Tax alert Ireland Significant changes to the tax treatment of non-Irish employments exercised in Ireland Executive Summary

18 January 2017

Issue 01/2017

Tax alert

Ireland

Significant changes to the

tax treatment of non-Irish

employments exercised in

Ireland

Executive Summary

The Irish Revenue released an

e-brief

on 22 December 2016 highlighting a

number  of  updates  to  their  Statement  of  Practice  IT/3/07,  which  provides

guidance on the operation of PAYE for non-Irish employments exercised in

Ireland.

The amendments to the Statement of Practice will significantly limit the

circumstances in which exemption from Irish tax may be claimed in respect of

short term business travellers, and may bring many, who spend more than 30

workdays in Ireland in a tax year, within the scope of Irish tax.

Background

Where an employee of a non-Irish employer performs duties in Ireland, it may be

possible in certain circumstances, to claim income tax relief where the employee

is tax resident in a country with which Ireland has a double taxation agreement

(‘DTA’).

The  specific  conditions  for  exemption  from  income  tax  are  outlined  in  the

Employment Article of each DTA, but typically, the following conditions must be

met:

1) the individual  must  be  present  in  Ireland  for  no  more  than  183

days in any 12 month period beginning or ending in the fiscal year

concerned, and

2) their remuneration must be paid by, or on behalf of, an employer

who is not a resident of Ireland; and

3) their remuneration is not borne by a Permanent Establishment

which the employer has in Ireland.

Contacts

If you require further information, please

call your regular contact in EY or contact

any of the following:

Jim Ryan

(Partner)

E: [e-mail]

T: [phone]

Sarah Connellan

(Partner)

E: [e-mail]

T: [phone]

Pat O’Brien

(Director

)

E:

[e-mail]

T: [phone]

2  |

Where the conditions are met, the employer can apply to Revenue for permission not to operate PAYE.

As noted above, the non-Irish employee must be ‘paid by, or on behalf of, an employer who is not a resident of Ireland’.  In

determining whether this condition is met it is necessary to understand which entity is regarded as the “employer” of the

individual while they are working in Ireland.

In the recent update to the Statement of Practice, Revenue have stated they will not accept that the remuneration is paid by,

or on behalf of, an employer who is a resident of another DTA State where the individual is:

1) working for an Irish employer where the duties performed by the individual are an integral part of the business

activities of the Irish employer, or

2) replacing a member of staff of an Irish employer, or

3) gaining experience working for an Irish employer, or

4) supplied and paid by an agency (or other entity) outside the State to work for an Irish employer

Furthermore Revenue have stated that PAYE clearance will not be granted (i) simply because the remuneration is paid by a

foreign  employer  and  charged  in  the  accounts   of  a   foreign  employer  or  (ii)   where  the   remuneration  is   paid  by  a   foreign

employer and the cost is then re-charged to an Irish employer.

The restrictive interpretation set out in the Statement of Practice will significantly limit the possibility of claiming treaty

exemption for business travellers to Ireland and will bring many short term business travellers within the scope of Irish tax.

However, it is worth noting that the exemption will still apply to those short term business travellers who are not carrying on

activities in Ireland in the circumstances outlined above and where the remuneration is not recharged to an Irish corporate.

The Statement does confirm that the existing exemption which is available for business travellers who have no more than 30

workdays in Ireland in the tax year will remain in place.  This exemption is available to business travellers who are tax resident

in any country, regardless of whether Ireland has a DTA with that country.

Next Steps

Employers will need to consider the impact of the Revenue’s updated guidance on their mobile assignee population and on

business travel to Ireland.  If you have any questions please contact a member of the team listed above.

EY are engaging with Revenue to understand the full implications of Revenue’s change in practice and will provide an update

in due course.

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