COVID-19: Irish corporate tax residence rules

With businesses facing uncertain times in light of COVID-19 related travel restrictions, it is necessary for many Irish tax resident companies to consider the impact of these restrictions on their Irish corporate tax residence status in circumstances where directors are unable or unwilling to travel to Ireland to attend board meetings.  

Corporate tax residence

In general, companies incorporated in Ireland on or after 1 January 2015 are treated as Irish tax resident by virtue of incorporation. This is the case unless, under the provisions of a double tax treaty entered into between Ireland and another jurisdiction, the company is treated as tax resident in that other jurisdiction. In addition to this "place of incorporation" test of tax residence, Ireland, like many other jurisdictions, also has a "central management and control" test of tax residence which looks to where strategic control of the company is exercised. The location of board meetings and board of directors' decision making is a key factor in determining "central management and control". 

As a result, many Irish tax resident companies operating internationally seek to ensure that "central management and control" of the company is carried on in Ireland through the holding of in person board meetings in Ireland. The purpose of this is to ensure that the company's tax residence position is not jeopardised by protecting against challenges from other countries that may seek to assert tax residence or a taxable presence by virtue of board / director activities in that jurisdiction. As a result, where directors of Irish tax resident companies participate in board meetings / board activities from other jurisdictions, the tax implications of this should be considered both from an Irish perspective and from the perspective of that local jurisdiction.

Irish Revenue guidance

The Irish Revenue Commissioners (Revenue) have published some helpful guidance on the approach which they will take to situations where company employees, directors, service providers or agents, are unable to travel as a result of the COVID-19 related travel restrictions. This guidance, which was published on 23 March 2020, provides that:

• No presence in Ireland: Where an individual is present in another jurisdiction as a result of COVID-19 related travel restrictions, and would otherwise have been present in Ireland, Revenue will be prepared to disregard their presence outside of Ireland for corporation tax purposes for the company in which that individual is an employee, director, service provider or agent. This means that where an individual director is unable to travel to Ireland to attend board meetings, Revenue will not view this failure to physically attend meetings in Ireland as impacting on the place of central management and control of the company and as a result the Irish tax residence status of the company. 
• Presence in Ireland: Where an individual is present in Ireland and that presence is shown to result from COVID-19 related travel restrictions, Revenue will be prepared to disregard their presence in Ireland for corporation tax purposes for the company in which that individual is an employee, director, service provider or agent. This is helpful as it means that the presence of the individual in Ireland will not be viewed by Revenue as establishing a taxable presence in Ireland of the foreign company which employs the individual. 

It is unclear from the guidance whether the individual's presence in, or absence from, Ireland must be as a result of a formal travel ban having been put in place between Ireland and another jurisdiction. We would, however, anticipate that Revenue would take a pragmatic approach on this point, particularly in the context of the European Union where, although no formal travel ban has been put in place between member states, individuals have been asked not to travel and many commercial flights have been cancelled. 

Record keeping

The guidance states that both the individual and the company should maintain a record of the facts and circumstances for their presence in, or absence from, Ireland for production to Revenue where requested. The guidance does not specify what evidence should be kept to verify the position. 

In this regard we would recommend that full details of proposed travel dates be maintained together with a record of any cancelled flights and accommodation and a full record of intended board schedules and meeting venues. In addition, if any director is unable to attend for COVID-19 related medical reasons copies of relevant doctor's notes should be kept. The minutes of any board meetings held during this period should record the names of directors unable to attend and specifically state that the non-attendance is due to COVID-19 related travel restrictions. Finally, we would recommend that for any meetings held during this period via conference call, if possible the call be initiated in Ireland by any directors present in Ireland and/or a director present in Ireland be appointed to chair the meeting. 

Interaction with other jurisdictions and Ireland's tax treaties

Although the steps taken by Revenue provide some clarification of the position under Ireland's domestic tax rules, it should be borne in mind that these measures do not address possible tax implications in other jurisdictions or under Ireland's double tax treaties. To the extent that companies' regular board schedules are disrupted as a result of COVID-19 travel restrictions each taxpayer should consider the implications of any changes in light of their specific facts. In many cases, there are also practical steps that may be taken to minimise any potential tax implications.

For further information in relation to this topic, please contact a member of our Tax team.

Date published: 25 March 2020