Tax Considerations relating to the creation of permanent establishment and payroll obligations where a tradesman with a business based in Northern Ireland is carrying out contracts on various sites in the Republic of Ireland.
Ordinarily, in these cases, the tradesmen (and possibly even some subcontractors if they are non-residents) are at a high risk of creating a permanent establishment here in the State. We have outlined below t the information which is required to bear in mind in these scenarios.
If work is being carried out on different sites it needs to be considered the length of time 'the business' (including the tradesman, employees or subcontractors) is being carried out at a particular site, and if that is more than 6 months in total, then there will be a PE here in the State.
As you can see from the Revenue Guidance excerpt, it mentions that Article 5(1) (h) of the Ireland-UK Convention provides that a building site or construction or installation project which lasts for more than six months constitutes a PE. When we look at the Commentary on Article 5 of the OECD Model Treaty (which I have included below), it contains further guidance on when a PE has been created. (Please note that the OECD model refers to a 12-month period on a construction site, however, you have to refer to the specific DTA to see what is agreed between the two countries involved, and as we said above, the UK-Ireland DTA specifies 6 months as the length of time on a construction site which will create a PE).
As you can see the commentary on Article 5 - Para 3(18) provides that -
'The twelve-month (6 MONTH) test applies to each individual site or project. In determining how long the site or project has existed, NO ACCOUNT SHOULD BE TAKEN of the time previously spent by the contractor concerned ON OTHER SITES OR PROJECTS which are TOTALLY UNCONNECTED with it.
A BUILDING SITE should be regarded as a SINGLE UNIT, EVEN IF it is based on SEVERAL CONTRACTS, provided that it forms a coherent whole commercially and geographically'.
while Para 3(19) provides that -
'A site exists from the date on which the contractor begins his work, including any preparatory work, in the country where the construction is to be established, e.g. if he installs a planning office for the construction. In general, it continues to exist until the work is completed or permanently abandoned. A site should not be regarded as ceasing to exist when work is temporarily discontinued. Seasonal or other temporary interruptions should be included in determining the life of a site'. Temporary interruptions could include bad weather or a lack of employees for a while.
The commentary discusses the abuses around groups trying to artificially ensure that the PE test wasn't met, by getting projects 'broken up' into different parts and having a different part attributed to a different company within the group.
Paragraph 1(18) of Article 5 of the commentary provides an example of a painter on a site 3 days a week for 2 years. In that case, the presence of the painter in that office building where he is performing the most important functions of his business (i.e., painting) constitutes a permanent establishment of that painter. It shows that there can be breaks in the presence at a particular site, but, if a business is being carried on from there for a period of more than 6 months in total then a PE will have been created.
As such then any presence on one site for more than 6 months will constitute a PE. Artificially breaking up the project into several smaller projects would not avoid the creation of a PE, if the substance is that they are essentially the same project. Time on different sites can only be disregarded if they are truly unconnected to each other.
Finally, it should be noted, that where a client has sub-contractors and if they end up on the same site for more than 6 months, then they will end up creating their own PE - that is as per para 3(19).
Consideration needs to then be made with regard to the requirement to register as an employer:
To clarify - with regards to whether an employee is resident in the State in a year, we can see that the DTA refers only to 'days' whereas the Revenue concessions for employers not to have to operate PAYE for employees who spend either less than 30 days or less than 60 days in the State, refer to 'workdays'.
In short, for UK employers (and other DTA country employers) who have employees working in The State:
If there is an employee who works in The State for less than 30 workdays in the year, then there is no obligation for the employer to operate Irish payroll on that employee.
If there is an employee who works in The State for less than 60 workdays in the year, then there is no obligation for the employer to operate the Irish payroll on that employee.
If there is an employee who works in The State for between 61 and 183 days where the conditions of Article 15(2) of the relevant DTA are met, Revenue will not enforce the operation of PAYE; however, the foreign employer or the “relevant person” should apply for a dispensation from the operation of PAYE for the temporary assignee. You can see from Article 15(2)(c), that if the employer has a PE in The State, then the conditions of 15(2) will not be met and therefore the UK employer will have to operate Irish PAYE.
If of course, the employees are going to be here for more than 183 days in each tax year, then there will be an obligation on the employer to register for Irish PAYE as soon as he is aware of that fact.
Irish PAYE Obligations of Foreign Employers
As per Revenue Guidance - with regards to the application of the PAYE system to non-Irish sourced employment income the statutory position with effect from 1 January 2006 is as follows:
Irrespective of the tax residence position of the employee or the employer, income from non-Irish employment attributable to the performance in the State of the duties of that employment is chargeable to income tax in the State and is within the scope of the PAYE system of deduction at source.
However, Article 15 of the UK-Ireland DTA deals with Employment and depending on the number of days spent in Ireland and whether there is a permanent establishment of the foreign employer in the State, it may be that the employment income under the DTA may only be taxable in the UK (i.e., the country of residence). Article 15 reads as follows:
ARTICLE 15 - Employments
(1) Subject to the provisions of Articles 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
(3) In relation to the remuneration of a director of a company derived from the company the preceding provisions of this Article shall apply as if the remuneration were remuneration of an employee in respect of employment and as if references to "employer" were references to the company
While we can see that Article 15(1) clearly provides that Ireland has a taxing right where an individual employed under the terms of a foreign contract of employment is working in the State it is also necessary to review the provisions of Article 15(2) which apply notwithstanding the provisions of Article 15(1).
In order to reduce the administrative burden Revenue, give concessions to foreign employers which release them from the obligation to operate PAYE in relation to certain temporary assignees.
These concessions relate to:
(1)Short-term business visits to Ireland by DTA residents of 60 working days or less: Revenue will not require the non-resident employer to operate PAYE in the case of a temporary assignee where all of the following criteria are satisfied:
(a) the assignee exercises the duties in the State for not more than 60 workdays (either consecutively or cumulatively) in a tax year, and
(b) the assignee is not on the payroll of an Irish entity, and
(c) the assignee is resident in a DTA country and is not resident in the State for the relevant tax year
Where these conditions are met, Revenue will accept that the assignee is taxable solely in his or her country of residence on the relevant employment income.
(2)Short-term business visits to Ireland by non-DTA residents of 30 working days or less.
PAYE need not be deducted where a non-resident employee from a non-DTA country performs incidental duties of their employment in Ireland and does so for ≤ 30 workdays in aggregate in a tax year. This also applies where an employee performs duties in Ireland for no more than 30 workdays in aggregate within two consecutive tax years.
If a non-resident employee from a non-DTA country will have short-term business visits to Ireland on an annual basis over more than two years, PAYE should be operated from the date of commencement of the duties in Ireland. This applies even if the employee has 30 workdays or less in Ireland in any one tax year.
With effect from 1 January 2020, Revenue will not enforce the operation of PAYE in cases where 60 or less workdays are spent in the State in a tax year. Each year should be considered on a standalone basis. Each case should be reviewed on an individual basis, as the exact position for each individual will depend on the particular DTA in question. A case-by-case review is required as Article 15(2)(a) of the relevant DTA may refer to 183 days in either the fiscal year or the “rolling twelve-month period”.
(3)Assignments of between 61 days and 183 days duration where there is simultaneous deductions under the Irish PAYE system and under a tax deduction system of another DTA tax jurisdiction; and in such a case Revenue will not require a non-resident employer to operate PAYE in relation to temporary assignees of DTA countries where:
(i)The individual is resident in a country with which Ireland has a DTA and is not Irish tax resident for the relevant tax year (resident in this context is determined under domestic rather than DTA rules);
(ii)There is a genuine foreign office of employment;
(iii)The individual is not paid by, or on behalf of, an Irish resident employer;
(iv)The cost of the office or employment is not borne, directly or indirectly, by an Irish permanent establishment of the foreign employer;
(v)The temporary assignee of the DTA country is present in Ireland for a period or periods of ≤ 183 days in aggregate in a year of assessment; and
(vi)The temporary assignee suffers withholding taxes (Payroll Taxes) at source in their home country on the income attributable to the performance of the duties of the foreign employment in Ireland.
As we can see from point 3(iv), for assignments of between 61 and 183 days, if the ‘cost of the office or employment is not borne, directly or indirectly, by an Irish permanent establishment of the foreign employer’ – then it will not meet the conditions to allow the Revenue concession. Therefore where there is a permanent establishment here in the State, then he will need to register as an employer in the State.
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.
