Board meetings and company residence: change to Irish Revenue practice from 1 January 2022
Irish Revenue have recently confirmed their intention to withdraw an important concession which is relevant to directors’ physical attendance at board meetings and company residence for Irish tax purposes.
Throughout the COVID-19 pandemic, companies have been required to hold board meetings and, in many cases, it has been necessary for directors to attend by telephone or video conference from different jurisdictions. The location of board meetings is important in determining tax residence for certain companies wishing to retain Irish tax residence and for non-Irish tax resident companies wishing to remain non-Irish resident. There is no specific guidance or case law in respect of the location of a meeting where directors attend remotely from different jurisdictions.
To deal with this issue Irish Revenue have been applying the following concession:
“An employee, director, service provider or agent, may have been restricted from travel between tax jurisdictions because of COVID-19. As a result, they may have had an unavoidably extended presence in the State, or another tax jurisdiction.
Revenue will disregard such presence for Corporation Tax purposes for a company where the employee, director, service provider or agent, was:
- present in the State when they would have otherwise been present in another jurisdiction
- present in another jurisdiction when they would otherwise have been present in the State.
The individual and the company must maintain a record of the facts and circumstances of the bona fide relevant presence in, or outside, the State. This record must be given to Revenue, if requested, as evidence that the presence resulted from COVID-19 related travel restrictions.”
This concession allowed directors to participate in meetings remotely, which they otherwise would have attended in person absent COVID-19 related travel restrictions, without affecting the analysis of the company’s tax residence for Irish tax purposes.
Irish Revenue have confirmed that this concession will remain valid until 31 December 2021 and will be withdrawn with effect from 1 January 2022 so that the normal rules will apply in determining company residence from that date.
Irish incorporated companies
The withdrawal of the concession may not have a significant impact on Irish incorporated companies which are intended to be tax resident in Ireland where directors are unable to travel to Ireland for board meetings (although the particular facts should always be assessed on a case-by-case basis). This is on the basis that since 1 January 2021, Irish incorporated companies are tax resident in Ireland.
There is an exception to Irish residence where the company is tax resident only in another country under an Irish Double Taxation Agreement (“DTA”). Therefore, consideration should be given to whether the attendance at board meetings from outside of Ireland could trigger domestic residence provisions in other countries giving rise to dual residence which would require resolution under the provisions of a DTA.
Where directors meetings are held in (or directors participate remotely from) countries which apply an incorporation test (such as the United States), we would not expect this issue to arise. However, care should be taken where directors meetings are held in (or directors participate remotely from) countries which have a central management and control or place of effective management test for determining residence of a company not incorporated in that country, such as the UK.
Where a company is dual resident, tax treaties can provide tie breaker rules that seek to ensure that the entity is resident in only one of the states. The OECD issued guidance (originally published on 3 April 2020 and later revised in January 2021) on resolving cases of dual residence in the context of the COVID-19 pandemic (the “OECD Guidance”).
The OECD Guidance confirms that all relevant facts and circumstances should be examined to determine the “usual” and “ordinary” place of effective management, and not only those that pertain to an exceptional and temporary period such as the COVID-19 pandemic.
The OECD Guidance concludes that the entity’s place of residence under the tie-breaker provision included in a tax treaty is unlikely to be impacted by the fact that the individuals participating in the management and decision making of an entity cannot travel due to a public health measure or recommended by at least one of the governments of the jurisdictions involved. It will be interesting to see whether tax authorities apply this approach in practice, particularly given the extended period of the pandemic with no end in sight.
Non-Irish incorporated companies
A non-Irish incorporated company is tax resident in Ireland if it is centrally managed and controlled in Ireland. The concept of central management and control is directed at the highest level of control of the business of the company where the high level policy and strategic decisions are taken, often exercised by the board of directors. The central management and control test should generally be applied by reference to the facts over a period of time.
The withdrawal of the concession creates uncertainty for non-Irish incorporated companies which are intended to be tax resident in Ireland where directors continue to have difficulties in travelling to Ireland for an extended period post-withdrawal of the concession. This is because the COVID-19 pandemic looks likely to extend into 2022 and it may be difficult to demonstrate that the company is centrally managed and controlled in Ireland where directors are not present in Ireland regularly for board meetings for an extended period.
Similar issues arise in respect of companies which are intended to be tax resident outside of Ireland but have Irish resident directors. Following the withdrawal of the concession, attendance at board meetings of such companies from Ireland due to COVID-19 travel restrictions will not be disregarded and Irish Revenue may assert that such companies have become Irish tax resident due to the central management and control test.
The withdrawal of the concession will also affect businesses where an employee, director, service provider or agent of a company spends longer than intended in Ireland, due to travel restrictions resulting from COVID-19 measures and thereby creates an unintended taxable presence for the company in Ireland.
Taxpayers may be able to rely on the terms of a DTA to support the position that the business does not have a permanent establishment in Ireland and in this regard the OECD Guidance, which provides an analysis of the interpretation of such treaties in the context of COVID-19, may be useful. However, the withdrawal of concession will create some additional uncertainty for such businesses.
While it is to be expected that temporary concessions given by revenue authorities to deal with issues arising due to the COVID-19 pandemic should be reviewed in the context of the extended nature of the pandemic, the timing of the withdrawal of this concession is surprising as it was issued in the midst of Ireland’s fourth wave of COVID-19.
The Irish government recently announced a recommendation that everyone should work from home unless it is necessary to attend the workplace in person and we expect that most office based Irish government employees will follow this guidance. It seems odd therefore that Irish Revenue should at the same time effectively require international travel to allow in-person attendance at board meetings to avoid uncertainty regarding company residence. Also, we understand that Irish Revenue staff are required to work from home unless consent from the highest level in Irish Revenue is obtained to go into the office.
In addition, COVID-19 case numbers in Ireland are currently high and the US Centre for Disease Control,, for example, includes Ireland on its “very high risk” list of countries and recommends that travel to Ireland should be avoided.
Of particular concern is the position of company directors, particularly those of international and publicly traded companies. Anecdotally, the average age of these cohorts of individuals is higher than the population average so that the risk and consequences for them of infection is a relevant consideration when assessing the level of risk that international travel poses.
The consequences of the decision to withdraw the concession is that those at risk of COVID-19 will no longer have a legitimate reason (in Irish Revenue’s eyes) to refuse to travel, even where travel is strongly advised against for that individual.
In our view Irish Revenue should consider updating the concession (rather than withdrawing it) to confirm that remote attendance at board meetings will not affect company residence for Irish tax purposes where this arises due to COVID-19 related medical advice to the individual or public health guidelines such as advice not to travel or work from home policies in any relevant jurisdiction.
In the meantime, all companies which may be affected by this issue should consider their plans for board meetings in 2022, taking account of the withdrawal of this concession and should take advice, as appropriate to ensure that an unintended change of tax residence and potential tax costs do not arise as a result.
If you have any queries or would like to discuss this topic, please contact a member of the Arthur Cox LLP Tax Team.