COVID-19 Tax Update: Corporation Tax Residence, Income Tax and More
06 May 2020
COVID-19 presents challenges to many taxpayers who are trying to comply with their tax obligations in spite of serious disruption to their business. Recent guidance from the Irish Revenue Commissioners shows an appreciation for the difficulties faced by many businesses. We highlight below some of the helpful measures in this guidance designed to assist businesses, including Irish and international companies doing business in Ireland. In addition, we provide a brief overview of the temporary wage subsidy scheme which is being administered by the Irish Revenue.
Tax payments and repayments
Irish Revenue has introduced a number of measures designed to assist small and medium sized businesses (SMEs) which are experiencing cash flow and trading difficulties due to COVID-19. The measures include the suspension of interest on late payments of January/February and March/April VAT liabilities and February, March and April PAYE liabilities. In the meantime, however, Irish Revenue notes that taxpayers should continue to file tax returns on time, even if payment is not possible. In addition, all debt enforcement activity has been suspended.
Irish Revenue has also indicated that any current tax clearance certificates will remain valid for all businesses for the coming months. It has also reiterated its past practice of working with all taxpayers to resolve any tax payments difficulties.
In addition to these measures, Irish Revenue has indicated that it is prioritising the processing of tax refunds for companies engaged in research and development activities, which are entitled to R&D tax credits, payment of excess R&D tax credits due in 2020 will be expedited.
The EU has permitted the import of goods to combat COVID-19 from outside the EU, free of related duties and VAT from 30 January 2020 to 31 July 2020. This will positively affect certain products imported into Ireland during this period by qualifying persons.
Corporation tax residence rules
The COVID-19 travel restrictions have caused uncertainty for corporate taxpayers in terms of how those restrictions could impact on:
a. Whether or not, a company is tax residence in Ireland, or
b. Whether it has a taxable presence in Ireland or elsewhere, by virtue of an employee, service provider or agent residing temporarily in Ireland as a result of these restrictions
As regards (a), a company may be treated as being tax resident in Ireland, if the centre of its management and control is exercised in Ireland, so the location where board meetings are held is key. The travel restrictions have resulted in some directors being unable to travel to Ireland for board meetings. As regards (b), some employees and agents have found themselves unable to travel back to their normal place of business.
Irish Revenue has confirmed the approach it will take to situations where company employees, directors, service providers, or agents are unable to travel, due to COVID-19 travel restrictions and the effect their presence or absence might have on the tax residence of the relevant company or any potential taxable presence. Essentially, Irish Revenue will recognise these situations and will disregard the presence or absence of these individuals in Ireland. For instance, where an individual director is present in Ireland due to these restrictions, Irish Revenue will not regard their presence as being relevant for the purposes of establishing the residence or taxable presence of any foreign company which employs or engages them.
Similarly, where an individual is unable to travel to Ireland to attend board meetings, Irish Revenue will not regard this failure to attend as impacting on the residence of that company in Ireland. It is important that the company and the individual maintain a record of the relevant facts and circumstances surrounding their presence or absence in Ireland due to COVID-19 related travel restrictions.
Equally, where an employee of a foreign company is detained in Ireland due to COVID-19 travel restrictions, this should be ignored in determining presence for tax purposes or potential permanent establishment issues. In addition, the OECD has issued a guidance concerning residence, permanent establishment and employment tax issues for double tax treaty purposes. This guidance is supportive of the approach taken by Irish Revenue. For details see here
As you would expect, determining these issues in practice will depend on the particular facts and circumstances in each case and, therefore, tailored advice may be required around how a company should be managed at this time to minimise both Irish and foreign tax risks. Our Tax team regularly advises on these matters and is now working remotely to ensure we continue to meet the needs of our clients during the crisis. For more information on corporation tax residence rules and the particular steps that might be taken to manage any risks, contact a member of our team today.
Personal tax rules – income tax
Similarly, Irish Revenue has confirmed that where individuals spend more days in Ireland than intended in 2020 due to the ongoing pandemic, it will consider this 'force majeure' for the purpose of establishing an individual's personal tax residence position. Likewise, this approach will be taken for a number of reliefs / exclusions from payroll taxes (PAYE). These are contingent on an employee performing duties of his or her employment outside Ireland, where this is not possible due to COVID-19 related travel restrictions. Therefore, unintended presence in Ireland due to the COVID-19 travel restrictions should not affect the Irish tax position of the individual nor their employer’s Irish payroll tax obligations.
Irish Revenue has also introduced some relief from BIK charges related to certain travel costs including cancellation fees; the provision of employer equipment to enable WFH; and BIK on company cars. Also, an employer may pay the employee up to €3.20 per day to cover the additional costs of working from home or, the employee may claim a tax deduction for a proportion of relevant bills, such as heating and electricity.
The tax filing deadlines for 2019 for certain employee share schemes has been extended, and similarly for the Special Assignee Relief Programme (SARP) and real-time foreign tax credit (FTC) for Restricted Stock Unit (RSU). Irish Revenue has also indicated it will not strictly enforce the 30 day notification requirements applicable to short term business travellers, who will spend > 60 days in Ireland in a tax year, where coming from double tax treaty countries.
Further detail on the measures is available on the dedicated Irish Revenue website
Temporary Wage Subsidy Scheme
The Scheme provides financial support to employers from all sectors adversely affected by COVID-19, excluding the public sector and non-commercial semi-states. Employers can opt into the Scheme where they have, or expect to experience, a significant negative economic disruption due to COVID-19 that is, a minimum 25% decline in turnover or customer orders received for Q2 of 2020, and an inability to pay normal wages and other outgoings fully. The Scheme applies to certain employees on the payroll as at 29 February 2020 and provides for a range of benefits from €350 to €410 per week.
Payments under the Scheme will be made by employers free from payroll taxes but employees will remain liable to the usual income tax, employee PRSI and USC in respect of these payments under the self-assessment system. Any top-up payments made by the employer will be subject to the usual payroll tax deductions. However, some relief is available to the employer as the rate of employer PRSI is reduced from 11.5 to 0.5% on such payments.
Guidance on the Scheme can be found here on the Irish Revenue website.
The COVID-19 pandemic is having a profound effect on Irish companies and international organisations doing business in Ireland. Some welcome measures and guidance have been introduced and it is likely that more may follow in the medium to long-term as the full extent of the economic fallout becomes more readily apparent. We will update our readers on any matters or developments that will directly affect their operations in due course.
For more information on the continuing impact of the crisis on your business, contact a member of our Tax team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.