UK & Ireland: Where does your business operate?

Is the World really becoming smaller? Very few businesses trade solely in one country, most businesses now operate in more than one jurisdiction. This can be driven by various factors, whether that is a physical presence, a legal entity for regulatory or other reasons, selling goods or services / buying materials or where staff are living / working.

Operating in two or more jurisdictions means adhering to tax laws and rules in each jurisdiction. Otherwise, businesses can quickly fall foul of penalty regimes that can be financially and reputationally damaging.

RSM UK and RSM Ireland work closely together with clients that operate in the UK & Ireland to help them navigate the complexities of operating in both jurisdictions. Brexit certainly underscored the high volume of trade across various sectors for businesses operating in the UK, Northern Ireland and Ireland, and the importance of continued seamless access to these markets for businesses. While trade flow and access for employees to live and work cross-border has continued seamlessly post Brexit, businesses must continue to navigate tax and other issues triggered by cross-border trade. As businesses commence to operate in another jurisdiction, this may trigger obligations and reporting requirements across VAT, PAYE, income tax, corporation tax and potentially other taxes.

One of the key considerations will be whether the business activity triggers a permanent establishment in another jurisdiction, e.g. a taxable nexus of the business to which profits must be allocated and taxed in that jurisdiction. The question of whether a PE is triggered will be one of fact, taking into account local tax laws, guidance of the tax authorities and the relevant double tax treaty.

Angela Keery, tax director at RSM UK (based in Belfast) and Paddy Stapleton, tax partner at RSM Ireland advise businesses on the tax implications for non-resident companies having a permanent establishment (PE) in either jurisdiction. Among other matters, a non-resident company would be deemed to have a permanent establishment in either jurisdiction if:

it has a fixed place of business in the jurisdiction through which the business of the company is wholly or mainly carried on, or
an agent acting on behalf of the company has, and habitually exercises, authority to do business on behalf of the company.

The UK/Ireland double tax treaty provides for a list of activities of what may or may not constitute a PE. It also stipulates that a building site / construction or installation project will trigger a PE where it operates for a period of at least 6 months. These rules must be clearly understood, with reference to the relevant guidance from the tax authorities.

It’s not always straightforward to identify whether the business may trigger a PE by its intended activity, for example, if you have employees working from home in a different jurisdiction, such as ROI based employees working at home for a UK employer, who also occasionally work from a client’s office or site. In such circumstances, a thorough analysis of the role, functions and level of authority will be required, to determine whether the employee represents a ‘fixed place of business’ of the UK business in Ireland.

These are complex areas, and getting the right advice at the outset is important. Where a PE should be recognised, the business must consider several issues. These include;

Registration requirements with the tax authorities, companies house etc.
Configuring the accounting system of the business to record the transactions of the PE.
How to remunerate the PE and comply with transfer pricing rules of both jurisdictions.
Considering the application of the exemption under UK tax law for foreign Branch profits.
Annual filing and preliminary tax payment requirements.

Angela Keery ([email protected]) and Paddy Stapleton ([email protected]) can assist with these issues and advise you on your obligations in each jurisdiction. Please contact them to discuss further.