Article 15 Interpretation
Revenue’s Statement of Practice (IT/3/07) has recently been updated to take account of Revenue’s interpretation of Article 15 (the Employment Article) of the OECD Model Tax Convention on Income and Capital. The update also contains a number of changes which have been implemented by Revenue since its initial publication in 2007.
Revenue’s interpretation of Article 15 impacts the granting of a release from the obligation to operate PAYE for temporary assignees who spend 60 work days or less in Ireland in a calendar tax year or in a continuous period straddling two tax years.
The updated guidance provides that Revenue are not prepared to accept, for the purposes of granting a release from the obligation to operate PAYE, that the remuneration is paid by, or on behalf of, an employer who is not a resident of Ireland where the assignee 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.
In addition, the release from the obligation to operate PAYE will not be granted by Revenue
- simply because the remuneration is paid by a foreign employer and charged in the accounts of a foreign employer or
- where the remuneration is paid by a foreign employer and the cost is then recharged to an Irish employer.
It should be noted that the above changes will also apply to non-Irish employers with temporary assignees/short term business travelers who spend more than 60 workdays and less than 183 days in Ireland in a calendar tax year. Previously, a PAYE dispensation could be applied to Revenue for the release from the obligation to operate PAYE subject to fulfilling a number of conditions. One of these conditions was that the temporary assignee’s remuneration be paid by, or on behalf of, an employer who is not resident in Ireland. However, as Revenue’s interpretation has changed in this regard, it now restricts the scenarios under which a PAYE dispensation will be granted.
Revenue have however announced that non-Irish employers with short term business travelers who spend 30 days or less working in Ireland will be exempted from the operation of PAYE so long as the duties they perform in Ireland are incidental in nature.
The revised Statement of Practice (IT/3/07) can be accessed here.
This is the most significant change to the tax landscape for international employers operating in Ireland since the abolition of the remittance basis of taxation for non-Irish company employees working in Ireland in 2006.
While it stops short of formally adopting the “Economic Employer” concept, this update is the first time that Revenue have formally published their interpretation of Article 15 and therefore should be considered by all non-Irish employers who post temporary assignees to Ireland or who have short term business travelers to Ireland as it may significantly increase their compliance obligations and the costs of these assignments.
In recent times, Revenue’s approach to the application of the Statement of Practice has been inconsistent and has lacked clarity for employers and their advisors. This update will exacerbate this 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 spending insignificant amounts of days working in Ireland and in some instances employers with employees working just one day in Ireland in a tax year may be subject to PAYE.
Non-resident employers should now review planned temporary assignments to Ireland during 2017 and consider whether PAYE needs to be applied in Ireland at the outset of the assignment given the increased likelihood that the PAYE dispensation may not be granted.
This tightening of the Irish tax rules further underlines the need for international employers to have robust tracking systems and processes in place in order to identify short term business travelers who may fall within the Irish PAYE net.
One would question the timing of such changes, particularly when the ability to attract talent into Ireland is vital in order for Ireland to capitalise on the opportunities brought about by the Brexit vote.
Deloitte, will continue to lobby the Irish authorities for this update to be reversed and for a fair, pro-business approach in this area to be adopted by Revenue.
For information on any of the above, please contact your usual Deloitte GES contact.