In the context of expatriate compensation, what is "hypothetical income tax"?

Comprehensive and Detailed Explanatio n:

Hypothetical income tax is a calculated deduction from the expatriate’s compensation package. It

represents what the employee would have paid in taxes if they had remained in their home country.

It allows the company to:

Ensure tax equalization

Prevent the employee from gaining or losing due to differing tax regimes

Promote fairness across assignees

GPHR Study Guide Extract – Global Compensation and Benefits / Tax Equalization and Hypothetical

Tax:

“A hypothetical tax is a notional deduction based on the home country tax burden. It ensures the

expatriate neither benefits nor suffers financially due to differences in tax laws across borders.”

This practice helps maintain pay equity and manage tax-related expatriate costs effectively.