This is the fourth in a series of Tax News Highlights articles covering international taxes and what companies need to consider during and after the current global pandemic.
COVID-19 has disrupted employees’ international assignments as traditionally practiced. Virtual assignments have become the new norm for many organizations with a critical global presence. Employees on current assignments might be required to extend stays as a result of travel restrictions. When employees eventually return home, they should perform a review to determine if and when tax residency has shifted from host countries to home countries. This review should include the original intent of the assignment, the location of the employee’s social and economic ties, and the location of the employee’s family, among other considerations.
If tax residency shifts to the home country location, attendant payroll reporting obligations, including withholding and remittance of income and social taxes, also shift to the home location under local law.
Alternatively, employees on short-term assignments might face travel restrictions, requiring them to stay in their host locations beyond the intended duration. In addition to the increased stress or anxiety for affected employees, extended stays also could result in an additional tax burden under local law for both companies and their employees.
The IRS recognizes the additional tax cost that could be assessed due to U.S. tax provisions inadvertently triggered by current travel restrictions. Consequently, the IRS issued two revenue procedures that provide temporary relief.