position to be temporarily occupied is permanent or temporary in nature. For example, a foreign professor coming to fill a position on the faculty of a United States university could be classified H-1B.” 9 FAM 41.31 N9.2 Members of Board of Directors of U.S. Corporation (CT:VISA-701; 02-15-2005) Also potentially relevant is the allowance at 9 FAM 41.31 N.9.2, p. 9 of 32, for issuance of a B-1 visa to: “An alien who is a member of the board of directors of a U.S. corporation seeking to enter the United States to attend a meeting of the board or to perform other functions resulting from perform other functions resulting from membership on the Board.” D.OPERATIONAL ISSUES This section addresses issues related to how the company receiving non-immigrants employed in the B-1, L-1 and H-1B categories should handle operational issues such as billing, payroll, and expense accounting, as well as practical issues such as how B-1 Visitors should be labeled in company literatures and contracts. The recommendations that follow in each of these subject areas lay out solutions. Before we turn to a more in-depth discussion of legal issues in this section, please review the following recommendations regarding action items of interest to any company that sends or hosts B-1 Visitors for Business. 1. OPERATIONAL ISSUES IDENTIFIED AND RECOMENDATIONS RELATED TO BILLING FOR B-1 WORKERS This Section deals with how to best handle billings for work performed by B-1 visa holders. There are three subcategories of B-1 visitor for business: 1) “B-1 in lieu of H-1B”; 2)“Commercial or Industrial Workers” (service contract workers); and 3)“Commercial 26
  27. 27. Transactions” (consultants). There are important distinctions in the activities permitted for each of these, so we will address all three subcategories of B-1 workers. In addition to billing, there are three closely-related areas that must be considered at the same time: A) payroll; B) expense accounting; and C) operational designation. Table 1, below, shows solutions at a glance to these 12 issue areas. TABLE 1. B-1 Issues and Solutions Billing Payroll Expense Operational Accounting designation Service Consistent Pay abroad As with “Service contract worker with service other non- Engineer” or B-1 contract, bill immigrant “Detached from through foreign workers foreign affiliate” unit. Likely can’t bill hourly – most contracts are flat fee. B-1 in lieu of As with Pay abroad As with “Consultant” H-1B other H-1B other H-1B or Normal Job workers, but bill workers Title through foreign unit. B-1 for Treat as Pay abroad Segregate, so “Consultant” business production cost as not to or consultants pass-along, do inadvertently not bill or only appear as a “Visitor” through foreign salary or benefits employer item. 27
  28. 28. 2. Other Operational Issues and Recommendations Regarding B-1 Workers – Billing and Expense Accounting • The B-1 worker is not an employee of the U.S. company, therefore billing should be performed by the foreign entity that is the actual employer. • While there is no explicit legal prohibition to a U.S. firm billing for the services of B-1 workers working for a foreign affiliate, U.S. companies must exercise caution in how they handle such billing, expense accounting, and operational designations – the general rule is, the foreign entity employs and primarily benefits from B-1 labor, not the U.S. entity. Billings by U.S. firms for B-1 employees potentially raise issues of unauthorized employment and violation of the limitations and terms of B-1 stay for visitors for business, and should be avoided. Billing for labor charges are best issued by the foreign affiliate or parent that actually employs the worker, and there are strict rules limiting what work may be billed and how billing must be carried out. • Billing issues may also arise if the B-1 visa holder was admitted at the port of entry as a consultant. Immigration inspectors reference the current edition of the DHS/CBP Inspectors Field Manual (IFM)22, §15.4(b)(1), p.47, which allows B-1 entry for: “commercial transactions (i.e., buying or selling) which do not involve gainful employment in the US.” The IFM otherwise lists grounds for B-1 admission and limits them as follows: “[B-1 may] negotiate contracts; consult with business associates, including attending meetings of the Board of Directors of a U.S. corporation; litigate; participate in scientific, educational, professional, or business conventions, conferences, or seminars; or undertake independent research.” The potential implications of such a restricted admission are discussed below. • The IFM also allows at §15.4(b)(3), p.47, for the admission of “an alien coming to install, service, or repair commercial or industrial equipment or machinery purchased from a company outside the U.S. or to train U.S. workers to perform such services.” The potential implications of such a restricted admission are also discussed below. • Billing by the foreign company for services performed by the B-1 worker is more appropriate for “B-1 in lieu of H-1B” and “contract service workers” and is inappropriate for consultants in the U.S for consultation. The former two B-1 subcategories are allowed “hands-on work”, rather than B-1 consultants, who are admitted under a more restrictive regulatory authority and are normally restricted to “hands-off” roles such as observation, conferences, or consultation with U.S. colleagues that do not involve value- added functions to production of goods, except inadvertent . Warrantee work – of the kind normally performed by contract service workers -- is not normally billed to a customer on an hourly basis, but usually will instead be on a flat-fee or on a regular payment schedule as part of a service plan. The use of B-1 service contract workers to carry out production work under the guise of warranty work has been a particularly close 22 See, http://www.millerlawoffices.com/publications and scroll down to CBP Inspector's Field Manual, or http://www.millerlawoffices.com/publications/CBP/CBP%20IFM%20Feb%201%202008.pdf . 28
  29. 29. focus of investigation by USCIS and ICE, and any suggestion of violation of this restriction is to be avoided. “B-1 in lieu of H-1B” work is least restricted in scope, but the visa may be most difficult to obtain and can lead to problems at the port of entry. • The current rulebook for CBP inspectors differs from the rule followed by consuls in the DOS Foreign Affairs Manual (FAM) on the “B-1 in lieu of H-1B” issue. This particular subcategory of B-1 admission was dropped from the DHS rule book used at ports of entry when legacy INS became DHS/CBP in 2005. Even if a “B-1 in lieu of H-1B” visa is issued by the consulate abroad, there is no guarantee that the bearer will be admitted upon arrival at a U.S. Port of Entry. The issue of what duties are appropriate for B-1 in lieu of H-1B may also arise as the result of a USCIS site inspection, so it is essential that all relevant records and documents be self-audited by the company and its counsel for consistency and compliance. • Contracts and side agreements entered into with end-users that make reference to any post-sales work to be performed by employees of foreign parents or affiliates should specify that the foreign entity fully controls the employment of such workers, regardless of where they are assigned or the work is performed, a requirement that also applies to L-1B as well as B-1 workers. Furthermore, such contracts should specify that warranty coverage extends only to proprietary company processes or technologies. In addition, corporate counsel should be consulted about the implications of a clause that might stipulate that the foreign entity enjoys both the profits from and the use value of labor performed by any employees of the foreign parent or affiliate carrying out warranty work. The U.S. company should not in any way reference itself as the employer in such areas. • Regardless of the grounds of admission, all salaries, compensation and benefits to B-1 workers must be paid abroad by the foreign parent, subsidiary, or affiliated company overseas. The sole exception is that travel and reasonable per diem expenses may be reimbursed by the U.S. entity. • The U.S. entity must maintain a strict separation of all B-1 expense records, so that B-1 expense disbursements do not become comingled with the U.S. company’s employee payroll, benefits, and related records. B-1 expense records should not be kept with or comingled with the payroll records of other non-immigrant workers, such as H-1B and L-1 workers. This is important to avoid any misunderstanding on this point in the event that a USCIS or ICE audit obtains a copy of payroll, tax, or other business records. • Under no circumstances may B-1 workers appear on contracts, letters of understanding, work orders, mastheads, organizational charts, internal phone directories, etc. as employees of the U.S. company. They should instead be designated as “consultant” or “temporarily detached from foreign parent, affiliate, etc.” • The U.S. immigration attorney should review specimens of invoices provided by foreign business units for compliance with U.S. law. We would, furthermore, strongly recommend a thorough review of all relevant policies and company documents related to billings, expense accounting, and operations, particularly for B-1 workers. 29
  30. 30. 3. Assignments of Non-Immigrant Workers - The Use of a Mix of B-1, L-1 and H-1B to Cover “Gaps” in Compliance For U.S. employers with a mix of nonimmigrant workers, H-1B and L-1B compliance issues have much in common. The role of B-1 category workers must also be calculated into this mix. A shared issue for all non-immigrant business categories is establishing the element of control over the day-to-day work of company employees assigned to client sites. The current requirements for L-1B and H-1B cases have been squeezed into the same mold by USCIS administrative interpretation, which has restricted outsourcing in both categories. Employers seeking to place workers at client sites must document by production of end-user contracts and other documents that they control the work of both L-1B and H-1B employees. The 2005 H-1B and L-1 Reform Act restricts outside assignments of “specialized knowledge” workers to projects over which the company has proprietary interest. Because outsourcing for H-1B was not banned by law, the weapon that USCIS adopted for H-1B is a ruling of the 5th Circuit that has the same restrictive effect. In Defensor v Meissner (2000, CA5 Miss) 201 F3d 384 that court asserted that in outsourcing cases, the petitioner is only a “token” employer, and thus the petitioner’s requirement for a bachelor’s degree is irrelevant to the determination of whether the position offered is a “specialty occupation”, as required by the regulations. Without publishing this rule as a final regulation, USCIS uses Defensor as dicta to issue RFEs requiring production of end-user contracts and other documents between the petitioner and its third-party clients, something which many companies, wary of regulatory compliance risks, refuse to voluntarily disclose. USCIS and consular demands for documentation of the element of control can be very extensive and intrusive applied, alike, to H-1B and L-1B and B-1. Typically, the employer will be required to provide a copy of the employment contract with the beneficiary, and a copy of contracts spelling out the scope of work and timetables with end-user clients. These must establish that the beneficiary will be carrying out duties of complexity and knowledge consistent with H-1B requirements for a “specialty occupation” or “specialized knowledge” for an L-1B worker or B-1 Service Contract worker. In all categories, the beneficiary should be named, and an organizational chart submitted that shows his/her place in the project hierarchy in order to establish the petitioner’s control or supervision. As referenced above, the chances of approval are improved if it is demonstrated the beneficiary is not only controlled by but also supervised by another employee of the petitioner. H-1B workers, and by extension B-1 in lieu of H-1B, have the least restrictions in the work they can perform, but must still be performing specialty duties under the proven control of the employer. Issues related to compliance can be readily resolved by reassignments of H-1B and 30
  31. 31. L-1B workers to cover compliance “gaps.” B-1 in lieu of H-1B workers are generally treated as normal H-1B employees for these purposes, but additional caution should be exercised in their assignment to third-party client sites. Extreme limitations apply to the role of B-1 Service Contract Workers and B-1 Business Consultants at or near production sites. 4. B-1, L-1 and H-1B Compliance Issues Identified and Shared Solutions for Compliance Issues TABLE 2: Solution - Scenario Assumes Positions are a Mix of L-1B and H-1B, and B-1 in lieu of H-1B (indicates shared potential H-1B, B-1 in Lieu of H-1B, AND L-1B compliance issue) Position Works at Reports Reports Uses Uses Client Sites to Client to Petitioning Knowledge of Client Tools Managers Company Petitioning Managers** Company Proprietary Tools 1 Yes (No No* Yes Yes Yes* B-1 Consultants, see remarks below*) 2 Yes * No* Yes No Yes* (H-1B OK) 3 Yes* Yes* No* Yes Yes* 4 Yes* Yes* No* No Yes* 5. Recommendations Regarding Assignments and Roles Allowed Various Categories of Non-immigrant Workers • Position 2 should be reserved for H-1B workers as they need not have proprietary knowledge of petitioning company tools and may use client tools at third-party client sites. Use of B-1 Service Contract workers for Position 2 is cautioned, as warranty 31
  32. 32. work by service Contract Workers will primarily involve application of proprietary company knowledge and tools. Systematic conversion of third-party client tools to make them compatible with proprietary tools and processes may be a prohibited area for B-1 service Contract workers if this is actually product development rather than strictly related to and necessitated by installation, repair or maintenance functions. The use of third-party client tools at client sites is forbidden for B-1 Consultants (who may not add value to processes, except inadvertently); third-party tools may be used by B-1 in lieu of H-1B workers as do regular H-1B workers. • * B-1 Business Consultants should never be involved with production processes that result in any but inadvertent value-added, particularly at client sites. B-1 Business Consultants should be restricted to “hands-off” roles such as observation or consultation with U.S. affiliate company peers. These activities should be structured so that the hands-off nature of consultant activities may be easily and clearly documented in the event of USCIS or ICE audits, and should be part of written company policy. • ** B-1 and L-1 workers may be temporarily assigned as part of a team under day-to- day supervision or management of the receiving U.S. company, but ultimately must report to their foreign parent employer. The maintenance of that ongoing control should also be easily and clearly documented, and be part of written company policy. • H-1B workers must be primarily controlled by the U.S. petitioning company, but the third-party client may have some overlapping role in supervision or management at off-premises work sites. Again, documentation of the means of ongoing control is key to meeting compliance requirements. • Positions 3 and 4 are unacceptable for B-1, H-1B and L-1B under current statute and USCIS Defensor interpretation because it will be problematic to establish petitioner control over its employees unless they report to a company manager. • B-1 Business Consultants may never “report to” a third-party manager or supervisors, and should be treated by third-parties as employees of subcontractors when visiting client sites according to written company policy. • B-1 Service Contract workers are similarly outside of control by any third-party client, and are strictly employees of the foreign company. Position 3 may be acceptable for an L-1 worker if placed under a company manager. Position 4 would be acceptable for an H-1B under a petitioning company manager or supervisor. ________________________________________________________________________ 32
  33. 33. E. HISTORY OF INTERPRETATION OF B-1 LIMITATIONS To what extent a B-1 paid abroad may actually carry out productive labor or services for a US subsidiary is a matter of considerable controversy, and some misunderstanding. There seems to be a consensus in the literature and professional dialogue that the foreign company must be the primary beneficiary of the work, a condition that is alluded to in the FAM and also seems to have migrated from the language of two sets of proposed rules that were separately published by legacy INS and DOS in 1993,23 but those regulations were never finalized. Palma R Yanni, writing for the American Bar Association, concludes24, “In the absence of promulgation of those regulations, the Foreign Affairs Manual notes on B visas provide the best current guidance on B visas.” The FAM Notes she alludes to, 9 FAM 41.31 Notes 10.1-11 cite older case law with a reasonably wide interpretation, and impose few specific restrictions on the conditions of B-1 activities in the U.S. FAM cites permissible B-1 activities and compensation as being in line with Matter of Hira, 11 I & N Dec. 824 (BIA 1965,1966; Att’y General 1966). That decision looks to whether the principal place of business and the actual place of accrual of profits are abroad. A second factor considered in that case are activities in the U.S. incidental to work that will be performed principally outside the U.S. 9 FAM 41.31 Note 10.1 lists explicitly permissible B-1 Activities, including: • After-sales installation, service or repair for equipment or machinery purchased abroad. • Training of U.S. workers to perform such after-sales service. • The contract for sale must require the seller to provide such services or training and the applicant must possess specialized knowledge essential to the seller’s contractual obligation and must receive no remuneration from a U.S. source. • B-1 in lieu of H-1B • Speakers • Photographers who receive no income from sources inside the U.S. Furthermore, where the proposed activity does not appear on this list, a B-1 may still be requested, with the application to be directed to State Department Visa Office for an Advisory Opinion prior to issuance. [9FAM 41.31 N.7] Factors to be considered in deviating from the pre- approved list include: • Occupation of the Applicant, • Type of work to be performed, • Place and duration of requested employment, 23 See, 58 Fed. Reg. 40,024-30 (July 26, 1993)(DOS); 58 Fed.Reg. 58,982-88 (Nov. 5, 1993)(INS). 24 See, Palma R. Yanni, Authorized Work on Non-Work Visas:Visitors, Students, and Trainees, http://files.ali- aba.org/thumbs/datastorage/lacidoirep/articles/CMJ_CMJ0208-YANNI_thumb.pdf. 33
  34. 34. • Source and amount of compensation to be paid, • Identity of U.S. and foreign employer, • Reasons given for concluding a B-1 is appropriate, • And any other relevant information provided. However, a Fragomen publication reflects a somewhat more restrictive view toward the subject, asserting that the 1993 State Dept and INS proposed rules reflect “current policy”25: The "sales contract warranty" subcategory has recently been the center of another controversy because of its use by job contractors bringing computer professionals to the United States to provide services to US clients. These contractors have argued that they contract with US businesses to produce a product, i.e., a software package, which requires that they provide personnel to "install" and "maintain" the product. The State Department and Immigration Service 1993 proposed rules, reflecting current policy, endorsed the use of the "sales contract warranty" subcategory to install, service, or repair software products purchased from a foreign-based firm, but proposed the following additional requirements. 1) The purchase contract must principally be for the purchase of a physical product and not for performance of services 2) The foreign firm must be engaged in business of a commercial nature and not merely be a supplier of personnel 3) There must not be a direct correlation between the alien's salary and the payment made by the US business to the foreign employer for the contracted purchase (not permitted under the proposed rules is the practice under which a US. firm is billed by the foreign firm on an hourly basis at a set hourly rate, and the foreign firm then deposits the alien's wages in an account in the foreign country) 4) The foreign employer must control all employment-related aspects of the alien's day-to-day activities. 5) All proprietary work product of the alien must belong to either the alien or the foreign firm, and not to the US firm. 6) The case of a purchase contract entered into between a United States company and a foreign company which includes provisions for installation, service, maintenance, or repair, the purchase must involve a physical product (for example, machinery or other forms of equipment), and not service activities. These additional requirements should foreclose the use of the "sales contract warranty" subcategory by job contractors. Because these proposals reflect current 25 See, closely related, Henry J. Chang, B-1 VISITORS FOR BUSINESS, http://www.americanlaw.com/b-1.html 34
  35. 35. policy, it is unlikely that consular officers will issue B-1 visas in these circumstances. 7) The right to interview and determine the acceptability of a B-1 alien representing the foreign firm, and the right to make determinations about promotion, termination, and other personnel matters, must lie solely with the foreign employer. There may be compelling business reasons – such as taxation, administrative efficiency, exchange rate considerations, etc. -- why any multinational may perform its domestic billing through its local company. If there are compelling business reasons for maintenance of such a policy, the company should be mindful that there may be over-riding immigration law factors that will prevent normal billing procedures for work done by B-1 workers. The company may argue in its own defense that intra-company consultations and training is a legitimate business expense that may be passed on to the customer. Transfer pricing laws notwithstanding, it is also generally lawful for any unit of a multinational, including the company’s global headquarters, to bill customers for the services or products provided by any other unit of the same company, no matter where in the world the work was performed. Nonetheless, caution must be exercised and the benefit of the advice of immigration counsel taken into consideration in these decisions. 1. RECOMMENDATIONS: Immigration counsel would recommend that company practices be adapted to match, as closely as the basic business model will permit, the 1993 proposed rules, above. At minimum, all billing for work performed by B-1 employees of a foreign affiliate be billed by the foreign business unit that is their actual employer. It is further recommended that the “work” of B-1 consultants, as opposed to the two other subcategories, not be treated as a separate billable item. All B-1 workers in the U.S. should be on regular salary, paid abroad. Further, it should be clear in any contracts entered into with end-users that the foreign entity fully controls the employment of B-1 workers, a requirement that also applies to H-1B and L-1B workers, and that it is the foreign entity that enjoys both the profits and the use value of their labor. That avoids any appearance which might prompt a further, unnecessary level of scrutiny by USCIS auditors or consular officers. It also goes to reinforce the arms- length relationship between the B-1 worker and the U.S. entity. 35
  36. 36. F. B-1 Service Contract Workers: “Specialized Knowledge” Definition and the GSTechnical Services Ruling A recent Administration Appeals Office (AAO) decision may impact the definition that consuls apply in determining whether B-1 Service Contract Workers possess suitable “specialized knowledge” for visa issuance. In Matter of GSTechnical Services Inc26, a wholly- owned subsidiary of IBM doing business as a North Carolina IT consulting company, sought an L-1B specialized knowledge visa for an Indian national employee of a foreign affiliate. IBM was the third largest employer of L-1 visa holders in 2006. The AAO determined in its 43-page July 2008 decision that the employee’s two years of experience with IBM India on two full-cycle SAP projects27 using IBM-trademarked, proprietary applications was inadequate experience to establish “specialized knowledge” to qualify for L-1B status as an SAP enterprise resource planning consultant. In the GST case, the Service Center demanded copies of confidential GST contracts with third party end-users, in this case Kraft Foods, something which [quite predictably] neither IBM nor its client would willingly provide, and then denied the petition, in part, because of those parties’ unwillingness to comply with that unreasonable demand. Again, USCIS pushes the limits of APA requirements and has violated the due process rights of companies, particularly global IT consulting companies with their own proprietary processes and products, who are trying to continue to do business in the United States on a competitive, cost-effective basis within a global market. A number of recent AAO decisions bearing on L-1B “specialized knowledge” issues appear to contradict statute and interpretation rendered by USCIS headquarters’ policy memos. As with 26 Matter of GSTechnical Services, Inc (AAO, July 22, 2008) (unpublished), published on AILA InfoNet at Dec. No. 08081964 (posted Aug. 19, 2008); link: July 22, 2008 GSTechnical Services decision2 27 SAP is a family of business software applications used my many large corporations and governmental organizations to structure management decision-making. SAP, the largest European-based software development company, claims 89,000 customers in 120 countries for its products. 36
  37. 37. H-1B, the agency is again attempting to implement changes in policy without promulgating formal regulations. In this case, the policy is to deny L-1B petitions for most employees using informal interpretation to reduce the potential pool of applicants. To some degree, this practice has been followed by US Consuls in adjudicating visa applications in L-1B and B-1 Service Contract cases. These decisions take a more restrictive view of the required qualifications for L-1B category than are permitted under changes that attended the 1990 Act and they contradict mid-1990s memoranda of the former INS Associate Commissioner, the “Puleo Memo.” 28 In effect, USCIS has abandoned post-1990 Act interpretations and returned to the restrictive standards that it applied with the original 1970 statute, which entails a much more stringent definition of “specialized knowledge” and requirements that the beneficiary hold a substantially higher level of proprietary knowledge. In both the H-1B and L-1B cases, this is just part of the steps the agency is taking to reduce the number of petitions it will approve for outsourcing companies, particularly for firms in the IT consulting industry, as well as BPO, IPO, and LPO firms. 28 Memo by James A. Puleo, Acting INS Exec. Assoc. Comm’r, “Interpretation of Special Knowledge” (Mar. 9, 1994). 37

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