Ireland - Recent guidance issued on tax equalisation arrangements

Global mobility has become an area of increased interest for the Irish Revenue, and they have focused on resourcing this area over the last year. Following on from this, they have recently begun to issue detailed guidance specific to global mobility, including a list of risk areas in this space.

The Irish Revenue Commissioners on 27 February issued Revenue brief No. 039/23, which provides guidance on tax equalisation arrangements, for personal income taxation of employees assigned from abroad under non-Irish contracts of employment.

While the list of topics covered is quite extensive, some of the areas of particular focus for Revenue will be the operation of the pay-as-you-earn (PAYE) system on a real-time basis, the audit trail from income and benefits stated on the assignment letter to the home country payroll and on to the Irish shadow payroll, the correct treatment of trailing bonuses and the taxing and reporting of share remuneration attributable to the Irish assignment.

Given the amount of updated guidance being issued by Revenue in this area, together with the data being collected through the PAYE real time reporting, there is a strong expectation that Revenue interventions will follow.

Funding of foreign payroll withholding tax liability

The Irish tax authorities recently updated their position in cases where an employee is assigned temporarily to a foreign jurisdiction with which Ireland has entered into a double tax agreement (DTA) during a tax year and the employer funds the foreign payroll withholding tax liability by not seeking payment of the liabilities from the employee during the year. After the year end, the employee files their Irish income tax return and makes a claim for foreign tax relief. The subsequent tax refund is then paid by the employee to the employer.

Revenue’s position now is that the employer has effectively provided a loan to the employee to fund their income tax liability in the foreign DTA jurisdiction whilst carrying out employment duties there. Effective 1 January 2023, an employee who enters into such an arrangement with their employer is considered to be in receipt of a preferential loan until the amounts are repaid to the employer. The taxable value of a preferential loan is currently 13.5% per annum.

The updated guidance is silent on whether the funding of Irish payroll tax liabilities via a shadow payroll would also give rise to a preferential loan.

Amendment to company car benefit in kind

The benefit-in-kind (BIK) system moved to a CO2-based system from 1 January 2023 to encourage the use of electric vehicles and lower-emissions cars. The taxable value of the motor vehicle is calculated by applying a percentage rate (based on CO2 emissions and business mileage) to the vehicle’s original market value. However, the government acknowledged that a significant number of employees have experienced large increases in their income tax liabilities because of these changes.

To address this issue, temporary relief has been introduced for calendar year 2023. The relief will enable employers to reduce a car’s open market value (OMV) by EUR 10,000 for the lower CO2-emitting categories to reduce the amount of tax payable for BIK. This treatment will apply also to all vans and electric vehicles.

For electric vehicles, the OMV deduction of EUR 10,000 will be in addition to the existing relief of EUR 35,000 currently available for electric vehicles, so that the total relief for these vehicles in 2023 will be EUR 45,000.

This relief is to be backdated to 1 January 2023. The proposed legislation to effect this change is expected to be enacted shortly.

Laura Murray
Mark Hynes
BDO in Ireland