Ireland: navigating tax residence and permanent establishment issues during Covid-19

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Eleanor MacDonagh

McCann FitzGerald, Dublin


Mark White

McCann FitzGerald, Dublin


In these unprecedented times of restrictions on the movement of people, complying with the usual guidelines surrounding tax residence and avoiding the creation of taxable permanent establishments have created significant challenges and concerns across all sectors, including the international funds industry. However, in this regard, pragmatic guidance has been published by many tax authorities in line with the recommendations of the Secretariat of the Organisation for Economic Co-operation and Development (OECD).

On 23 March, the revenue commissioners of Ireland led the way and published practical guidance in connection with Covid-related travel restrictions. This guidance provides that:

  • if an individual is present in another jurisdiction as a result of Covid-related travel restrictions, and would otherwise have been present in Ireland, the revenue commissioners will be prepared to disregard such presence outside Ireland for the purposes of corporate tax in respect of a company to which that individual is an employee, director, service provider or agent; and

  • if an individual is present in Ireland and that presence is shown to result from travel restrictions related to Covid–19 whereby the individual could not leave Ireland, the revenue commissioners will be prepared to disregard such presence in Ireland for the purposes of: (1) corporate tax in respect of a company to which that individual is an employee, director, service provider or agent; and (2) income tax in respect of the individual concerned. In all cases, a record of the facts and circumstances of the bona fide relevant presence in Ireland, or outside Ireland, as the case may be, should be maintained for production to the revenue commissioners (if evidence is requested that such presence resulted from Covid-related travel restrictions).

Where this may be particularly relevant, for example, is where a company that is seeking to ensure tax residence in Ireland has to proceed with meetings of its board with directors participating from outside Ireland. This includes signing written resolutions outside Ireland or otherwise dealing with matters of central management or control of that company outside Ireland, at a time where those directors would not have been outside Ireland save for Covid-related travel restrictions (whereby they could not travel to Ireland).

Importantly, in such circumstances the revenue commissioners will disregard the presence of the director outside Ireland for the purpose of Irish tax.

However, in such a situation it is still advisable to consult with local tax counsel in the jurisdiction where the director is physically located at the time of the exercise of any such duties. This is to ensure that there are no tax consequences under the laws of that jurisdiction (in which case further consideration under a relevant double-tax treaty may be required).

In that regard, on 3 April the OECD Secretariat published its Analysis of Tax Treaties and the Impact of the Covid-19 Crisis. These important recommendations to OECD members expressly support the position taken by the revenue commissioners, citing Ireland as a positive example of how such a transient state (ie, Covid-19 and the related travel restrictions) should be considered in the context of its impact on the issues of both corporate tax residence and the creation of new permanent establishments.

Specifically, the OECD recommendations acknowledge that the Covid-19 crisis may raise concerns about a potential change in the place of effective management of a company as a result of a relocation of senior executives or their inability to travel. The concern is that such a change may have, as a consequence, a change in a company’s tax residence under relevant domestic laws and affect the country where a company is regarded as a resident for tax treaty purposes. It explains that it is unlikely that Covid-19 should create any changes to an entity’s residence status under an OECD form double-tax treaty; that such a change in location of the senior executives is an extraordinary and temporary situation due to the Covid-19 crisis and therefore should not trigger a change in tax residence, especially once the tie-breaker rule contained in tax treaties is applied, if relevant. 

The OECD also acknowledges that businesses may be concerned that employees who are dislocated to countries other than the country in which they regularly work during the crisis may create a permanent establishment for themselves in those countries, which would trigger new filing requirements and tax obligations. In that regard, the recommendations explain that should not be the case under OECD form double-tax treaties but acknowledge that in many countries there may be a lesser threshold presence required under domestic law or taxes to be considered that are not dealt with in a relevant double-tax treaty. Therefore, tax authorities are encouraged to provide guidance to minimise or eliminate unduly burdensome compliance requirements for taxpayers in the context of the crisis. In that regard, again, the revenue commissioners’ published guidance is highlighted as a positive example of the recommended approach.


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