Which term describes a practice in which a company increases an expatriate's base pay to cover the additional taxes the expatriate owes because of extra benefits and overseas allowances?

Which term describes a practice in which a company increases an expatriate's base pay to cover the additional taxes the expatriate owes because of extra benefits and overseas allowances?

• A. Globalization
• B. Global team
• C. Grossed-up income
• D. Governance

Answer: (C)

When an expatriate receives extra benefits and overseas allowances, those items can create additional tax liability. To ensure the employee’s take-home pay remains on target, the employer can increase the employee’s gross pay so that taxes are covered on those benefits. This approach is known as grossed-up income. By adding this gross-up, the employer effectively pays the taxes indirectly, preserving the intended net compensation for the expatriate. This differs from tax equalization, where the aim is to keep the tax burden roughly the same as it would be at home, rather than simply offsetting taxes on the overseas benefits. The other terms refer to broader organizational concepts and not to adjusting compensation for tax effects of expatriate benefits.

When an expatriate receives extra benefits and overseas allowances, those items can create additional tax liability. To ensure the employee’s take-home pay remains on target, the employer can increase the employee’s gross pay so that taxes are covered on those benefits. This approach is known as grossed-up income. By adding this gross-up, the employer effectively pays the taxes indirectly, preserving the intended net compensation for the expatriate. This differs from tax equalization, where the aim is to keep the tax burden roughly the same as it would be at home, rather than simply offsetting taxes on the overseas benefits. The other terms refer to broader organizational concepts and not to adjusting compensation for tax effects of expatriate benefits.