Tax – Home or Away?

Posted on May 2020

We are all adapting to our new living and working environments as a result of the Corona virus and the various stages of ‘lockdown’ in different countries. Many have actively chosen to play out their isolation or social distancing in a different country and there are those who have found themselves (happily or otherwise) ‘stuck’ abroad. The Israeli Ministry of Interior estimated that approximately 75,000 Israelis returned to Israel since the Covid-19 outbreak.

HM Revenue & Customs (“HMRC”) addressed the issue of people unable to move freely to and from the UK as a result of the virus and the impact on their tax residency status. Many expats meticulously count their days spent in the UK to ensure that they don’t accidentally become UK resident and have to pay UK tax accordingly. HMRC allows non-residents an additional 60 days for exceptional circumstances. HMRC has expressly provided assurance that exceptional circumstances will include circumstances when a) people are quarantined or have been advised to self-isolate in the UK as a result of the virus, b) people are advised by Government advice not to travel as a result of the virus, c) people are unable to leave the UK due to the closure of borders or d) people are asked by your employer to return to the UK temporarily as a result of the virus. HMRC also stated that it was ‘keeping the situation under review’ and of course there will be circumstances where the additional 60 days won’t suffice – for example, those who are in the high risk categories and unable to travel in the medium-term.

OECD

The OECD sets out guidelines addressing the tax issues arising from the Corona virus restrictions. We note that these are guidelines only and will not override any domestic law. For example, companies may be concerned about a potential change in the ‘place of effective management’ as this would in turn affect the company’s residency and where it is taxed. However, the OECD guidelines clarify that it is unlikely that the crisis will create any changes to an entity’s residency as it is the ‘usual and ‘ordinary’ place of effective management which is relevant and not only that due to an exceptional and temporary period.

The OECD guidance also addresses the impact of the crisis on the residence status of individuals. The guidance states that it is ‘unlikely that in these specific temporarily and extraordinary circumstances, the COVID-19 crisis will affect the treaty residence position of the individuals’

Meanwhile in Israel, the Israel Tax Authority (“ITA”) has dismissed some of these recommendation from the OECD not to tax those relocating during the current crisis. The ITA has distinguished between those who are trapped and unable to leave the country and those who have voluntarily returned to Israel. For the latter, the ITA considers that the OECD recommendation is not relevant. We recommend that those taxpayers review their residency status and take professional advice.

It’s Oh So Quiet…

HMRC is putting its efforts towards supporting business and inviduals via the job retention scheme, loans and grants. As a result of this, we are noticing a pause from HMRC in investigations and enquiries into individuals and businesses. There are those who will welcome this pause and need this time to ensure that their tax affairs are in order and others will be frustrated in further delays to resolving issues and having peace of mind. One possible solution to this is to use Alternative Dispute Resolution and mediation to finalise long-running cases.

There is no let up however on HMRC’s objective to combat offshore tax issues. The Chartered Institute of Taxation asked HMRC whether there would be any extension for taxpayers to reply to letters received in relation to offshore assets. These letters are a result of the ground-breaking Common Reporting Standard (“the CRS”). The automatic exchange of financial information between over 100 jurisdictions allows the UK to detect possible offshore tax non-compliance and investigate accordingly. In fact, in 2018 HMRC received information on approximately 3 million UK taxpayers with offshore financial interests. According to HMRC, tens of thousands of taxpayers will have received letters from HMRC prompting them to review their tax affairs and confirm that all is in order. There is a strict 30 day deadline to reply and HMRC stated "We know this is a difficult time for many of our customers and we continue to be here to support them. We aren’t changing the deadline that we have set out in the letters to customers, relating to their offshore income, assets and gains, which we sent out at the end of February”. For most other deadlines, HMRC is more flexible in agreeing extensions and agreeing time to pay arrangements.