The Organisation for Economic Co-operation and Development (OECD) has issued guidance relating to cross-border workers who are currently in the ‘wrong’ country as a result of coronavirus related restrictions.
The guidance is designed to help clarify the tax position in respect of Permanent Establishments for companies and Tax Residency for individuals, at least in the short term. Future complications are possible if restrictions continue for several months.
With many cross-border workers unable to perform their duties in the usual country of employment, the OECD has tried to address confusion around their circumstances.
Employee Tax Residency
The latest guidance suggests that a lockdown is unlikely to create a change in residency. Many countries have already issued guidance on the impact of COVID-19 on residence status of an individual. The UK, Ireland and Australia has been quick to issue statements confirming that temporary or emergency residence caused by the coronavirus can, in many cases, be disregarded.
Permanent Establishment (PE)
The OECD determines that a lockdown is unlikely to create a new PE in most cases, provided that the lockdown is a governmental order rather than a business decision. Similarly, the OECD has commented 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 a company’s senior executives as a result of COVID-19 is an extraordinary and temporary situation and should not trigger a change in residency, especially once the ‘tie breaker rule’ contained within tax treaties is applied.
If you have employees in countries which differ from their usual location of employment or you are concerned about any aspect of tax in light of COVID-19, please contact us.