Certified Relocation Professional (CRP) Practice Exam

Which tax assistance policy aims to equalize expatriates' spendable income with that of domestic counterparts?

1. Tax protection policy

2. Tax equalization policy

3. Ad hoc policy

4. Laissez faire policy

The correct answer is: Tax equalization policy

The tax equalization policy is designed specifically to ensure that expatriates, who are working in foreign countries, have a spendable income that is comparable to what domestic employees earn. This is accomplished by balancing the tax burdens that expatriates face due to differences in tax rates and structures between their home country and the host country. Under this policy, the employer typically calculates the hypothetical tax liability that the expatriate would owe if they were still residing in their home country. The employer then covers any excess taxes the expatriate incurs while living abroad. This approach eliminates financial disadvantage caused by higher taxes in the host country, allowing expatriates to focus on their work without being financially penalized. In contrast, the other policies mentioned do not serve this distinct purpose. Tax protection policies, while providing some level of financial relief, do not necessarily ensure equalization of spendable income. Ad hoc policies are typically situation-specific and reactive rather than systematic, and laissez-faire policies imply a hands-off approach without coordinated efforts to support expatriates. Hence, tax equalization remains the most relevant and effective strategy for achieving income parity for expatriates.