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  • Potential tax issues arising from international travel restrictions

Potential tax issues arising from international travel restrictions

25 March 2020

International staff

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 our team.

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.  

Different jurisdictions may well take different approaches during the Covid-19 crisis. For example, Jersey has announced that it is relaxing its economic substance and residence rules during the crisis. We would expect other jurisdictions to make short term concessions in time but, to date, the UK government has yet to make any comment on corporate residence issues or related tax rules. 

Any business that may be affected by residence or economic substance issues as a result of the Covid-19 crisis should seek expert advice on their specific circumstances.

Personal tax residence – days in the UK

The rules for establishing whether or not individuals are tax-resident in the UK (the statutory residence test) depend, amongst other factors, on the number of days spent in the UK in a tax year (6 April to April). Non-UK resident individuals who end up spending more time in the UK than planned as a result of the Covid-19 crisis may find that they exceed the permitted number of days in the UK relevant to their circumstances.

However, up to 60 days spent in the UK can be ignored if they result from ‘exceptional circumstances’ and HMRC has issues new guidance on how these rules apply during the Covid-19 crisis.

UK tax residence is a complex issue and there may be many other issues to consider in determining your personal tax status. For help and advice on tax residence issues please contact our tax team.