The future of work: tax in a world of mobility

Developments in mobile working practices raise tax challenges for businesses and government policymakers. While the approach to handling ‘traditional mobility’, such as long- and short-term international assignments, is well established, the rise of ‘non-traditional mobility’, including international remote work, introduces additional cross-border complexity.

When Deloitte’s 2024 Global Tax Policy Survey asked about international remote working, respondents identified concerns ranging across corporate, employee, social security, and indirect taxes. For governments, changes in working practices feed into challenges around labour shortages, skills shortages, competitive pressures, and immigration. This article focuses on the different governmental tax policy responses that are emerging globally and considers their potential impact on businesses.

Four broad themes will shape the future of tax policy in this area:

• The development of ‘pull-factor policies’ designed to attract people into countries;

• The development of ‘push-factor policies’ in the form of measures to discourage movement into countries;

• The specific challenges around corporate taxation; and

• The specific challenges around individual taxation.

Across the global labour market, there can be mismatches between supply and demand. These commonly manifest in the form of labour shortages, particularly shortages of skilled workers. Governments have sought to address these problems through a range of tax policy interventions.

In some cases, targeted tax incentives have been developed expressly to attract skilled workers. These incentive measures are targeted directly at the scarce resource itself, through reduced tax rates, credits, or reliefs.

While tax policy measures can be deployed to create incentives, they do not operate independently of other processes that shape the labour market. In particular, immigration processes, including the issuance of work and residence permits, play a role in defining the attractiveness of locations for workers and investors.

While talent shortages are driving the development of pull factors, perceived population surpluses are leading to policies aimed at achieving the opposite effect. These policies are primarily pursued through immigration rather than tax policy measures. However, tax policy can also play a role; for example, where previously available special tax regimes are rolled back.

In the corporate tax sphere, increased levels of mobility and remote working create specific challenges to the extent that the evolution of the rules and guidance around the creation of a taxable presence (permanent establishment) has not kept pace with the rate of technological and societal change over recent years.

In the industrial age, this question was relatively easily settled, with bricks-and-mortar establishments such as factories, warehouses, and mines having an unambiguous permanence and fixed place. In the digital age, forms of working have developed that do not fall readily into the existing categories. Currently, there is no standard, widely agreed, answer to the question of how long someone can work in a given jurisdiction before being treated as having created a permanent establishment.

The focus of the OECD’s work in this area will be on the core concepts around fixed place of business permanent establishments, and is likely to extend to new commentary, clarification of interpretations, new examples, and possibly exclusions. The project will likely also address the question of very small permanent establishments, with little profit attributed, as well as variabilities wherein conditions may lead to a permanent establishment being established in one year, but not in the next. Across the project, this work will also need to extend into the question of profit allocation.

Overall, the OECD project, focused on the double tax treaty framework, will focus initially on corporate tax before moving on to employment taxes. It may not extend to all of the wider range of challenges produced by the globalisation of the labour market and the increase in international remote working possibilities.

The detailed parameters of the project should become clearer during 2025.

At the level of the individual mobile employee, the fundamental question is which jurisdiction should have taxing rights over their employment and what are the associated employer and employee compliance requirements. As with the corporate tax picture seen above, double tax treaties seek to apply a standardised approach to the treatment of tax on employment income but have not necessarily kept pace with the development of mobile workers for income tax and social security purposes, although measures for handling long- and short-term assignments, while not without complexity, are well established.

New ways of working, particularly short- and long-term international remote work, bring more untested and unmapped challenges for governments, businesses, and individuals.

With regard to temporary international remote working, framing a policy response to these issues breaks down into two aspects:

• The tax and social security treatment of outbound temporary or remote workers; and

• The tax and social security treatment of inbound temporary or remote workers.

Several permutations arise and much will, of course, depend on the length of the period of international remote working. One option is to take the view that remote workers abroad should remain subject to the tax system of their employing country or country of residence, with some seeking to ensure that a loss of talent abroad is not compounded by a loss of tax revenues. Other policy measures include ideas such as digital nomad visas.

As with the current situation for corporation tax, navigating uncertainties and complexities around the tax treatment of individual remote workers increases administration and costs for businesses.

As with the other major themes that are shaping global tax policymaking, developments in the area of mobility and the future of work more generally cannot be viewed in isolation.

While ways of working have rapidly changed and international remote work has significantly increased in recent years, tax systems have not been able to keep pace. The key impact at the corporate tax level is increased uncertainty when navigating the guidance for determining whether a permanent establishment has been created, and how much profit should be attributed to any such permanent establishment. At the individual taxation level, the myriad of different rules creates complexity and uncertainty about employee and employer compliance requirements for income tax and social security.

The successful development of an international framework through the OECD should have the effect of increasing stability and certainty around the core question of a country’s taxing rights.

This leaves two big tax policy questions for businesses.

The first is simply how to manage the navigation of the complexity of existing arrangements. Where questions of a tax and compliance burden have a bearing on where work is to be carried out, it is necessary to have a robust understanding of the interplay between different measures across different jurisdictions. It is equally important to have in place an effective monitoring capacity to stay abreast of emerging developments and trends.

The second is how best to feed into the policy processes that are shaping developments in this area to ensure that policy decisions on the taxation of mobile and remote work are fully informed by the needs and experience of business and have a practical lens. At the national level, that is a matter of direct engagement with the tax authorities. At the international level, it is about feeding into the emerging process at the OECD, either directly or through representative bodies.

Deloitte has been exploring the key challenges and questions identified by its 2024 and 2025 Global Tax Policy Surveys. This article shines a spotlight on the policy issues that arose around the future of work.