Is Your University Engaging in Activities Abroad? Don’t Let These Regulatory Issues Catch You by Surprise
By Bob Lammey, Senior Director Higher Education and Nonprofits
In higher education, just maintaining your position in the U.S. increasingly requires the ambitious offering of research and academic opportunities for your students and faculty abroad. In the past, international activities might mean setting up a modest study abroad program for your university’s undergraduates or increasing recruitment efforts through alumni networks abroad. Now, institutions like Duke and Yale are setting up dual and joint degree programs, designed for foreign students, in places like China and Singapore.
As the scope and complexity of overseas ventures increase, so too do financial risks and regulatory requirements. For university administrators, it can be difficult not only to address these issues, but even to anticipate them. If you see your university venturing into new regions, here are two regulatory issues you should know about that commonly take administrators by surprise:
AVOIDING THE ‘DE FACTO EMPLOYEE’ TRAP
When obtaining local assistance with activities like research or recruiting, it’s often in the interests of academic institutions to hire contractors rather than take on foreign employees in foreign jurisdictions. But even if you believe you’re retaining someone abroad only as a contract worker, the local authorities may see things differently.
Different countries have different standards for what can legally constitute contract work and what legally must be considered employment. The standards are often stricter than those in the United States. Many countries have stepped up enforcement of these employment laws and are creating incentives for whistleblowers to come forward. The worker you consider to be a contractor can be re-classified as a de facto employee during or after their work for you. Violations can expose your institution to steep fines and ill will in your host country.
Obtaining labor through a third-party firm, rather than engaging independent contractors directly, can help you avoid such employment pit falls, but is no guarantee. Before hiring, consult an expert familiar with the specific laws governing employment each time you obtain labor in a new jurisdiction. And set down a formal policy for engaging contractors — both to ensure you have a complete, rigorous process and to demonstrate your good faith efforts to follow local laws should you ever face an audit.
UNDERSTANDING THE IMPACT OF INTERNATIONAL ACTIVITIES ON U.S. REGULATIONS AND REPORTING
Since 9/11, the reporting requirements for American citizens and institutions conducting financial transactions abroad have increased dramatically. The requirements are also liable to change frequently. They can be especially confusing for nonprofit academic institutions, which may have to comply with burdensome IRS reporting requirements even when they will not end up having to pay any taxes.
To take just one example of the subtleties with which you must contend, look to Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. It requires most American institutions to report on their foreign bank account holdings. But to complicate matters, it also requires employees who are signatories on those accounts to report that fact in their own personal tax returns and in a separately required report, a measure that has compelled some universities to lend a hand to their employees with that reporting. It’s just one more unexpected complication of having your finances spread across international borders.
For some administrators, learning to smoothly expand your institution overseas can feel like a second PhD. So, be sure to do your homework.
Read Higher Ed Senior Director Bob Lammey’s article on international regulatory compliance in College & University Auditor here