COVID-19: Revenue Commissioners of Ireland lead with pragmatic position in relation to corporate residence and permanent establishment issues

1. The Corporation Tax Guidance provides that if an individual is present in Ireland and that presence is shown to result from travel restrictions related to COVID–19, the Revenue Commissioners will be prepared to disregard such presence in Ireland for corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent.
2. In addition, the Corporation Tax Guidance also 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 corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent.

In either case the individual and the company should maintain a record of the facts and circumstances of the bona fide relevant presence in Ireland, or outside Ireland, for production to the Revenue Commissioners if evidence that such presence resulted from COVID-related travel restrictions is requested.

In relation to 1 above, where this may be relevant, includes, for example;

• where a company seeking to ensure tax residence outside Ireland has to proceed with meetings of its board with directors participating from Ireland, including signing written resolutions in Ireland or otherwise dealing with matters of central management or control of that company in Ireland, at a time where that director or directors would not be in Ireland save for COVID-related travel restrictions whereby they could not leave Ireland. In such circumstances the Revenue Commissioners will disregard the presence of the director in Ireland; or
• where employees or agents of a company are present in Ireland and they would not be in Ireland save for COVID-related travel restrictions whereby they could not leave Ireland, and in the performance of their duties in Ireland, they might otherwise create a permanent establishment of the company in Ireland that would be subject to Irish corporation tax (e.g. by habitually concluding contracts on behalf of the company in Ireland during the period in Ireland), the Revenue Commissioners will be of the view that no such permanent establishment should be created.

In relation to 2 above, where this may be relevant, includes, for example where a company seeking to ensure tax residence in Ireland has to proceed with meetings of its board with directors participating from outside Ireland, including signing written resolutions outside Ireland or otherwise dealing with matters of central management or control of that company outside Ireland, at a time where they would not be outside Ireland save for COVID-related travel restrictions whereby they could not travel to Ireland. In such circumstances the Revenue Commissioners will disregard the presence of the director outside Ireland for the purpose of Irish tax law. Nonetheless in such a situation it may be prudent to confirm with local tax counsel in the jurisdiction where the director is located at the time of exercise of any such duties 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 (see below).

The OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis (the “OECD Guidance”) was published on 4 April last. The OECD Guidance expressly supports the position taken by the Revenue Commissioners and hails Ireland as a positive example of how such a transient state (Covid-19 and the related travel restrictions) should be considered in its potential impact on the issues of both corporate tax residence and the creation of new permanent establishments.

• The OECD guidance acknowledges that businesses may be concerned that their employees that are dislocated to countries other than the country in which they regularly work, and that are working from their homes during the COVID-19 crisis will create a permanent establishment for them in those countries, which would trigger new filing requirements and tax obligations. It explains that should not be the case under OECD double tax treaties but acknowledges 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, so tax administrations are therefore encouraged to provide guidance to minimise or eliminate unduly burdensome compliance requirements for taxpayers in the context of the COVID-19 crisis. In that regard, Ireland’s Corporation Tax Guidance is noted as a positive example of such an approach.
• The OECD guidance also acknowledges 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, or inability to travel, of chief executive officers or other senior executives. 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 the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty. A temporary change in location of the chief executive officers and other senior executives is an extraordinary and temporary situation due to the COVID-19 crisis and such change of location should not trigger a change in tax residency, especially once the tie breaker rule contained in tax treaties is applied.  In that regard too, Ireland’s Corporation Tax Guidance is singled out as a positive example of a pragmatic and reasonable approach to the matter.

How can we help?

The Tax Group at McCann FitzGerald is ready and willing to assist clients in addressing all of their Irish tax concerns at this difficult time and note that certain situations may require particular consideration.  Alternatively, your usual contact in McCann FitzGerald will be pleased to provide further information. This briefing is for general guidance only and should not be regarded as a substitute for professional advice. For our more extensive briefing on all Irish tax-related Covid-19 measures please see Covid-19: Revenue Response.