Secondment?

Have you ever wondered what this word means?

Put simply, the term “secondment” applies when an employee or a group of employees is assigned on a temporary basis to work for another organization or a different part of their current employer.

This often happens when an employee is sent on an international assignment. For small organizations, sending one or two employees to another country can be confusing and overwhelming, especially when the assignment is a surprise! How can an international assignment be a surprise? Technology has enabled employees to work from home, even if that home is in Stockholm. Employers often do not see the hidden danger in approving a request to work from a foreign location. One of many issues is the accidental creation of a “permanent establishment” (PE) in say, Uzbekistan. Not a good thing.

Sometimes, where a PE or taxable presence is likely to occur and the company has an affiliate in the foreign jurisdiction, some companies “second”—or lend—their employees to the local affiliate. This can help the U.S. company avoid a PE or taxable presence. Under such an arrangement, the employee remains on the home-country payroll and continues to enjoy home-country benefits. However, the employee is under the direction and control of the local affiliate.

Under a secondment arrangement, the local affiliate or third-party in the host country will typically bear all the risks and rewards associated with the local business and the assignment. The local affiliate is responsible for local country tax on the income associated with the business. The U.S. company receives a secondment fee for lending its employees to the local affiliate or third-party.

If you have or are considering an international assignment, consider all the implications of the arrangement, including a secondment arrangement.