COVID 19 and Impact on Tax Residence

Further to Deloitte’s update last week in relation to the COVID 19 pandemic and its impact on tax residence (see below), severe limitations continue to be imposed on international travel. In recent days, more airlines have closed routes and more jurisdictions have effectively closed their borders.

The Irish Revenue have released eBrief No. 46/20: Advice and information to assist taxpayers and their agents during the COVID-19 pandemic, which includes guidance on Corporation Tax and presence in the State or outside the State resulting from COVID 19-related travel restrictions.

The guidance confirms that the Irish Revenue will disregard an individual’s presence in the State for corporation tax purposes for a company (in relation to which the individual is an employee, director, service provider or agent) where that presence is shown to result from travel restrictions related to COVID 19. For example, such presence in the State should not result in the company now having a taxable permanent establishment or branch in Ireland for corporation tax purposes. Furthermore, if an individual (for example a director or employee of an Irish tax resident company) is present in another jurisdiction as a result of COVID-related travel restrictions, and would otherwise have been present in the State, Revenue will be prepared to disregard such presence outside the State for corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent. The guidance states that both the individual and the company concerned should maintain a record of the facts and circumstances of the bona fide relevant presence in/outside the State.

With many companies’ employees and directors now facing severe limitations on international travel, the Irish Revenue’s guidance helps to bring some clarity to concerns around the impact on corporate tax residence from an Irish perspective. However corporate tax residence can be a complex area and in the context of Ireland’s double tax treaties, may not be a unilateral matter. The place of effective management tie-breaker test in some of Ireland’s double tax treaties generally gives taxing rights to the jurisdiction of such place of effective management. However, we are seeing other countries make similar announcements in recognition of the extraordinary circumstances of the current crisis. As such, companies should continue to monitor developments in other jurisdictions where its employees/directors are located.

COVID-19 and Impact on Tax Residence

The COVID 19 pandemic has resulted in global disruption to international travel with many airlines severely curtailing routes and many jurisdictions moving to close their borders in an attempt to halt the transmission of the virus.

The inability to travel will be problematic for many reasons in an Irish context, one of which may be the inability for non-Irish resident directors to physically attend board meetings in Ireland. The area of tax residence can be complex. By holding board meetings via telephone conference or video conference with participants physically located outside of Ireland, a company may be running the risk of the place of effective management of the company being deemed to be in a jurisdiction other than Ireland. The place of effective management tie-breaker test is commonplace in the majority of Ireland’s double tax treaties and will generally give taxing rights to the jurisdiction of such place of effective management.

Also, under s627 of the Taxes Consolidated Act 1997 (“TCA 1997”), where an Irish company ceases to be tax resident in Ireland (e.g. as a result of becoming resident in another country under the place of effective management tie-breaker test), a deemed disposal for capital gains tax purposes is generally deemed to occur at market value, which could lead to an exit tax at 33%. Further, a qualifying company under s110 TCA 1997 will lose its status as a s110 company if it ceases to be tax resident in Ireland.

At this time careful consideration should be given to board meetings of Irish tax resident companies and their attendees. The facts and circumstances of each specific case should be considered. The use of proxy/alternate directors as a short term solution could be explored. As this is a complex area we would strongly recommend that you discuss with your usual Deloitte tax contact before making any alternative plans.

The environment in which companies are currently operating in is unique and we expect Governments to continue to intervene with positive action in certain areas, including taxation. Jersey, for example, has published a memo outlining the fact that the Jersey Comptroller of Revenue will, in many instances, not regard the inability to travel at this time as an indicator that Jersey Economic Substance or Jersey tax residence tests have been failed. We have as yet not seen any similar communication from the Irish Revenue and until similar assurances have been given by the Irish Revenue, we urge clients to consider carefully the tax residence aspect as outlined herein.

We will continue to monitor the situation as it unfolds and provide you with relevant COVID 19 related tax information.

Please reach out to your usual Deloitte contact to discuss further.

Last updated on 24 March 2020