Treaty residence
21st August 2008
The Economist has an article about the change in emphasis by some OECD member states on the question of the residence of travelling workers.
The article puts the point in this way:
“The OECD’s guidelines to its model income tax treaty, which are the basis for much national legislation governing the tax treatment of workers moving across borders, state that a person’s activities should be taxed wherever they take place. This edict, however, has been subject to certain exceptions. …”
“Now, however, the OECD is getting tougher. At its instigation, member states including Belgium, Germany and Britain have started to apply a test to determine whether an executive is “economically employed” within their borders. Instead of looking primarily at which entity pays an employee, the test asks, among other things, which bit of a business bears the risk or responsibility for the individual’s work. It also wants to know who effectively manages the person during their stay in the country. If it is the foreign-country office, then the employee should be taxed there.”
An example is given of a hotel front desk manager (from the US) to a branch abroad (the UK). Although he is paid by his employer in his home country and pays tax there, his work benefits the foreign operation, whose staff oversee his work.
“Under the OECD’s former guidelines, the clerk would have been spared British tax; but under the new regime’s approach he must file a British tax return as well as an American one.”
There is also a danger that the payment of tax by the employee in the foreign country might result in a tax presence there by his employer.
The advice given:
“So how can companies avoid tussles with taxmen? First, they must ensure that they and their frequent flyers know the relevant foreign immigration and tax laws. They also should rigorously track executive travel, thus making it easier for, say, an in-house team to warn an executive of the fiscal consequences of a stay abroad.”
Link: The article can be found here.
