In 2020, due to the uncertainty caused by COVID-19 related travel restrictions, the Irish Revenue Commissioners (“Revenue”) confirmed that as a temporary concession they would not consider attendance in state or other jurisdiction of individuals for the purposes of establishing his residence or taxable presence.
While Revenue recently published an e-briefOpens in a new window confirming that the preferential treatment would remain valid until 31 December 2021 (and would be withdrawn with effect from 1 January 2022), it has now been confirmed that the preferential treatment will continue to apply until 31 January 2022 and that the position will be kept under review to determine if another extension will be required. This is a positive and very welcome development.
In this briefing, we examine the potential impact that the future withdrawal of this preferential treatment could have on certain Irish and non-Irish incorporated companies.
How will the withdrawal of the concession impact the tax residency status of companies?
The withdrawal of the concession should not have a significant impact on companies incorporated in Ireland. This is because all companies incorporated in Ireland are automatically considered Irish tax residents from 1 January 2021, the only exception being where a company may be treated as tax resident in another jurisdiction under a treaty. of double taxation.
Accordingly, the withdrawal of the advantage itself should not have a direct bearing on the assessment of the tax residency of companies incorporated in Ireland – the fact remains that the only consideration in practice is whether a foreign tax authority could claim that a company incorporated in Ireland is resident in its jurisdiction, so that the terms of a double tax treaty could then potentially override the Irish domestic law position.
However, the withdrawal of this concession may have a greater impact for non-Irish companies (particularly those claiming to be Irish residents), as different residency rules apply to such companies. Generally, a non-Irish company will be Irish tax resident where it is centrally managed and controlled in Ireland. The holding of board meetings in Ireland (and the directors’ physical presence at such meetings) is one of the factors that the tax authorities will consider when determining whether a company is centrally managed and controlled in Ireland and, therefore Irish tax resident.
The tax benefit allowed directors, in certain circumstances, to attend board meetings remotely (from other jurisdictions) without concern that such attendance would affect Irish tax residency status of the society. However, following the withdrawal of this relief, companies will need to carefully consider the impact that directors’ remote attendance at board meetings may have on the company’s tax residency. Prior to the removal of the Concession, it remains important for businesses dependent on it to document the facts and circumstances of the bona fide presence in Ireland or overseas, for example in board minutes and the correspondence of the director concerned before the meeting of the board of directors.
Will the withdrawal of the concession cause “permanent establishment” problems?
Similar to the corporate residency position described above, the tax benefit allowed employees and directors of non-Irish tax resident companies, in certain circumstances, to perform the duties of their employment in Ireland (due to the COVID-19 travel restrictions) without creating a “taxable presence” for the corporate employer in Ireland.
The withdrawal of the concession will mean that non-Irish resident companies will have to carefully consider the presence of their employees/directors in Ireland and determine whether such presence will create a “taxable presence” in Ireland. Businesses can seek to rely on OECD guidance on the impact of the COVID-19 crisisOpens in a new window (published April 2020 and updated January 2021) when interpreting the relevant double tax treaty to the extent that COVID-19 public health measures remain in effect, confirming that “the exceptional and temporary change in the location where employees carry out their employment due to the COVID-19 pandemic…should not create a new PE for the employer.”
However, we recommend that non-Irish tax resident companies whose employees/directors work from Ireland consider this position very carefully.
If you have any questions or would like to discuss any aspect of this update that is relevant to your business, please do not hesitate to contact your usual Matheson contact or one of our tax partners.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.