Potential Tax Issues Arising From International Travel Restrictions
Managing international staff through the Covid-19 crisis will be increasingly demanding: in many cases physical assignments will not happen, be delayed or postponed and redundancies may increase. Here are some important issues to consider:
If assignees need to stay in the UK or come back to the UK because of the virus, they will need to consider the impact on their UK residence days under the Statutory Residence Test – see below.
As well as tax residence issues where individuals remain in a country as a result of Covid-19, this could also affect their eligibility for expatriate tax concessions, social security and withholding taxes on earnings. It could trigger unexpected personal tax liabilities and potentially have an impact on the tax status of the employer – see below.
Many staff with international roles will have returned home so are working from a single location: those with cross border ‘commuter’ jobs may now be working remotely from their home jurisdiction. We expect that a number of countries will introduce concessions to their usual rules – for example, we understand that France may not insist on French social security if employees have to remain there for an unexpected period of up to 60 days. However, without an official, multi-country relaxation of tax and social security rules there will be tax impacts for both the employee and employer to manage.
Of course, all jurisdictions will still expect all relevant tax returns and filings to be made and, as yet, deadlines have not been moved.
It is vital for employers to have a strategy for dealing with their international employees and to ensure that all issues are thought through before final action is taken, otherwise unintended consequences and costs will arise. For help and advice - contact us.
Directors, corporate residence and economic substance
Current travel restrictions may make it more complex for companies to manage their tax residence and economic substance positions if they are reliant on directors travelling to meetings in other territories. For example, if board meetings have to be held in the UK or remotely, or the company is effectively controlled by directors in the UK as a result of travel restrictions arising from the Covid-19 crisis, in theory, this may affect whether or not the company is liable to UK corporation tax. In addition, if there are not sufficient staff in a particular location or jurisdiction as a result of the crisis, the business may not be able to prove that it has a sufficient economic substance in the jurisdiction, and the anti-avoidance legislation of other tax jurisdictions may therefore apply.