Cost Of Expatriate Secondments Could Increase From Tax Policy Shift

It has been a common practice for many multinational companies ("MNCs") to assign personnel from headquarters or other offshore group companies to take senior positions within their subsidiaries in China under secondment arrangements. In most cases, expatriates will continue to be employed and paid by the offshore entity. Such secondment arrangements allow the expatriates to keep their offshore social insurance benefits (e.g., a 401k plan in the United States). Because no local employment contract is signed, the MNCs can also potentially avoid the application of employee friendly employment regulations to their expatriates in China. Moreover, it has been a general consensus among tax practitioners and also a common practice of the tax authorities, that if the expatriates work for and are controlled by the PRC affiliate only while working in China, and the offshore entity gets reimbursed on a cost basis without any mark-up, secondment arrangements should not attract any