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Welcome to the Worldwide ERC® Mobility LawBlog, where Tax Counsel Pete Scott and Government Relations Adviser Tristan North share breaking tax and legal news, as well as compliance and risk management information of interest to global workforce mobility professionals concerned with U.S. domestic and worldwide assignments. Sign up to receive e-mail alerts so you don't miss an entry, or subscribe to the RSS feed for immediate delivery.

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New York DFS Responds to Cybersecurity Rule Comments
The New York State Department of Financial Services (DFS) delayed by two months the implementation of its regulation (23 NYCRR 500) on cybersecurity requirements for financial services companies. The regulations now take effect on March 1 as opposed to January 1, 2017. Companies operating in New York State and subject to the regulations have 180 days or until September 1 to be in compliance with the regulations. Companies have until February 15, 2018 to submit a certificate of compliance to the Department of Financial Services.
 
Worldwide ERC® had submitted a comment letter on the proposed regulation noting our concern as to the broad definition of the types of companies that would be subject to the regulations. Our issue is the rule can be interpreted as covering relocation management companies and other Worldwide ERC® members which are not the focus of the regulations. In the letter, Worldwide ERC® requested an exemption from the regulation for employee benefit service providers. We also outlined several improvements that should be made to the regulation. For a copy of the letter, please click here.
 
The Department of Financial Services denied the request to provide exemptions to any organizations and believed the definition of affected entities was sufficiently clear. We therefore recommend that Worldwide ERC® members operating in New York State have their legal counsel review the regulation to determine if your company should adhere to the rule. For a copy of the regulation please click here http://www.dfs.ny.gov/legal/regulations/proposed/rp500t.pdf and for the DFS response to comments please click here (http://www.dfs.ny.gov/legal/regulations/proposed/rp500apc.pdf.
 
While the DFS denied an exemption for employee benefit service providers and other exemption requests, the Department did make small revisions to exempt covered entities. As to the response to comments made by Worldwide ERC® and others on improvements to the regulations, below is each comment with the corresponding response.
 
  1. Knowledge Qualification. Section 500.11 (b) (5) requires an absolute representation that the service/product is free of viruses, etc. that would impair the security of the Covered Entity’s Information Systems or Nonpublic Information. We request that this representation be qualified as being “to the best of the knowledge of the third party service provider, …”.

    The Department of Financial Services stated, “in response to comments seeking greater clarity in regard to the requirements of this section, the Department has added a defined term, “Third Party Service Provider(s).””
  2. Scope and Confidentiality of Audits. Section 500.11 (b) (6) requires that the Covered Entity “or its agents” may perform cybersecuritys audits of the third party service provider. Such audits could put data of other persons and entities at risk. We request that this section be clarified to specify what types of audits and information may be accessed, under what circumstances, and subject to what confidentiality obligations which will assure that both the process and the results of the audit will protect the confidentiality of the underlying information. Any Covered Entity or its agents should be required to agree to strict confidentiality requirements in performing these audits.

    The DFS responded that it had “amended this section so that its requirements are more explicitly based on the Covered Entity’s Risk Assessment. In addition, DFS has eliminated a provision in section 500.11(b) that may have unintentionally suggested that Covered Entities are required to audit the systems of all third party service providers.”
  3. No Access to Information by NY State Regulators. Any third party service provider which does business in the EU would be concerned with providing unfettered access to its information systems to any Covered Entity, especially if that information might then be made available to government regulators which have jurisdiction over Covered Entities. During the recent Privacy Shield negotiations between the EU and US, it was abundantly clear that the EU is very concerned over who in the US has access to data. We request that this provision should state that the NY state regulators would not have access to information of the third party service providers.

    The DFS acknowledged the need to be in line with other regulations and made revisions accordingly.
  4. Definition of Nonpublic Information. The definition of “Nonpublic Information” is overly broad. We believe that, when the overly broad definition of “Nonpublic Information” is considered together with the requirement (i) to encrypt such information in transit and at rest; (ii) for the Covered Entity to perform annual audits with respect to how such information is protected; and (iii) the lack of an exclusion for employee information, an unduly burdensome obligation is created for both the Covered Entities and their third party service providers which will increase costs and create operational impediments without achieving the stated purpose of the regulations of promoting the protection of customer information of the Covered Entities. We request that the definition of “Nonpublic Information” be narrowed to more clearly track other established definitions of personally identifiable information (“PII”), preferably either the US definition of PII or the EU definition of personal data.

    The DFS stated it did not revise the definition, as the Department “believes its scope is appropriate in the context of the revised proposed regulation.”
  5. Definition of Cybersecurity Event. The definition of “Cybersecurity Event” also is overly broad. This definition includes both successful and unsuccessful attempts to gain unauthorized access to systems or information. Then Section 500.11 (b) (3) requires the third party service provider to provide “prompt notice” to the Covered Entity in the “event of a Cybersecurity Event affecting the third party service provider”. Daily reconnaissance, probes, and attempts to exploit potential vulnerabilities are the norm for any company, including both Covered Entities and third party service providers. Section 500.11 (b) (3) would require third party service providers to provide, and would result in Covered Entities being inundated with, notices of attempted access to third party systems or information, the vast majority of which were stopped before access was gained or information was misused. We request that Section 500.11 (b) (3) be revised to require notice only in the event that customer information was accessed or reasonably believed to have been accessed.
    The DFS stated it did not revise the definition but did revise “several of the provisions of specific concern by requiring that certain provisions be based on the Risk Assessment and by including materiality qualifiers, such as in the Notices to Superintendent section.”

Please note all quoted references in this document where taken from the DFS Assessment of Public Comments for New Part 500 to 23 NYCRR.

Worldwide ERC®'s Tax Season Filing Tips for Transferees
As it does every year, Worldwide ERC® offers below a number of tax tips to assist transferees in the dreaded task of income tax filing for 2016.
 
We begin the 2016 tips with a few quotations about taxes illustrating why the average taxpayer-including transferees-typically approaches the tax filing season with fear and loathing.
 
“If the Lord had meant us to pay income taxes, He’d have made us smart enough to prepare the return.” Kirk Kirkpatrick
 
“You must pay taxes. But there’s no law that says you gotta leave a tip.” Morgan Stanley (Advertisement)
 
“Love will find you when you least expect it. Which makes it more like the IRS than we think.” Jeff MacNelly (“Shoe”)
 
“American tax laws are constantly changing as our elected representatives seek new ways to ensure that whatever tax advice we receive is incorrect.” Dave Barry
 
With fundamental tax reform likely during this year’s Congress, Mr. Barry may well be right as to next year’s tips. However, in the interest of assisting more transferees to prepare “smart” returns for 2016, and to avoid tipping the tax man or receiving an unexpected visit from him, Worldwide ERC® offers the following:
 
Here are several items deductible as moving expenses that are sometimes overlooked:
  • Tips to the moving van driver or helpers.
  • Mileage for driving second or third cars to the new location (in addition to the first car). The deduction for 2016 is 19 cents per mile. (The deduction will decrease to 17 cents per mile for 2017).
  • Lodging expenses in the departure location for one night after the household goods are packed, and one night in the new location on the day of arrival.
  • Moving household goods from a location other than your main home, up to what it would have cost to move them from the main home
  • Storage of household goods for up to 30 days, including the cost of moving the goods into and out of storage. Note that the costs for moving the goods into and out of storage remain deductible even if the goods are in storage more than 30 days.
  • Expenses not reimbursed by your employer, such as extra crating, shipment of unusual items, tips to van line staff, etc.

And remember: You don’t have to itemize to deduct moving expenses.

Other filing season tips:

  • If the seller of your new house agreed to pay part of your mortgage points instead of reducing the sales price, IRS says you can deduct those points, even though the seller paid them.
  • If you ever refinanced your mortgage, don’t forget to deduct the entire remaining balance of points paid on the refinancing in the year you sell your home.
  • If your new job is for a different employer, and you earned more than $118,500 in 2016, you may have had too much deducted as contributions to Social Security. You can take a credit for the excess over $7, 347 on line 71 of your Form 1040 tax return. However, you may still owe the additional 0.9% Medicare tax that went into effect in 2013 if combined wages from both employers exceeded $200,000, or if your wages combined with those of your spouse exceeded $250,000. In such a case, you will need to file Form 8959 to report the additional tax, which applies to amounts in excess of the thresholds above, and include it on line 62 of the Form 1040.
  • If you moved to one of the states with state and local sales taxes but no general income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming) you may benefit from an itemized deduction for state sales taxes. The deduction was reauthorized and made permanent by Congress in 2015.
  • If you paid a premium for mortgage insurance, you may be entitled to an itemized deduction as mortgage interest for the portion of the premium allocable to 2016. Congress reauthorized this provision effective through 2016 late in 2015. No deduction is available, however, if your adjusted gross income is more than $110,000.
  • If the sale of your former principal residence was a “short sale,” and you were relieved of some of the mortgage debt by your lender, you may receive a Form 1099-C reporting that debt relief to the IRS. However, a provision of the tax code excusing tax on such relief for acquisition mortgage debt up to $2 million was extended through 2016 in late 2015, and no tax should be due.
  • If you had at any time during 2016 a financial interest in or signature authority over a financial account in a foreign country, do not forget to disclose it by answering question 7a on the Form 1040, Schedule B. Disclosure is required even if you are not required to file a Treasury Form 114 Foreign Bank Account Report, or an IRS Form 8938 Statement of Specified Foreign Financial Assets.

The 2016 return will be due on Tuesday, April 18, 2017. The normal April 15 filing date falls on a Saturday, which ordinarily would move the filing deadline to Monday April 17. However, that day is Emancipation Day in the District of Columbia, a legal holiday. Therefore, the filing deadline moves to Tuesday, April 18.

Posted by Peter Scott

NETHERLANDS: New Intra-Company Transfer Permit Rules
By: The Knowledge Management team at Pro-Link GLOBAL
 
The Netherlands became the fifth European Union (EU) nation to implement the provisions of the EU Intra-Company Transfer (ICT) Directive. The new rules took effect November 29 and present long-range benefits for companies and employers. However, sponsoring companies should be aware of the short-term advantages and disadvantages over the current rules and processes. For temporary work assignments to the Netherlands under the applicable conditions, this new ICT Permit will be the single available immigration route from November 29 forward.
 
The European Union Intra-Company Transfer Directive
First adopted May 13, 2014, the European Union Intra-Company Transfer (ICT) Directive (2014/66/EU) endeavors to establish an EU-wide standardized scheme for multinational corporations to transfer and assign their non-EU national employees among their affiliated entities located throughout EU member states. To that end, the directive mandated that all EU countries had until November 29 of this year to develop legislation implementing the scheme into their national law. To date, the response by member nations has been less than overwhelming, with only five states – Spain, Romania, Hungary, France, and now the Netherlands – having done so.
 
The ultimate goal of the ICT Directive is increased intra-EU mobility for multinational corporations that will, in turn, benefit the European economy through the greater transfer of knowledge and expertise within companies and countries. The direct advantages of a standardized EU-wide system for ICTs are two-fold. First, standardizing the rules governing these types of highly-utilized assignments will both allow companies to manage their budgets and global mobility programs more easily, and provide foreign employees with a more flexible and streamlined immigration option throughout the EU. The second – and potentially greater benefit, once implemented throughout the EU – is that an ICT Permit issued in one state and recognized in all other member states will avoid duplicitous administrative cost and effort each time an employee moves from one corporate location to another. While we are just beginning to realize the first benefit in the initial five implementing states, the extent of the second benefit will not be fully realized until more EU members implement the Directive.
 
What's Changed?
Starting November 29, the Dutch Immigration and Naturalization Authority (IND) rules and procedures will include the provisions of the EU ICT Directive, which the Netherlands implemented into its law October 13 by Decree Nr. 408 of 2016. While Intra-Company Transfer assignees were already provided for in the current process under the highly-skilled “Knowledge Migrant” program, the new rules will harmonize the Dutch system with the EU Directive and the other nations implementing it. Thus, from November 29 forward, applicants who fall under these new ICT provisions will no longer be eligible for Knowledge Migrant permits but instead will apply for work and residence authorization in the form of the new “ICT Permit.”
 
The new Dutch ICT Permit will apply to applicants meeting the following conditions:
  • Non-EU/EEA/Swiss foreign nationals;
  • Employed as Managers, Specialists, or Trainees. Managers and Specialists must hold at least a University degree or five years of experience at their current level. Trainees must have a University degree. All applicants must have been employed by the sending company for at least three months;
  • Assigned to a Dutch company in the same corporate group as their employer. The employee remains employed by the foreign company and is not on a local employment contract; and
  • Sent on an assignment of more than 90 days, but either less than three years (for Managers and Specialists), or less than one year (for Trainees).
While there is no express minimum salary threshold, the employee’s salary must be “according to market conditions.” Authorities have indicated that the minimum threshold applicable to Knowledge Migrants is acceptable, which is currently EUR €4,240 per month for those over 30 years-of-age and EUR €3,108 for those under 30 years-of-age.
 
These new regulations will have a significant effect on the popular Knowledge Migrant program: applications meeting the conditions of the new ICT Permit, but that are filed under the Knowledge Migrant program will be denied and must be resubmitted under the proper immigration stream. It is important to note that the primary determining factor between these two immigration options will be whether the employee remains on a foreign employment contract and payroll (ICT Permit rules apply), or whether they will be placed on a local Dutch employment contract and payroll (Knowledge Migrant rules apply).
 
While there may be some opportunity for companies to select the desired permit for a particular assignment by restructuring the employment relationship, companies should consult their labor counsel and immigration advisors prior to any change in their current plans. Sponsoring companies will not have the option to merely choose whether to apply as an ICT or a Knowledge Migrant.
 
Application Process and Procedures Still to be Announced
The details of the application process are still being formulated, and we hope to receive further guidance from IND in the coming days before implementation. However, it is likely processes will generally mirror those under the Knowledge Migrant scheme. Processing times for ICT Permits are estimated to be 90 days for standard adjudication and two weeks through the expedited process for Authorized Sponsors.
 
During the transition to the new permit, applications filed before the November 29 implementation date will handled under whichever scheme (either the ICT Permit or Knowledge Migrant Permit) will produce the most favorable result for the company and employee applying. Where necessary, IND authorities have indicated that they will be reaching out to applicants regarding which permit is preferable in their case.
 
Employees Currently Holding Qualifying ICT Permits from Other EU Nations
Ultimately the greatest benefit to companies and employees of the ICT Permit will be the greater intra-EU mobility. However, this benefit is currently limited until more nations adopt the EU Directive. Under the rules, foreign nationals who meet the above profile of an ICT worker and who already hold a qualifying ICT Permit from one of the other issuing EU-member nations (currently Spain, Romania, Hungary, and France) can begin work immediately upon entering the Netherlands. The employee must merely register with the Dutch labor authority (UWV) once in-country.
 
Comparison to Knowledge Migrant Permit – Disadvantages and Advantages
As with all new immigration regulations, these changes will bring forth both positive and negative developments for sponsoring companies and foreign assignees alike.
 
Some disadvantages to the new rules do exist, including the reduction of the maximum duration of ICT assignments from five years to three years. Employees who previously qualified for Knowledge Migrant permits, which carried five-year maximum durations, but who will now be given ICT Permits, will be limited to a maximum assignment of three years. Once the foreign national has hit the three-year maximum stay, they must exit the Netherlands for a six-month “cooling-off” period before returning for an additional three years. As another draw-back, holders of ICT permits will not accumulate time towards residence rights in the Netherlands, unlike Knowledge Migrants.
 
On the other hand, additional advantages beyond the previously mentioned greater EU-mobility do exist. In order to sponsor employees for an ICT Permit, companies are not required to be “Authorized Sponsors,” though Authorized Sponsors will receive expedited processing and streamlined application requirements for ICT Permits. In addition, ICT Permit holders’ spouses and children under 18 years-of-age will be eligible for residence permits during the duration of the assignment which allow them to work in the Netherlands without additional work authorization, and all family members will be exempt from the civic integration exam.
 
How These Changes Affect You
In the long-term, the ICT permit will be a tremendous benefit for multinational companies and their non-EU national employees by providing standardized immigration processes throughout the EU and greater mobility using a single ICT Permit. The implementation by the Netherlands is a laudable step in the direction of that goal of greater intra-EU mobility. However, until the EU ICT Directive is implemented in more EU-member nations, sponsoring companies and assignees alike will see both advantages and disadvantages to the program, especially when compared to the current Knowledge Migrant scheme. Regardless, starting November 29, the only option available for employees assigned as Intra Company Transferees to the Netherlands will be the new ICT Permit.
 
Caveat Lector - Warning to Reader
This is provided as informational only and does not substitute for actual legal advice based on the specific circumstances of a matter. We would like to remind you that Immigration laws are fluid and can change at a moment's notice without any warning.
Reduced Mileage Allowances for 2017 Released by IRS
On December 13, 2016, the IRS released its annual optional standard mileage rates that may be used in computing automobile deductions during 2017. See Notice 2016-79, and IR-2016-79. Due to the sustained lower prices of fuel, the new mileage rate for business use of a vehicle is 53.5 cents per mile, down from 54 cents per mile in 2016. The rate for use of a vehicle for medical or moving purposes is 17 cents per mile, down 2 cents from 19 cents per mile in 2016. The charitable rate of 14 cents per mile does not vary from year-to-year because it is fixed by statute. These new rates are effective for travel on or after January 1, 2016.
 
The rates are based on an annual study of fixed and variable costs of operating an automobile conducted for the IRS by an independent contractor. The rates for business and moving differ because the rate for business use includes fixed costs such as depreciation, which are not allowed as medical or moving deductions. Both rates include variable expenses such as fuel. Taxpayers are also allowed to deduct items such as parking and tolls in addition to the standard mileage rate.
 
Use of the standard deduction rates is optional; taxpayers are always free to determine their own actual costs of operating a vehicle. However, such costs must be substantiated through detailed records, while the use of the standard rates avoids any need to substantiate the underlying costs incurred, although taxpayers must still maintain records of the miles driven and the purpose of each trip.
 
Notice 2016-79 also provides amounts by which taxpayers using the standard business mileage rate must reduce the basis in their automobile for depreciation that is included in the standard mileage rate. Those amounts are 23 cents per mile for 2013, 22 cents per mile for 2014, 24 cents per mile for 2015 and 2016, and 25 cents per mile for 2017.
 
Some companies use mileage rates higher than the standard rates to reimburse business travelers or transferees. In such cases, the excess amounts are treated as taxable wages, and are subject to withholding and payroll taxes. Amounts up to the standard mileage rates are excluded from the income of the employee. An employee cannot deduct moving expenses using the business travel rate. See Adamson v. Commissioner, 32 T.C.M. 484 (1973).
 
Posted by Peter K. Scott
Solar Panels: It’s Not Easy Being Green...
By Bet Mansfield, Vice President, Legal Services, Altair Global
 
Relocation Renewable energy gains in popularity; managing homes with solar panels.
 
In an increasingly “green” world, renewable resources are an important aspect of sustainability. According to the U.S. Energy Information Administration, the most frequently used renewable resources are biomass, geothermal, solar, water and wind. Unlike fossil fuels, we can regenerate or replenish these resources. Although biomass in the form of wood once supplied 90 percent of U.S. energy needs, all renewable energy sources combined supplied only about 8 percent of energy resources in 2009. With the rising cost and decreasing availability of nonrenewable fossil fuels, renewable resources are receiving increasing attention. Indeed, the International Energy Outlook 2016 projects renewables as the fastest-growing energy source – increasing 2.5% annually through 2040. While Europe has been at the forefront of renewable energy development and utilization, the United States and other developed nations are closing the gap.
 
Solar is the most abundant energy on the planet. The sun has produced energy in the form of heat and light since the Earth formed. The use of Photovoltaic (”PV”) panels that harness solar energy greatly reduces the cost of electricity, improves the electrical supply in various locations globally, and helps to improve the environment by drastically cutting carbon emissions. PV devices, or solar cells, directly convert solar energy into electricity, do not produce emissions and are often not harmful to the environment. Individual solar cells grouped into panels range from small applications that charge calculator and watch batteries, to large systems that power residential dwellings. Installing solar panels enable the homeowner to produce energy for personal use with excess energy added to the local grid through the sale of Solar Renewable Energy Certificates (“SRECs”). The homeowner pays less for the energy he/she consumes but also reaps the benefit of selling the excess, thereby creating a win/win situation.
 
Solar panels are typically installed on the roof of a residence. Panels may be purchased (ranging from $10,000 to upwards of $50,000 although federal tax credits reduce the cost) or leased (typically, $50-75 monthly) with terms of approximately 20 years. Purchased systems, with a life expectancy of approximately 25 years, will typically pay for themselves through sales of SRECs within about 10 years, leaving up to 15 years of free energy. Leases, while simpler, don’t carry the same financial benefits although, for those supporting “green” initiatives, the intangible benefits may outweigh the negative. However, Nevada recently signaled its intent to phase out solar subsidies, a move that will be closely watched by other states.
 
If it comes to light (via the property condition disclosure, BMA or appraisals) that a home authorized for homesale benefits is fitted with solar panels, below are suggested steps a relocation management company can take to address the situation.
  • Direct Reimbursement: The preferred method of handling homes outfitted with solar panels is to have the employee go through the direct reimbursement or an Assigned Sale program (i.e., the employee sells the home to a buyer willing to accept and assume the terms of the lease or contract; relocation management companies (RMCs) can often assist with closing via a power of attorney however, the employee remains liable if the sale fails to close).
  • Panels Owned, Client Directs RMC to Acquire:
    • Confirm the panels are, in fact, owned via a “paid in full” receipt;
    • Obtain unequivocal written confirmation from the client to proceed notwithstanding the presence of solar panels may limit the property’s marketability;
    • Verify the panels are covered by the employee’s homeowner’s insurance;
    • Contact the Solar Panel Company (as early as possible in the process) to explain
      • The 2-step process (RMC will not formally assume the contract but will honor terms as to credits; buyer will be required to assume all the other terms of the contract);
      • Obtain copies of all relevant documents including the assumption and assignment, warranties and any other documentation, all of which will be provided to the broker to be executed by the buyer.
    • Ensure that the panels have been inspected for functionality (age, etc.); and,
    • Include in the purchase agreement that Buyer acknowledges he/she/they are purchasing the solar panels, in “as is” condition, and request a “Release and Waiver” to be signed as part of the contract and again at closing.
  • Panels Leased, Client Directs RMC to Acquire:
    • Obtain copies of all documentation listed above along with a copy of the lease.
    • Notify the client, obtain unequivocal written direction to proceed notwithstanding the presence of solar panels may limit the property’s marketability;
      • Determine whether the client wants the lease paid in full (from the employee’s equity) or RMC to take subject to the lease.
    • Contact the Solar Panel Company (as early as possible in the process) to explain
      • The 2-step process (RMC will not formally assume the contract but will honor terms as to credits; buyer will be required to assume);
      • Obtain copies of all relevant documents including the assumption and assignment, warranties and any other documentation, all of which will be provided to the broker to be executed by the buyer;
      • Obtain information on termination – under what circumstances may the lease be terminated, when, how much, etc.
    • Verify the panels are insured by the lessor and obtain copies of the current Certificate of Insurance;
    • Ensure that the panels have been inspected for functionality (age, etc.); and,
    • Include in the purchase agreement that Buyer acknowledges he/she/they are purchasing the solar panels, in “as is” condition, and request a “Release and Waiver” to be signed as part of the contract and again at closing.
  • Valuation: If the property is authorized for the appraised value/Guaranteed Purchase Option, instruct the appraisers and broker to give values both with and without the solar panels. If/when a Guaranteed Purchase Option offer is extended, ensure the proper value (with/without) is utilized based on client direction.
Each RMC may also need to modify its process for addressing solar panels to fit its respective homesale programs.
Social Security Administration and IRS Provide 2017 Inflation Changes
The Internal Revenue Service and the Social Security Administration have released adjustments to benefits, deductions, and other items due to inflation for 2017.
 
The Social Security Administration addressed 2017 inflation adjustments in an October 18 News Release, and a Fact Sheet on 2017 changes. Unlike last year, there will be a slight benefit increase for 2017, and a corresponding increase to the maximum amount subject to the Social Security tax (usually referred to as the wage base). Benefits will increase by 0.3%, and the wage base will increase from $118,500 to $127,200 (note, however, that there is no wage limit for the Medicare portion of the tax). The rise in the wage base appears very large, and SSA offered no explanation for the size of the increase other than that it is the result of calculations under the prescribed formula. The effect, however, will be to substantially increase Social Security taxes for many employees and their employers.
 
In IR-2016-139, and Rev. Proc. 2016-55, the Internal Revenue Service provided its annual changes to tax items subject to inflation adjustments. There are 55 such provisions.
 
Some items increased slightly, while others are unchanged. For example, the standard deduction amounts for singles and married couples increases from $12,600 to $12,700 (couples) and from $6,300 to $6,350 for singles, but the personal exemptions remain the same.
 
The foreign earned income exclusion rises from $101,300 to $102,100. And the Alternative Minimum tax exemption amount goes from $53,900 to $54,300 for singles, and from $83,800 to $84,500 for married couples filing jointly. For high-income taxpayers subject to the 39.6% rate, the income at which that rate kicks in goes up from $415,050 to $418,400 for singles, and from $466,950 to $470,700 for married couples.
 
The penalties for failing to file, or filing incorrect, information returns such as Forms W-2, which were indexed for inflation after 2015, go up to $260 per return, with a maximum penalty of $3,218,500.
 
Unfortunately, for the first time in several years the excise tax on arrow shafts has increased, from 49 cents to 50 cents per shaft.
 
Posted by Peter K. Scott
CHINA - Major Overhaul of Work Permit System Started November 1
By: The Knowledge Management team at Pro-Link GLOBAL
 
China announced implementation of a new single-permit work authorization system for foreign nationals starting November 1. The new integrated system is a major overhaul of the Chinese employment immigration scheme and includes new electronic application submission and processing. The system also combines the current two permit categories – the foreign work permit and the foreign expert certificate – into a single permit with three occupation groups evaluated on a points-based system. The goal is to increase the population of highly-skilled foreign talent working in China.
 
China’s Labor Market and Rising Immigration
Since 1978, China has been steadily transforming itself from a centrally-planned economy into a market-driven economy. The economic reforms of the past forty years have resulted in the fastest sustained expansion by any major economy in the modern world, with average annual GDP growth of over 10 percent. Currently the world’s second largest economy, China is expected to surpass the United States to claim the top spot by 2020. While still a developing nation in some respects, and with significant regional disparities in personal income and standard of living, the rapid economic growth has lifted more than 800 million Chinese out of poverty, according to World Bank statistics.
 
Although China has historically been a country of significant emigration to the western world, the country has experienced a 35-fold increase in inbound immigration during that period. A 2015 report of the Center for China and Globalization revealed that almost 850,000 foreign nationals were residing in China – with the top five countries of origin for expatriate employees being the Republic of Korea, the United States, Japan, Burma, and Vietnam. A similar study by the HSBC Group ranked China the third most attractive country for foreign nationals working abroad, and unofficial estimates suggest that their number in China is now rapidly approaching one million individuals.
 
As the Chinese market economy matured and growth slowed somewhat in the last several years, the slower growth in heavy industry and manufacturing brought a relatively new phenomenon to China – corporate “lay-offs” and a low but measurable unemployment rate. However, that unemployment is primarily confined to the lower-skilled labor pool. In contrast, the Chinese high technology industry continues to expand and companies in that industry continue to experience an acute shortage of highly-skilled labor. It is precisely this shortage and China’s desire to continue the rapid expansion of its high-tech sector which has driven recent immigration reforms. Recent years have seen a loosening of immigration laws and procedures in an attempt to attract the needed highly-skilled foreign talent and encourage the return of highly-skilled Chinese nationals from overseas.
 
The Current System – What’s Changing?
Because significant immigration into China has been a relatively recent trend, the roots of its current national immigration scheme go back only to its first federal immigration law in 1986 and later refinements in 2012. Much of the current law and practice remains largely local - governed by provincial, regional, and municipal agencies. Therefore, immigration processes in China also vary greatly by region. Because those procedures and requirements differ depending on the location of the foreign national’s work assignment, the appearance to many is that applications are considered almost on a case-by-case basis. This has resulted in a notoriously difficult application process for employees and very little predictability of result for employers. However, a new system to be administered by the State Administration of Foreign Experts Affairs (SAFEA) is attempting to streamline and standardize China’s immigration practice into a unified national system.
 
A new integrated system will formally replace the current system nationwide April 1, 2017, but it will be launched on a trial basis on November 1 of this year in Beijing, Hebei, Tianjin, Anhui, Shandong, Guangdong, Sichuan, and the Ningxia Hui Autonomous Region. Those eight regions are home to the large majority of the companies employing foreign nationals in China.
 
Under the new system, a single permit will replace the current two employment permits – the Ministry of Human Resources and Social Security’s (MHRSS’s) foreign work permit and SAFEA’s foreign expert permit. “The integration of the two different work permits is designed to remove impediments, such as inconsistent administration, policies and inefficient communication related to different and often complicated issues related to the jobs, identities and social status of foreigners,” according to the head of SAFEA. “It will help reduce repetitious checks and approvals, avoid administrative loopholes and improve efficiency by building a more active, open and efficient personnel introduction system...”
 
A new electronic application procedure will reportedly allow applicants to complete and submit applications for the new single permit online. A permanent national code number will then be assigned to the applicant to link the applicant’s personal information and application through the system. The expectation is that this will reduce document submission requirements and significantly decrease the time for approval. Once approved through the new process, SAFEA will issue a “work permit card” equipped with a contactless RFID chip to link the foreign national to their immigration record. The new single work permit will be categorized into three groups - group A for “high-end personnel,” group B for “professional personnel,” and group C for “temporary and seasonal personnel in service and non-technical sectors.” Applicants in each group will then be evaluated on a points-based system, with points awarded based on salary, education, length of service, working hours in China, Chinese language proficiency, region of their workplace, age, and work experience. In evaluating work experience, SAFEA will reportedly also positively consider such criteria as the influence and reputation of the company sponsoring the applicant.
 
The specifics of how points will be awarded in each category have yet to be announced. However, the stated purpose of this new three-category, points-based approach is to greatly reduce the number of permits for lower skilled workers and to significantly increase the number of high-end talent workers receiving permits. The hope of both Chinese employers and foreign nationals in the highly-skilled occupations is that the net result will be greater availability of work permits for highly-skilled employees and a more transparent and efficient process for application.
 
How These Changes Affect You
The changes to China’s employment immigration scheme represent a major overhaul of the work permits process. This is a fundamental shift away from the current regionalized system to a more national standardized system. The new system should make the process for bringing highly-skilled foreign labor to China more convenient and predictable for employers and allow for more strategic workforce planning. For highly-skilled foreign nationals, especially those in the high technology sector, it should present more opportunities for employment in China, and the new electronic applications process should ease and speed the issuance of new work permits. However, for foreign nationals in what are considered “lesser skilled” positions, the new points-based system may lead to reduced employment opportunities in China.
 
With the November 1 starting date in the initial eight provinces fast approaching, there is a concern that SAFEA has yet to issue specific guidelines and procedures for work permit applicants to follow. While this is not necessarily unusual in the governmental process in China, it does present obvious uncertainty for employers anticipating employee assignments in the coming months. We believe the changes as currently announced by SAFEA are a major positive step for immigration in China. That being said, employers and employees will need to be prepared for some “growing pains” as the new system is implemented.
 
Caveat Lector - Warning to Reader
This is provided as informational only and does not substitute for actual legal advice based on the specific circumstances of a matter. We would like to remind you that Immigration laws are fluid and can change at a moment's notice without any warning.
ISO Issues Global Standard for Anti-Bribery Systems
By Bill Tehan, Ruder Ware and General Counsel of Graebel Relocation Services Worldwide, Inc.
 
The World Bank has estimated that over $1 Trillion Dollars (U.S.) is paid in bribes each year, with a resulting erosion in political stability, increase in the global cost of doing business, and creation of significant barriers to international trade.
 
To address these matters on a global scale, on October 14, 2016, the International Standards Organization (“ISO”) issued ISO 37001 which is a global standard for anti-bribery management systems. The ISO 37001 standard was established at the initiative of the British Standard Institution with the participation of twenty (20) national delegations from the OECD zone, major emerging economies, and developing countries spanning five continents.
 
ISO 37001 for the first time sets out an agreed-upon international set of standards and procedures for anti-bribery management systems. Specifically, ISO 37001 specifies requirements and provides guidance for establishing, implementing, maintaining, reviewing, and improving an anti-bribery management system. Certification as an ISO 37001 compliant organization likely will be a differentiating factor for those businesses which so certify.
 
Regardless of the size or type of the certifying business entity, the ISO 37001 standard will help businesses identify any weaknesses, and implement improvements, in anti-bribery management systems in order to meet international best practices standards. The ISO 37001 standard system can be stand-alone or can be integrated into an overall management system to address the following activities:
  • bribery in the public, private, and not-for-profit sectors;
  • bribery by the organization;
  • bribery by the organization's personnel acting on the organization's behalf or for its benefit;
  • bribery by the organization's business associates acting on the organization's behalf or for its benefit;
  • bribery of the organization;
  • bribery of the organization's personnel in relation to the organization's activities;
  • bribery of the organization's business associates in relation to the organization's activities;
  • direct and indirect bribery (e.g. a bribe offered or accepted through or by a third party).
Significantly, ISO 37001 standard is auditable which allows for an independent third party to certify that an entity’s procedures meet the internationally agreed upon standard.
 
It is important to note that ISO 37001 is only applicable to bribery, it does not specifically address fraud, cartels, and other anti-trust/competition offenses, money-laundering or other activities related to corrupt practices, although an organization can choose to extend the scope of the management system to include such activities.
 
Worldwide ERC® members of all types and sizes should investigate ISO 37001 and consider certification under this standard.
Recent Challenges to EU-US Privacy Shield and Model Contract Clauses
By Bill Tehan, Ruder Ware and General Counsel of Graebel Relocation Services Worldwide, Inc.
 
On September 16, 2016, the Irish privacy advocacy group Digital Rights Ireland filed a widely expected legal challenge to the EU-US Privacy Shield with the General Court of the Court of Justice of the European Union. The title of the case is Digital Rights Ireland v. Commission and the case number is T-670/16. This challenge is described in court records as an “action for annulment”. Court records do not indicate that there has been any action taken in this case since its filing. It is likely that any ruling in this case may not be rendered for a year or more. If this challenge to the EU-US Privacy Shield is successful, then self-certification under the EU-US Privacy Shield will not be a basis for the transfer of personal data from the EU to the US in compliance with EU data privacy laws.
 
In a related development, on May 31, 2016, the Irish Data Protection Commission commenced a legal proceeding in the Irish High Court seeking a reference to the Court of Justice of the European Union in relation to the use of model contractual clauses pursuant to which personal data may be transferred from the EU to the US. The Irish High Court currently is receiving information from the parties in this case and has scheduled a hearing on the issue of whether a referral to the Court of Justice of the European Union is appropriate on February 7, 2017. If this challenge to the model contract clauses is ultimately successful, then the use of these clauses will not be a basis for the transfer of personal data from the EU to the US in compliance with EU data privacy laws.
 
Due to the uncertainty regarding the validity of both the EU-US Privacy Shield and the model contract clauses, Worldwide ERC® members should evaluate the use of both (a) model contract clauses and (b) agreements regarding compliance with the provisions of the EU-US Privacy Shield in their relationships with downstream suppliers. Worldwide ERC® will continue to monitor both of these cases and will keep members informed of their status.
Crumbling Home Foundations in Northern Connecticut
By Jay Hershman, Senior Partner, Baillie and Hershman
 
Relocation professionals operating in Connecticut should be aware of the recent discovery that hundreds and perhaps thousands of home foundations, primarily in Northern Connecticut, are crumbling. The counties most affected are Hartford, Tolland and Windham. These circumstances are creating unsafe and in some cases uninhabitable dwellings.
 
The homes all have concrete provided by one concrete vendor and material obtained from a Willington, CT quarry. The time period of the affected homes is hard to definitively identify, but appears to run from the very early 1980s to well into the 2000s. Of course, relocation professionals should also keep in mind that additions, garages or other repairs may have been made to homes outside of this time period with the concrete in question. This specific concrete mixture has high levels of pyrrhotite, an iron sulfide mineral that can react with oxygen and water to cause swelling and cracking. The concrete vendor denies responsibility, asserting that the problems arise from improper installation. To further complicate matters, records where the concrete mixture was used were destroyed in a fire a number of years ago.
 
The chemical reaction that causes crumbling home foundations can lead to catastrophic home collapses. The only remedy once cracks start to appear is a total foundation replacement, which presents daunting financial and logistical challenges for homeowners. Insurance companies have, thus far, denied coverage for repairs; although, the Governor’s office is working on structuring an agreement with insurers that would provide a fund for repairs.
 
While not a guaranteed indicator of a future problem, prior to accepting a home into a relocation program, a thorough inspection of the foundation should be completed. There may also be a laboratory test that can be conducted at a substantial cost (in many cases upwards of $5,000); however, based on current research, the existence of pyrrhotite does not necessarily mean that cracking/crumbling will occur in the future thus requiring a disclosure that would significantly impact the property’s value. Additionally, in-bound transferees should be made aware of this issue and encouraged to have a thorough foundation inspection to reduce the risk of purchasing an impacted property.
 
Per Connecticut’s Department of Insurance, insurance companies cannot cancel or non-renew a homeowner's policy due to a crumbling foundation. A class action lawsuit against insurers was filed in February asserting insurers are involved in a concerted scheme to deny coverage.
 
The Legislature has also passed Public Act 16-45, which enables homeowners to request a home reassessment for tax relief purposes and also requires further study of the issue. This legislation went into effect October 1, 2016. The Connecticut Department of Consumer Protection has established a web page devoted to this is where additional resources can be found. Additionally, the Connecticut Association of REALTORS® has created a disclosure form that should be signed by all home purchasers in the impacted area providing notice of the potential issue.
 
On October 19, 2016, Connecticut Governor Dan Malloy wrote to the Federal Emergency Management Agency (FEMA) citing that the crumbling foundation issue is now a natural disaster which requires the assistance of FEMA. In April, the state had contacted FEMA and the agency stated it did not meet the criteria as an emergency or major disaster. A state report issued in June identified that the high-levels of pyrrhotite, which is naturally occurring, causes the deterioration and thus the problem should qualify as a natural disaster.
 
This blog was revised on December 9, 2016 to reflect a change in the time frame of when the concrete was poured for the foundation of affected homes.
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