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What is Tax Equalization?
Copyright CAC, 2019CarlosAntaCallersten
=
Taxes TaxesEqualization
What is Tax Equalization?
Copyright CAC, 2019 2
=
“It is an agreement whereby the Company offers the
Expatriate a certain tax protection that is intended to
maintain the same tax burden* as if they had not moved
from their country of origin”
*A hypo tax in the home country is defined in relation to their employment with the company. Usually, other
personal or familiar incomes (not related to the employment with the Company) are not included in the Tax
Equalization calculations.
What is Tax Equalization?
Copyright CAC, 2019 3
=
Given it is “an agreement between the Company and
the Expat…“
Each Company defines Tax Equalization in a different way, so you
should carefully read the Company Policy to understand the details
and implications of your particular case.
What is Tax Equalization?
Copyright CAC, 2019 4
=
In this presentation, we will use a simplified example to try
to explain the concept.
We will present the concept in 3 steps:
1. Situation in home country
2. Negotiating net amounts
3. Tax payment in host country
What is Tax Equalization?
Copyright CAC, 2019 5
=
1. Situation in home country
What is Tax Equalization?
Copyright CAC, 2019 6
=
1. Situation in home country
Gross Income
(before taxes)
The starting point is the Annual
Gross Income in the home
country…
What is Tax Equalization?
Copyright CAC, 2019 7
=
1. Situation in home country
Gross Income
(before taxes)
-
Hypo
Tax Acording to home country
legislation and Company
Policy, a hypo tax has to be
defined…
What is Tax Equalization?
Copyright CAC, 2019 8
=
1. Situation in home country
Hypo
Tax
The Expat agreement will determine how
to calculate the hypo tax that will be
deducted from the Expat in the home
country.
What is Tax Equalization?
Copyright CAC, 2019 9
=
1. Situation in home country
Hypo
Tax
The agreement will determine if personal
deductions or familiar circumstances that are
relevant according to the home country tax
legislation are taken into account to calculate
the hypo tax.
For example: if an Expat enjoys a Tax Benefit in his/her home country because he/she has bought a
house. Will this Tax Benefit be taken into account in the hypo tax calculation? The answer is: it
depends on the Company Policy.
What is Tax Equalization?
Copyright CAC, 2019 10
=
1. Situation in home country
Gross Income
(before taxes)
-
Hypo
Tax
=
Estimated
Net Income
(after hypo tax)
What is Tax Equalization?
Copyright CAC, 2019 11
=
2. Negotiating net amounts
What is Tax Equalization?
Copyright CAC, 2019 12
=
2. Negotiating net amounts
Net Income in
home country
(after taxes)
What is Tax Equalization?
Copyright CAC, 2019 13
=
2. Negotiating net amounts
Net Income in
home country
(after taxes)
Net Income offered
In host country
(after taxes)
What is Tax Equalization?
Copyright CAC, 2019 14
=
2. Negotiating net amounts
“…to maintain the same tax burden (the “hypo tax”
defined) as if they had not moved from their country of
origin”
Consequently, the Expat feels protected and tends to worry less about their
taxes in the country of destination. Furthermore, changes in the tax laws in
the host country are absorbed by the company. It is much easier to negotiate
the Expat package in this context.
What is Tax Equalization?
Copyright CAC, 2019 15
=
3. Tax payment in host country
What is Tax Equalization?
Copyright CAC, 2019 16
=
3. Tax payment in host country
Net Income
in host country
(after taxes)
What is Tax Equalization?
Copyright CAC, 2019 17
=
3. Tax payment in host country
Net Income
in host country
(after taxes)
Taxes
borne by the Company
What is Tax Equalization?
Copyright CAC, 2019 18
=
3. Tax payment in host country
Taxes
borne by the Company
Given Taxes are borne by the
Company in the host country, the
Expat is protected.
What is Tax Equalization?
Copyright CAC, 2019 19
=
What are the cost implications for the Company?
Hypo Tax
Home country
(defined according to
Company Policy)
Host country
Taxes
If host country taxes are higher than
Hypo Tax, the Company cost increases.
If host country taxes are lower than
Hypo Tax, the Company saves money.
What is Tax Equalization?
Copyright CAC, 2019 20
=
SUMMARY
SUMMARY
Copyright CAC, 2019 21
=
• Companies use Tax Equalization to encourage mobility despite
Tax differences among countries.
• Taxes are a complex issue in any expatriation. You do not need to
become a tax expert , but it may be interesting to look for
professional advice in case of doubt on this matter.

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What is tax equalization

  • 1. What is Tax Equalization? Copyright CAC, 2019CarlosAntaCallersten = Taxes TaxesEqualization
  • 2. What is Tax Equalization? Copyright CAC, 2019 2 = “It is an agreement whereby the Company offers the Expatriate a certain tax protection that is intended to maintain the same tax burden* as if they had not moved from their country of origin” *A hypo tax in the home country is defined in relation to their employment with the company. Usually, other personal or familiar incomes (not related to the employment with the Company) are not included in the Tax Equalization calculations.
  • 3. What is Tax Equalization? Copyright CAC, 2019 3 = Given it is “an agreement between the Company and the Expat…“ Each Company defines Tax Equalization in a different way, so you should carefully read the Company Policy to understand the details and implications of your particular case.
  • 4. What is Tax Equalization? Copyright CAC, 2019 4 = In this presentation, we will use a simplified example to try to explain the concept. We will present the concept in 3 steps: 1. Situation in home country 2. Negotiating net amounts 3. Tax payment in host country
  • 5. What is Tax Equalization? Copyright CAC, 2019 5 = 1. Situation in home country
  • 6. What is Tax Equalization? Copyright CAC, 2019 6 = 1. Situation in home country Gross Income (before taxes) The starting point is the Annual Gross Income in the home country…
  • 7. What is Tax Equalization? Copyright CAC, 2019 7 = 1. Situation in home country Gross Income (before taxes) - Hypo Tax Acording to home country legislation and Company Policy, a hypo tax has to be defined…
  • 8. What is Tax Equalization? Copyright CAC, 2019 8 = 1. Situation in home country Hypo Tax The Expat agreement will determine how to calculate the hypo tax that will be deducted from the Expat in the home country.
  • 9. What is Tax Equalization? Copyright CAC, 2019 9 = 1. Situation in home country Hypo Tax The agreement will determine if personal deductions or familiar circumstances that are relevant according to the home country tax legislation are taken into account to calculate the hypo tax. For example: if an Expat enjoys a Tax Benefit in his/her home country because he/she has bought a house. Will this Tax Benefit be taken into account in the hypo tax calculation? The answer is: it depends on the Company Policy.
  • 10. What is Tax Equalization? Copyright CAC, 2019 10 = 1. Situation in home country Gross Income (before taxes) - Hypo Tax = Estimated Net Income (after hypo tax)
  • 11. What is Tax Equalization? Copyright CAC, 2019 11 = 2. Negotiating net amounts
  • 12. What is Tax Equalization? Copyright CAC, 2019 12 = 2. Negotiating net amounts Net Income in home country (after taxes)
  • 13. What is Tax Equalization? Copyright CAC, 2019 13 = 2. Negotiating net amounts Net Income in home country (after taxes) Net Income offered In host country (after taxes)
  • 14. What is Tax Equalization? Copyright CAC, 2019 14 = 2. Negotiating net amounts “…to maintain the same tax burden (the “hypo tax” defined) as if they had not moved from their country of origin” Consequently, the Expat feels protected and tends to worry less about their taxes in the country of destination. Furthermore, changes in the tax laws in the host country are absorbed by the company. It is much easier to negotiate the Expat package in this context.
  • 15. What is Tax Equalization? Copyright CAC, 2019 15 = 3. Tax payment in host country
  • 16. What is Tax Equalization? Copyright CAC, 2019 16 = 3. Tax payment in host country Net Income in host country (after taxes)
  • 17. What is Tax Equalization? Copyright CAC, 2019 17 = 3. Tax payment in host country Net Income in host country (after taxes) Taxes borne by the Company
  • 18. What is Tax Equalization? Copyright CAC, 2019 18 = 3. Tax payment in host country Taxes borne by the Company Given Taxes are borne by the Company in the host country, the Expat is protected.
  • 19. What is Tax Equalization? Copyright CAC, 2019 19 = What are the cost implications for the Company? Hypo Tax Home country (defined according to Company Policy) Host country Taxes If host country taxes are higher than Hypo Tax, the Company cost increases. If host country taxes are lower than Hypo Tax, the Company saves money.
  • 20. What is Tax Equalization? Copyright CAC, 2019 20 = SUMMARY
  • 21. SUMMARY Copyright CAC, 2019 21 = • Companies use Tax Equalization to encourage mobility despite Tax differences among countries. • Taxes are a complex issue in any expatriation. You do not need to become a tax expert , but it may be interesting to look for professional advice in case of doubt on this matter.