Covid-19 tax headache awaits people stuck working overseas

Travel restrictions leave employees stranded abroad in ambiguous tax jurisdictions

Some high-income, high-net worth individuals are finding their tax residency arrangements upset by the pandemic. Photograph: iStock

Some high-income, high-net worth individuals are finding their tax residency arrangements upset by the pandemic. Photograph: iStock

 

Companies based in Ireland that were asking their foreign employees who went home last year because of Covid-19 to return are facing renewed difficulties because of the post-Christmas surge in infections.

The increased Government restrictions on people flying into Ireland, as well as the cancellation of new work permit applications for all but essential workers, has further complicated matters, according to a top adviser.

“I think the situation has been very much changed by what’s happened here over the Christmas period,” Micheal Rooney, tax partner with EY, told The Irish Times.

“Before Christmas a lot of companies were saying to employees, we want you to come back. I think they were looking at 2020 as a year where there was so much flux and so much uncertainty, and they were really trying to look at getting people back early in 2021.

“But then when our Covid numbers went through the roof, [that changed] . . . and now we have visa restrictions, people having to quarantine, flights being cancelled. I think it is a lot more difficult for companies to bring people back at the moment.”

He believes that the tax authorities internationally will have to decide that, for 2020 and 2021, people should be treated as if they were physically working in the jurisdictions where they would normally have resided and worked, if it hadn’t been for the pandemic.

For many large companies based here, trying to establish where their employees are, and the implications that arise from their working outside Ireland, has become a huge task.

Tax implications for both the employee and the employer, potential social security payment obligations, and new employment rights, are among the matters that have to be considered.

In March 2020, companies thought they were dealing with a relatively short-term problem. “Now we see that this is one of the greatest transformations of working life ever,” said Rooney.

Social security

People have been scattered around the globe, and their employers are trying to work out what the implications are.

For example, he said, an employee of a company based here who is working remotely from France, could trigger much higher social security payments from the employer, or become entitled to employment rights that make it much harder for the employee to be let go.

“”It’s become a bit of a logistical minefield,” said Rooney, who notes that such simple matters as what bank holidays an employee should take off are among the issues that have to be considered.

If people are displaced because of the pandemic, they should not be taxed in the place they’re in

“Some companies are saying, would you like to come back to Ireland, but what we are finding now is that flights are being cancelled. We are in lockdown now, so people can’t physically get back.”

Last week, the Government announced that no new work permit applications were being considered. “So some people, even if they want to get back in, they’re stuck.”

He expects that Revenue will issue new guidance in time to address the problems, and that it will have to work in tandem with other authorities and the Organisation for Economic Co-operation and Development (OECD).

“These are global issues and Ireland has to act in unison with the rest of the world,” he said.

Guidance already issued by the Revenue says that people who came here after May 6th, 2020, can’t argue that they have been forced to remain here because of the pandemic for tax-residency reasons.

On the other hand, last month the OECD issued updated guidance on its views in relation to people who returned home because of the pandemic, saying it was “unlikely” that such people would acquire tax residency in the jurisdiction they had returned to, or indeed were stranded in.

People have been scattered around the globe, and their employers are trying to work out what the tax implications are. Photograph: Nick Bradshaw
People have been scattered around the globe, and their employers are trying to work out what the tax implications are. Photograph: Nick Bradshaw

Rooney said companies based in Ireland are grappling with the problems created by employees being stuck working remotely from abroad, while people who are employed by companies outside Ireland are having to deal with finding themselves working remotely from here because of the pandemic.

‘Absolute nightmare’

“If people are displaced because of the pandemic, they should not be taxed in the place they’re in,” he said.

He argues that a system should be put in place globally where people would continue to be taxed in the country where they were normally residing.

“Otherwise, for companies trying to locate all these people and control and look after people’s travel, and then trying to sort out the taxation of their employees who are based all over the world, it is going to be an absolute nightmare.”

His experience to date has been that the Revenue has been very open-minded when dealing with people who have found themselves displaced because of Covid.

A tax expert who works for a smaller firm said that some high-income, high-net worth individuals are finding their tax residency arrangements upset by the pandemic.

The adviser, who didn’t want to be named, said she had clients who were in Ireland at the time of the first lockdown, and had chosen not to return to the US, because of the Covid situation there.

In such cases, a person could end up becoming tax resident here as well as in the jurisdiction where they were being paid, and could end up having to pay any differential if Irish taxes were higher than those of the jurisdiction where they were being paid for their remote working.

Tax residency involves being present for 183 days or more in a tax year, or 280 days or more over two years, with a minimum of 30 days in each year

The adviser’s view was that, for high-net worth individuals, the pandemic might be affecting “the rich more than the super-rich”, by which she meant people who might have high six-figure incomes or greater.

Her firm has a number of clients, “not tax exiles, but people who are very well paid”, and who decided Ireland looks safer and decided to work remotely from here. “They are now being contacted by Revenue.”

Income and residency

Conversely, one of her Dublin clients hired a senior employee from the other side of the world who hasn’t been able to travel here, as had been envisaged at the time, to take up his new role. He has been working remotely from home although “he was hired at the beginning of Covid”.

A spokesman for Revenue said that a person’s liability for tax depends on the source of their income and whether they are tax resident.

Tax residency involves being present for 183 days or more in a tax year, or 280 days or more over two years, with a minimum of 30 days in each year.

The days a person is prevented from leaving the State because of a “force majeure” circumstance may be discounted for the purposes of tax residency, and this includes the pandemic.

“A key requirement for this concession is that the occurrence must not reasonably have been foreseen and avoided.”

As the concession requires that the occurrence must not “reasonably have been foreseen and avoided”, it would be difficult to satisfy this condition in respect of travel to the State after May 5th, 2020, he said.

“Therefore, having regard to the timeline of events, including the World Health Organisation declaring Covid-19 a pandemic in mid-March 2020, and the significant escalation of cases together with the range of restrictive measures taken by the Government, an individual who travelled to the State on or after May 6th, 2020 will not be regarded as having his or her departure from the State prevented due to Covid-19 under force majeure circumstances.”