The international response to coronavirus continues to develop daily and employers are facing significant challenges which they need to respond rapidly. The impact of coronavirus is particularly in point for employers with globally mobile workforces, for which there are many aspects to consider.
What should HR or global mobility professionals consider?
- Consider which teams will look at this area: Finance, HR/Mobility, Country Managers, etc.
- Compile the data of where are employees now and their expected period of stay.
- Consider the emotional and mental well-being of those effected and their families.
- Communicate with local teams, employees and stakeholders.
- Consider the tax and social security implications.
- Check policies with insurers.
When employers consider the tax, social security and payroll implications for employees, they may include groups who:
- have temporarily repatriated to the UK;
- find themselves working in another country due to quarantine rules; and
- have returned to their home country to work from home.
Aid agencies and charities often respond to humanitarian events by deploying expertise and resources to the impacted zones. For these employers, urgent impact issues may apply as well. The key question to ask is are we deploying resources to a location that is triggering compliance obligations in that country?
Several countries, like the UK, are relaxing some of their rules. However, employers should be cautious since such rule changes are specific and do not remove all the potential obligations. For example:
Social Security challenges
A number of countries are trying to minimise the impact of coronavirus by placing individuals into quarantine or ‘self-isolation’. This frequently involves many employees needing to work from home or at another location away from their regular office.
Ordinarily, an individual pays social security in the country in which they reside and are employed in. Where individuals are sent to work on an overseas assignment, it may be possible for them to continue within their home country social security scheme and be exempt from paying social security in their assignment location. This will depend on factors such as if there is a social security reciprocal agreement in place between the countries concerned or if the assignment is between two EU member state countries.
Additional complexities arise in respect of individuals who have work duties in one or more locations and commute between these accordingly. For example, no explicit provision is made in the UK’s social security agreements with other countries or the EU social security regulations in regard to periods that an employee spends in the UK as a result of illness.
The impact of coronavirus may well result in employees unexpectedly being based in countries in which they (and their employer) are not making any social security contributions to and/or are not exempt from making contributions to (per a social security reciprocal agreement/EU social security rules). Even if social security exemption is available, it would be expected that a Certificate of Coverage (for reciprocal agreement countries) or a Form A1 (for EU countries) be in place for the individual to confirm the position. The tax authorities in a number of locations, and in particularly the EU, place a high degree of focus on such forms being in place, and linked obligations such as the Posted Worker Directive.
The impact of coronavirus could, as a result, give rise to a number of unplanned social security obligations and potential liabilities for employers and can be triggered even after a few weeks.
Heath Care Coverage
Close consideration should also be given to the health care coverage and access which the individual has in the country concerned, should they become unwell. The availability of public health care access is often only available in the country in which the individual is paying social security to. EHIC cards may provide some coverage for EU nationals working across the EU, however, the position for each individual concerned should be carefully reviewed on a case-by-case basis.
Permanent Establishment and other Corporate Considerations
Businesses may find certain people stranded in unexpected locations following business trips abroad and the outbreak of coronavirus. In addition, some individuals employed in one country may seek to return back to their original home country to work from home during the outbreak. Could such a presence create a permanent establishment (PE) risk?
Many businesses with cross border operations will likely make space available for stranded colleagues or allow international home working. Whilst the lack of permanence may not result in there being a fixed place of business in most instances, it will be important to consider local rules and the business activities being undertaken, particularly by dependent agents. If there is a concern, dialling-in to certain business calls may be best avoided, especially where key decisions are made or where contracts may be substantially concluded. In particular, attention should be given to the work location and activities of any senior individuals and directors.
Where a PE is created, there will be associated filing obligations for the company and employees.
Individual Tax Residence – UK response
The statutory residence Test (SRT) determines the number of days an individual may be present in the UK (amongst various other factors) before HMRC consider them to be UK resident for tax purposes. For the purposes of the SRT a day of presence is considered to be any day on which an individual is in the UK at midnight.
The application of the SRT, and resultant day count, is entirely dependent on an individual’s specific circumstances.
An unplanned increase in UK days of presence could therefore have a significant impact on exposure to UK taxation where an individual exceeds the amount of days they are permitted to be present in the UK day without triggering a UK-resident status.
There is the possibility of a claim for 'exceptional circumstances' where an individual can disregard certain days spent in the UK (up to 60 days) for certain (but not all) aspects of the statutory residence test HMRC have announced that circumstances will be considered as 'exceptional' if the individual:
- is quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus, or
- finds themselves advised by official Government advice not to travel from the UK as a result of the virus, or
- is unable to leave the UK as a result of the closure of international borders, or
- is asked by their employer to return to the UK temporarily as a result of the virus.
Any individual who has needed to remain in the UK due to coronavirus should as such, carefully review their position and the potential impact this has on their residency status. We would note that in addition to days of presence in the UK there are a number of other tests under the SRT which will also need to be reviewed when determining their position. Indeed, spending additional time in the UK working may create a ‘tie’ for SRT purposes.Unplanned individual or employer filings.
Individuals working in locations unexpectedly as a result of coronavirus, for example those who were on assignment re-patriated home or individuals who are stuck in country, may inadvertently trigger filing requirements either by establishing an individual tax residency, or by creating a PE of their employing company and each would bring associated registration and filing obligations.
However, even without the creation of a taxable individual or corporate presence, some jurisdictions have strict payroll or registration obligations (where this is due as early as on day 1).
However for example in the UK where an employer has an Appendix 4 agreement in place, it can disregard PAYE withholding requirements on the earnings of non-resident employees (resident in a country that the UK holds a double taxation agreement with), that it hosts in the UK provided that certain conditions are met. This could apply not only to individuals temporarily stuck in the UK, but assignees who were in the UK and repatriated home early may now be eligible for inclusion on an Appendix 4. Important to note that this would not apply to an employee of the UK company (or UK branch) temporarily working back in the UK after time overseas.
In other cases it might be possible for any tax paid to be reclaimed, or double tax treaty exemption applies, generally an associated claim must be made to a tax authority, thereby creating additional administration.
Coronavirus - Measures announced by tax authorities
Many tax authorities globally have already announced extensions to tax return filing deadlines. For example, the US has moved the Federal filing deadline from 15 April to 15 July, key to note is that this is Federal only and each State approach will be different. In addition, easements to the payment of payroll withholding taxes and the waiving of associated penalties have been announced by many jurisdictions globally.
Guidance on social security regulations and relaxations on tax residency/PE rules may be expected.
Individuals may by in a country working when on a non-working visa or be stuck in a country with an expired visa/work permit due to coronavirus or even have relocated to a different location entirely. Immigration obligations, including those updated for the pandemic should be monitored and observed.
What can you do?
The coronavirus pandemic brings unprecedented challenge for businesses globally, and as the individual or team with responsibility for your global workforce, priority will rightly be given in these times to the health and safety of your population. However, to help manage and mitigate the possible tax, social security and filing obligations outlined above you should;
- check your global workforce is keeping records of their days and what they are doing;
- refresh and resend guidance on allowable activities to manage PE exposure;
- focus on impacted senior individuals and directors in terms of locations and duties;
- consult your immigration advisor;
- contact an RSM advisor to ensure you are aware of coronavirus tax authority measures.
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