Changes to the Taxation of Business Travellers into Ireland
The Revenue Commissioners (Revenue) have just introduced a new variety of red tape for employers of business travellers with limited practical benefit for Ireland, writes Daryl Hanberry, Tax Partner and Head of Global Employer Services Deloitte.
The Government response to the key seismic geopolitical events of 2016 – the Brexit vote and the election of Donald Trump - has been very calm and measured. The Minister for Finance, Michael Noonan outlined in Budget 2017 a number of measures that Government would take to assist Irish businesses in their response to Brexit. These included extensions to various reliefs designed to encourage both Foreign Direct Investment and exports by Irish based companies. While these were limited in nature, they were at least a step in the right direction.
However, subsequent to the Budget, Revenue released a new interpretation of the rules governing business travellers to Ireland. This interpretation is the biggest change in cross border taxation of individuals in a decade and has the potential to undermine the attractiveness of Ireland as a location to do business.
Business travellers are key to any open economy which hopes to attract inward investment and generate increased export activity. These travellers include those who travel from parent companies abroad in the U.S. and UK to Ireland for meetings, for short projects or to provide experience and guidance to Irish staff. In the context of Brexit for example, it could include senior executives flying from London to Dublin for a three – four days a month to assist with the establishment of new Irish operations.
To illustrate this point, Dublin-London air route is the second busiest in the world with over four and half million passengers flying between the two cities in 2015 – many of whom were travelling for work purposes. These business travellers were previously protected by the double taxation agreement between the UK and Ireland that prevented them from being taxed twice and typically ensured they were taxed in their country of residence.
However the new guidance issued by Revenue impacts travellers coming to Ireland where that individual spends greater than 30 days in Ireland in a calendar year and is
- Working for an Irish employer where the duties performed by the individual are an integral part of the business activities of the Irish employer, or
- Replacing a member of staff of an Irish employer, or
- Gaining experience working for an Irish employer, or
- Supplied and paid by an agency (or other entity) outside the State to work for an Irish employer.
Where any of those conditions are met, there will now be an obligation to withhold PAYE taxes from the individual, once he or she is here for more than 30 days. Up to this, such a person had to be in Ireland for more than 183 days before this happened.
This has created a significant amount of administration. This traveller must now be registered for taxes. The employer must obtain a PPS number and operate payroll taxes. The traveller may potentially need to file a tax return both here and in the foreign jurisdiction.
This change will create uncertainty for non-Irish employers particularly in relation to the interpretation of such subjective words/phrases as “integral”, “gaining experience” and “incidental”. A number of employers will be forced to operate PAYE on the income of employees who spend insignificant amounts of days working in Ireland. In some instances employers with employees working just one day in Ireland in a tax year may be required to withhold PAYE. While we all agree that people should pay their fair share of tax, Irish business travellers to London would not suffer the same fate in similar circumstances under the UK tax regime. Our approach is draconian in comparison to our European neighbours and competitors and a substantial departure from previous practice.
Revenue appear to believe there is significant income to be gained although have no support for this point of view. In fact, my experience would be that there is very little tax to be earned on this issue and we are simply creating administrative costs for companies for little or no benefit to Ireland. Proper consultation in advance of issuing updated guidance would have allowed these issues to be highlighted. It is fair to say that Revenue undertake many positive initiatives to support doing business in Ireland, Unfortunately, I could highlight numerous examples of undue regulation which already exists in this area and that generates no income for the State.
We have rightly built up a strong reputation as a country which is easy to do business in and yet we seem intent at a key time of uncertainty, to dismantle this when the rationale for this is not apparent. In addition, if we are serious in attracting investment into the country, then there needs to be an open dialogue as to how we can be proactive in terms of attracting talent. Or the fear would be that foreign companies will see our actions as being louder than our words and look elsewhere.
Daryl Hanberry is a tax partner with Deloitte