Companies need to be aware of the potential tax implications of having employees work remotely due to Covid-19, according to Mazars.

The audit, accountancy, advisory and tax firm is this week warning international companies in Ireland and Irish companies operating in other jurisdictions to be aware of corporate tax liabilities due to the pandemic and the subsequent location of their employees.

Companies are also now required to track where their employees are working from remotely for longer periods than expected. Mazars warns that this means companies need to be across different tax requirements and regimes – a laborious exercise that many companies have not had to undertake before.

“The onset of Covid-19 has led to an unprecedented movement of employees either to or from Ireland, relocating in line with work and their home lives, which is reflective of the international nature of Irish business and Ireland as a location,” said Cormac Kelleher, international tax partner with Mazars in Ireland.

“While this movement was initially for a short period, that time period is dragging and raises the question for employers and indeed tax authorities about ‘permanent establishment’.”

In Association with

Temporary Relocation

Kelleher noted that OECD guidance in April stated that temporary relocation would not lead to tax liabilities for employers – without defining what ‘temporary’ is. “Some well-known corporates have stated that they will not return to the office until mid-2021 in some cases and some are introducing hybrid working arrangements, further raising questions in this regard.

“We are seeing tax authorities across Europe now issuing guidance and essentially placing responsibility on employers and employees to return to their original country for tax purposes.

“The overall issue of location and movement has further implications with regard to transfer pricing and value creation from a corporate tax perspective. It is therefore imperative that business know where their employees are located, understand their role in terms of value creation, and does their location constitute a permanent establishment.”

Ken Killoran, partner in employment tax and global mobility tax services with Mazars in Ireland, also expressed concern. “We are seeing international employers focusing more on the payroll tax risks associated with having employees working remotely from another country as a result of the pandemic,” said Killoran.

“The remote working may trigger a payroll tax withholding obligation in that country. The tax risk can apply to employees working remotely from Ireland for a foreign employer or indeed an employee working remotely abroad for an Irish employer.

“It is more important than ever for international employers to track and monitor the whereabouts of their employees who are working remotely from other countries in order to mitigate the corporate and employment tax risks.  Employers should have a clear policy in place covering remote working in order to help keep the company compliant for tax purposes.”

Killoran added that employers also need to think about the potential immigration requirements that may be triggered as a result of an employee working remotely in another country.

“Consider whether the employee requires permission to either work remotely in Ireland or the overseas location, which may not have been an issue before. Employers should also consider the employment law rights that the employee may now be entitled to in the other country.”

“It has been noted that some international companies are now asking employees to return to their country of employment, including Ireland, for tax and administrative purposes. While this is a prudent step, some employees may not want to return to Ireland for their own personal health or other reasons, therefore, this matter is not without complication for employers.”