The Republic of Ireland (RoI) is a key export market for Northern Ireland businesses, generating an estimated £3.4 billion of cross border revenue for the NI economy each year.
The proximity of the RoI market means that Northern Irish employers regularly send employees to work on projects in RoI and have members of their team work across the border on a regular basis. For these businesses, compliance with new Irish Revenue guidance on ‘overseas employees’ should be reviewed.
In general, the effect of the new guidance will be to limit the circumstances in which NI employers will be released from the obligation to operate Irish payroll withholding taxes (PAYE) in respect of employees working in RoI – including those travelling across the border on short visits.
Up until now the Irish Revenue has offered a generous exemption to overseas employees working in Ireland on a temporary basis. Provided the Irish Revenue was satisfied that the ‘legal/contractual employer’ was not the Irish business, then Irish PAYE would not need to be operated.
Irish PAYE may now need to be operated if an employee is working for an Irish employer performing duties integral to the Irish employer’s business activities, replacing a member of staff of the Irish employer or gaining work experience. It may also catch an individual supplied and paid by an overseas agency to work for an Irish employer.
This more stringent test is common in other jurisdictions, including the UK. It, effectively looks beyond the legal employer test and challenges whether the employer in the host country is in fact the ‘economic employer’.
The economic employer approach means that the term “employer” should be considered in the broader sense and the context of the employment should be reviewed to determine which entity is the economic employer of the employee.
The recent revised guidance is Irish Revenue’s interpretation of the Organisation for Economic Co-operation and Development (OECD) guidance and it is important to note that there is currently no legislation in Ireland in this area.
It is expected that the revised guidance will limit the circumstances in which employers can claim an exemption from the obligation to operate PAYE in Ireland for short term business visitors who work in Ireland for less than 60 days. The revised guidance may also impact the circumstance in which Irish Revenue will grant an exemption to release a NI employer from the obligation to operate PAYE for individuals, who have greater than 60 working days in Ireland, but less than 183 days.
The fall out of the revised guidance is likely to give rise to cases of withholding tax obligations in two jurisdictions, which would then require resolution under the relevant double tax treaty. Consequently, at a minimum, this will result in additional administrative requirements for NI businesses conducting cross-border operations.
As a result, NI employers will now need to carefully consider the impact of Irish Revenue’s updated guidance on their short term business visitors to Ireland on a case by case basis.