The seismic shift to remote working triggered by the onset of the COVID-19 pandemic in March 2020 was intended to be temporary. However, one year on, Ireland remains in Level 5 lockdown and working from home looks set to stay, in some shape or form, in the transformed workplace. Employers based in Ireland whose employees relocated abroad, while working remotely, must now navigate a number of complex and novel tax, HR and employment law issues.
This new form, long-distance employment relationship, raises a number of tricky questions. For example, to what extent does an employee performing their role from another country accrue mandatory employment rights within that country, regardless of the fact that their contract of employment is governed by Irish law? And what about the tax implications for the employer and employee? Significant Government restrictions on people flying into Ireland, the cancellation of new work permit applications and the health and safety concerns of employees asked to travel in a pandemic, make it difficult for employers to request employees to return to work in Ireland.
The Rome I Regulation (EC) (593/2008) (Rome I) states that employment contracts are governed by the jurisdiction where the employee "habitually carries out his work in performance of the contract, even if he is temporarily employed in another country".
Employees are entitled to the rights afforded by employment laws in the country they habitually work in. These rights can include minimum wage, paid annual leave and employee rights on termination of employment. With most employees working remotely for over one year now, consideration will have to be given as to whether those employees are "temporarily" working in another country for the purposes of Rome I.
Foreign Tax and Social Security Liability
Payroll taxes in Ireland are automatically deducted at source and paid to the Irish Revenue Commissioners (Revenue) by the employer. Revenue initially adopted a lenient approach to non- Irish resident employees forced to remain in Ireland as a result of the pandemic. However, as of 1 January 2021, employers are required to apply Irish payroll taxes for employees who exercise all their employment duties in Ireland. Revenue will have regard to any relevant double taxation treaty and the numbers of days an employee has spent working in Ireland before deciding to grant an application to dispense with these employer obligations. As each country has their own thresholds for categorising an employee as tax resident for payroll purposes, employers could be liable for equivalent payroll taxes in the employee's new country of work.
An employee may be subject to further tax and social security liabilities where they are working remotely in a foreign jurisdiction. Employees could become tax resident in a country and liable to pay tax on their worldwide income, not just payroll taxes. Revenue guidance on this issue is expected shortly. It is understood that this will reflect consultation with other authorities and the Organisation for Economic Cooperation and Development (OECD) given the global nature of these practical concerns.
Expert tax advice should be taken when considering any employee requests to permanently work in a foreign country.
Employees working in a foreign jurisdiction can inadvertently create a taxable presence on behalf of their Ireland-based employer (as a permanent establishment) in that jurisdiction. A permanent establishment could be created depending on the role and authority of the employee concluding contracts from his or her "home office" in the foreign country, and the nature and duration of this remote working arrangement. In 2020 as part of a package of measures designed to alleviate the effects of COVID-19, Revenue confirmed that where an individual is present in Ireland (or in another jurisdiction and would otherwise have been present in Ireland) and that presence is shown to result from travel restrictions related to COVID-19, Revenue will disregard such presence in Ireland, or outside Ireland, for corporation tax purposes, where the individual is an employee, director, service provider or agent. A record of the facts and circumstances of the "bona fide" relevant presence in Ireland, or outside Ireland, should be maintained for production to Revenue, if evidence of such presence is requested.
Not all tax authorities have been as amenable as Revenue, with no reciprocal force majeure measures for employees located abroad because of the current pandemic. If there is a fixed place of business outside Ireland, the Irish employer could be liable to corporation tax in that jurisdiction.
In addition to complex considerations from a tax and employment law perspective, employers must grapple with data protection concerns where its employees have relocated to a foreign jurisdiction to work from home.
The General Data Protection Regulation (GDPR) prohibits personal data being transferred to a country outside of the EEA unless that country has an adequate level of protection for the data subjects' rights in the context of processing such data. Depending on where employees have relocated, for example the US or the UK, further steps may be required of an employer to ensure compliance with GDPR rules and minimise exposure to potentially significant fines attached to GDPR breaches.
Whilst remote working is a solution to one crisis, it can potentially create other difficulties for employers. Employers should seek to understand the nature and extent of such difficulties for their business, to maximise the benefits and minimise the risks associated with remote working.
Employers reconsidering their business structures to accommodate long-term remote working may wish to discuss the employment and taxation issues arising.