New rules governing taxation of foreign employees working temporarily in Ireland could seriously undermine the country's attractiveness for companies considering locating here, a leading tax adviser has warned.
In what he described as "the biggest change in cross-Border taxation of individuals in a decade", Deloitte head of global employer services Daryl Hanberry warned that the recently issued guidance from the Revenue Commissioners risked scaring away firms considering a move here post-Brexit.
Previously, due to double tax agreements with other jurisdictions, companies were under no real obligation to deduct PAYE taxes on individuals who were in the Republic for less than 183 days. Dispensations were easy to get.
Under the new rules, however, employers must withhold taxes once the employee is in Ireland for more than 30 days and under certain other circumstances, such as if they are deemed “integral” to operations or are seen to be “gaining experience”. Such exceptions can bring the withholding obligation down to as little as one day.
Uncertainty
According to Mr Hanberry, the change has created a significant increase in administration for companies which must now register temporary workers for taxes here.
It could also leave individuals having to file a tax return both in the Republic and in their home jurisdiction.
“This change will create uncertainty for non-Irish employers,” Mr Hanberry said.
He said the inclusion of vague wording in the guidance meant subjective phrases such as “integral”, “gaining experience” and “incidental” could all be interpreted differently, leaving companies in a position where they might have to argue the point with Revenue on the role that individuals, including senior executives, have played while in Ireland. For example, if someone arrives in the country to hold meetings, are they playing an “integral” role or not for the company that employs them?
‘Draconian’
Mr Hanberry said Revenue’s approach appeared “draconian” in comparison to that of our European neighbours and competitors, and was a “substantial departure from previous practice”.
A spokeswoman for Revenue described the revised guidelines as a “routine update”.
“In accordance with the terms of the OECD Model Convention on Income and on Capital, it reaffirmed the long-held position in respect of the taxation of foreign assignees to Ireland, and this same position has been made clear to practitioner groups in extensive engagement over the past two years,” she said.
Mr Hanberry, who is a tax partner at Deloitte, disagrees. “A number of employers will be forced to operate PAYE on the income of employees who spend insignificant amounts of days working in Ireland. In some instances, employers with employees working just one day here in a tax year may be required to withhold PAYE,” he said.
“Revenue appears to believe there is significant income to be gained although [they] have no support for this point of view. My experience would be that there is very little tax to be earned on this issue and we are simply creating administrative costs for companies for little or no benefit to Ireland.”
Not so easy to do business
Mr Hanberry said that with Ireland having built up a strong reputation as a country in which it was easy to do business, the introduction of a measure that could cause great uncertainty was surprising.
Peter Vale, a tax partner at Grant Thornton, said the new guidance was "unfortunately timed".
“It’s certainly not helpful in the context of Brexit, but I think it will probably be more of a cash flow and administrative burden than anything else,” he said.
“What’s also unclear is whether other jurisdictions are coming under pressure to introduce the same obligations. If we’re the only ones doing this, then this is more pain for the guys we’re trying to attract over here, particularly if those coming over here might obviously be integral to operations.”
