I live overseas, and have worked for a multinational company. To equalize employment income for the 2 tax jurisdictions, the company withholds part of my income in a Hypotax account. The company pays my host nation employment income tax. Every year, they retain tax specialists to do my taxes and true up how much tax is owed to the 2 jurisdictions. The Hypotax is then released to pay the US Treasury for the US tax liability. This is apparently a standard process most Multinational companies use.
Question: if the company goes bankrupt, does the Hypotax become general liability of the company? If they don't pay my actual US income tax, am I on the hook for the tax?
1 Answer from Attorneys
If the funds in the "hypotax" account are not deposited to a payroll tax account as required here in the U.S., and the IRS never gains possession of the funds, then it is probable that it is in the nature of a general liability of the company. If it is an escrow account or limited purpose account documented in writing as such, then this might change, but I do not have enough information to comment further. Be aware that, in Bankruptcy, the IRS is a priority creditor, but this does not necessary protect you individually. If you have further information (documentation concerning who owns, operates, etc. the account), that would be helpful.
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