In 2020, due to the uncertainty caused by COVID-19 travel restrictions, the Irish Revenue Commissioners (“Revenue”) confirmed that, as a temporary concession, they would disregard the presence in the State or in another jurisdiction of individuals for the purposes of establishing residence or taxable presence.
Whilst Revenue recently published an e-brief confirming that the concessional treatment would remain valid up to 31 December 2021 (and be withdrawn with effect from 1 January 2022), it has now been confirmed that the concessional treatment will continue to apply until 31 January 2022 and that the position will be kept under review to determine whether any further extension will be required. This is a positive and very welcome development.
In this briefing, we examine the potential impact the future withdrawal of this concessional treatment may have on certain Irish-incorporated and non-Irish incorporated companies.
How will the withdrawal of the concession impact the tax residence status of companies?
The withdrawal of the concession should not have a significant impact on Irish-incorporated companies. This is due to the fact that all Irish-incorporated companies are deemed automatically Irish tax resident from 1 January 2021, the only exception being where a company may be deemed to be tax resident in another jurisdiction under a double tax treaty.
Accordingly, the withdrawal of the concession itself should not have a direct impact on assessing the tax residency of Irish-incorporated companies – it remains the case that the only consideration in practice is whether a foreign tax authority could allege an Irish-incorporated company is resident in its jurisdiction, with the result 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 more material impact for non-Irish incorporated companies (particularly those purporting to be Irish resident), as different residency rules apply to such companies. Broadly, a non-Irish incorporated company will be Irish tax resident where it is centrally managed and controlled in Ireland. The holding of board meetings in Ireland (and the physical presence of directors at such board meetings) is one of the factors that Revenue will look at when determining if a company is centrally managed and controlled in Ireland and, therefore, Irish tax resident.
The Revenue concession enabled directors, in certain circumstances, to attend board meetings remotely (from other jurisdictions) without causing concern that such attendance would impact on the company’s Irish tax residency status. However, following the withdrawal of this concession, companies will need to carefully consider the impact remote attendance at board meetings by directors may have on the company’s tax residence. In advance of the concession being removed, it remains important for companies relying on it to document the facts and circumstances of the bona fide presence in or outside of Ireland, for example in board minutes and correspondence from the relevant director prior to the board meeting.
Will the withdrawal of the concession cause any ‘permanent establishment’ concerns?
Similar to the corporate residence position outlined above, the Revenue concession enabled employees and directors of non-Irish tax resident companies, in certain circumstances, to perform the duties of their employment in Ireland (as a result of COVID-19 travel restrictions) without creating a ‘taxable presence’ for the employer company in Ireland.
The withdrawal of the concession will mean that non-Irish resident companies will need to carefully review the presence of their employees / directors in Ireland and consider if this presence will create a ‘taxable presence’ in Ireland. Companies may seek to rely on the OECD guidance on the impact of the COVID-19 crisis (published in April 2020 and updated in January 2021) when interpreting the relevant double tax treaty to the extent COVID-19 public health measures remain in effect, which confirms that “the exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 pandemic…should not create a new PE for the employer.”
However, we would recommend that non-Irish tax resident companies with employees / directors working from Ireland consider this position very carefully.
If you have any queries or would like to discuss any aspect of this update that is relevant to your business, please do not hesitate to reach out to your usual Matheson contact or to any of our Tax Partners.