Tax equalisation is a global-mobility policy under which the employing company ensures that an assignee's total tax burden remains the same as it would have been had the employee never left their home country. The employer withholds a hypothetical tax amount from the employee's pay, calculated as if the employee were still working entirely in their home location. The employer then pays all actual taxes in both the home and host countries on the employee's behalf, absorbing any additional cost or retaining any saving.
The mechanism protects employees from being financially worse off due to higher host-country tax rates or the complexity of dual-country filing obligations, making assignments more acceptable to mobile talent. It also prevents windfalls for employees sent to low-tax jurisdictions, ensuring the company bears the full cost of the mobility.
Administration requires accurate calculation of the hypothetical tax each payroll period, year-end true-up calculations once actual tax returns are filed, and a clear policy statement in the assignee's letter of assignment. The process is closely linked to shadow payroll runs and benefits from specialist international mobility tax advisers to avoid errors that lead to unexpected corporate costs or employee tax debts.