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Nook, cranny, kitchen, bedroom, box room. Like many of you over the past six months, remote working has presented some challenges, not least in finding a dedicated area to work productively, writes Thalia O'Toole, Head of Global Mobility at KPMG in Ireland.

While many employees recognise that remote working offers additional flexibility, current housing may provide limited scope to establish a home office area without help on costs, while day-to-day utility, broadband, and other incremental costs also need to be factored in.  Employers too are recognising that remote working is here to stay irrespective of our success in thwarting COVID-19. 84 per cent of Irish CEOs surveyed as part of the summer update to the KPMG 2020 CEO Outlook see remote working as a significant opportunity to drive business growth through access to a global talent pool.  Many Irish multinationals are already moving to a permanent remote working model, albeit with emphasis on an hybrid version with work to be performed partially from home and partially from the office, once lockdown restrictions permit.

Remote working in Ireland

No additional tax measures were announced for remote workers in Budget 2021. Instead, the Minister for Finance noted that an Inter-Departmental Group has been tasked with developing Ireland’s remote working strategy. The timeframe for their analysis is not clear.  While factors other than tax must be considered such as health and safety, cyber security and so on, it is hoped that an opportunity is taken to revamp the current tax regime for e-working and remote workers. This is essential to provide certainty for employees and employers.

As things stands, employers can pay a tax free per diem of up to €3.20 for each remote working day, provided there is a formal agreement with the employee which requires essential duties to be performed at home for a substantial period. Alternatively, employees can claim a pre-tax deduction of 10 per cent of the utility costs (including broadband) incurred during the homeworking period. An employee would need to have utility costs in the thousands to secure the equivalent net benefit that the tax free per diem provides.  Increasing the tax deduction available to employees under this mechanism is critical.  Further the requirement for a formal agreement between the parties should be relaxed to allow for the flexibility that remote working warrants, especially where remote working is a by-product of government guidelines.

Employers can currently directly provide the following without a benefit-in-kind, provided private use is minimal:

  • office furniture
  • computer or laptop
  • printer
  • scanner
  • telephone, mobile and broadband

However, some employees may be required to purchase their own equipment and while the Minister noted that employees can make a claim to Irish Revenue for vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment, more clarity is needed on what this means for remote workers. In general, meeting the “wholly, exclusively and necessarily” test is a high bar generally requiring the expense to relate solely to the performance of duties which cannot be carried out without incurring the expense. Clear and detailed guidance in terms of how Revenue intend to apply these conditions in a remote working context is needed unless separate, clear and specific tax supports are introduced.

For many employees having two “normal” places of work – home and the employers place of business – will likely be the norm in the future. This brings additional tax complexities to the fore particularly in the area of subsistence and commuting expenses. It has been long established that home to work expenses are taxable if reimbursed, but this assumes that home is not a normal place of work. Long before COVID-19 arrived, tax rules were not keeping pace with evolving technology and work patterns which enabled remote working to occur on the road, in a regional hub, or at home. Currently, tax free travel and subsistence expenses are broadly linked to an employee’s absence from the normal place of work which, bar certain limited exceptions, almost always has been regarded by Revenue as the employer’s place of business, even where the employee works full time elsewhere. Unexpected tax bills and payroll obligations have arisen where employers have funded hotel accommodation and meals or reimbursed mileage costs to enable those employees attend the place of business. Likewise, calculating business travel for the purposes of company car benefit-in-kind which has included the distance between home and the employer’s place of business as qualifying has raised issues. While particularly relevant in the past for sales reps, site-based employees, and freelance workers addressing these uncertainties now affect a broader cohort of employees.

Remote working overseas

Since March, many employees have taken the opportunity to stay in a “shelter in place” location or indeed relocate to a country of origin to be closer to family and friends. However, working overseas may create unforeseen and significant consequences for both the employee and employer.  

The considerations applicable to different stakeholders is multifaceted, covering personal income tax, payroll reporting, international corporate tax and transfer pricing, social security, and employment law. For example, the employer may be exposed to overseas social security charges as well as payroll compliance and corporate tax risk, while an employee’s net income or personal assets may be affected due to differences in tax regimes with corresponding additional tax filings and double taxation issues to be managed.   Some key considerations are set out in the Table below:

Personal Tax

Corporate Tax

Payroll

Social Security

Employment Law

Where will taxes be due? Will there be double taxation?

Are there differences between the Irish and the overseas tax regime which means net earnings are affected?

 

Will the overall corporate structure be affected?

Will a taxable corporate presence overseas be created?

How does remote working impact our Transfer Pricing policy

Does the same level of pay need to be provided?

Does Irish and foreign payroll need to be operated?

 

Will overseas social charges arise in addition to at home?

Can overseas contributions be counted towards pension and other benefits?

Where are health, unemployment or similar social benefits paid?  

 

Is there a requirement to obtain a working visa overseas?

What Health & Safety obligations must be complied with overseas?  

Will overseas employment law or redundancy rights be created?

 

 

As a result of some of the issues identified, many employers have already requested employees to return home to their normal work location. However, given that potential new hires and other specialist talent may currently live outside the employer’s home country and may not wish to relocate, there remains a need for employers to consider what cross-border remote working policy will apply going forward as part of the war for talent.

Not only does developing an international remote working policy to future proof the business, a review of the compliance risks arising since March 2020 may be warranted. Part of any review/policy development should include the following:

1. Tax, Social Security, and Employer Risk Analysis by Location

Assess the countries which may already have triggered issues, which countries will (and will not) continue to be supported for remote working. 

2. Monitoring of corporate and employer compliance obligations

What actions are needed to manage corporate tax, payroll, and social security. Who is responsible for managing the process?

3. Assessment of Employee Eligibility & Support:

Consider who is eligible to work overseas, who is prohibited (perhaps due to regulatory or corporate tax reasons), what supports will be provided to employees, how remuneration packages should be adapted, what are the processes to be undertaken before approval for remote working is granted.

Opportunities to access a wider talent pool and support business growth needs to be balanced against the additional administration and tax/social security costs of remote working. Given the potential impact on corporate tax structures, especially for EMEA groups headquartered in Ireland, input from corporate tax and other relevant stakeholders across the business will be required to ensure all relevant factors are considerMR1]

Summary

Without a doubt, what started as a “work anywhere” exception has become central to many employers operating models with talent retention and employee wellbeing now at the forefront of business priorities. Employers who can provide a clear and supportive remote working environment lay the foundation to future business growth but also need to carefully manage the compliance risks that remote working brings. Focus will now be on the outcome of the Inter-Departmental Group discussions. It is hoped that any strategy framework will include clear and innovative tax guidelines to support long term remote workers. 

This article originally appeared in the Business Post and is reproduced here with their kind permission.

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