Tax Equalization

Tax equalization functions to compensate the assignee for the additional foreign and home country tax cost resulting from the assignment. The employer attempts to equalize the assignee’s tax burden so it is neither greater nor less than the amount of tax due had he/she remained in the home country. If the tax burden is higher than a comparable home country assignment, the company reimburses the assignee for the excess taxes. On the other hand, if the total tax costs are lower than they would have been on a domestic assignment, the savings are passed on to the company. There is no windfall to the assignee if actual taxes are lower during the foreign assignment. This results in the assignee’s spendable income remaining relatively consistent with that of his/her domestic counterpart.