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COVID-19 Tax governance issues & best practices

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The COVID-19 crisis has brought up a number of tax governance questions resulting from travel restrictions and other practical impediments, including for example in the context of permanent establishment requirements. Left unanswered, those issues can make fund operations and the management of portfolio companies more difficult and lead to uncertainty.

Many of the governance issues fall primarily under the competence of national authorities, but not all governments have yet provided clear and helpful guidance. Therefore we, with the help of members of Invest Europe’s Tax Committee, have selected some examples of international guidance and best practices on practical implementation issues that you may find useful, possibly also in your discussions with national authorities.

As this is a fast-moving situation, we would be delighted to hear from you in case you have come across other tax issues faced in the context of Covid-19 and do get in touch if you want to share further examples of useful national and international guidance which are not currently listed below.

 

OECD issues recommendations on implications of the COVID-19 crisis on cross-border workers and other related cross-border matters

On 3 April 2020, the OECD Secretariat has issued recommendations concerning the implications of the COVID-19 crisis on cross-border workers.

The OECD recognises that the extraordinary crisis situation is raising many tax issues, especially where there are cross-border elements in the equation, e.g. due to the inability of workers/employees to travel.  These issues have an impact on the right to tax between countries, which is currently governed by international tax treaty rules that delineate taxing rights.

The exceptional circumstances of the COVID-19 crisis call for an exceptional level of coordination and co-operation between countries, notably on tax issues, to mitigate the potentially significant compliance and administrative costs for employees and employers. The OECD encourages countries to work together to alleviate the unplanned tax implications and potential new burdens arising due to effects of the COVID-19 crisis.

Importantly, the guidance also deals with issues affecting the residence of companies for tax purposes, where their management is carried out in another country due to the travel and quarantine restrictions.

 

Australian Government guidance on Central management and control (CM&C) and Permanent Establishment challenges in the context of COVID 19

The Australian Government / Australian Tax Office was among the first to issue specific guidance on Central management and control (CM&C) and Permanent Establishment challenges that may arise in the context of COVID 19, largely due to travel restrictions. It created a Q&A section on its website to provide useful guidance. The Q&A is available here and can provide a helpful example for other countries dealing with similar issues.

 

HMRC Approach to Company Residence in response to COVID-19 Pandemic

HMRC has also recognised that travel disruptions due to COVID-19 may prevent some directors, employees and other individuals from working in the jurisdiction in which they normally work.

It has argued that where the central management and control (CMC) of a company actually abides is a question of fact. HMRC take the view that whilst the site of board meetings may be important in determining where CMC abides, it is not determinative. Each case turns on its own facts and circumstances which makes it difficult for HMRC to provide definitive guidance as to where CMC may abide in cases where businesses are forced to make changes in response to the COVID-19 pandemic. It has underlined that HMRC’s view will depend on the facts in particular situations, recognising the crisis situation companies are in at the moment.

DAC 6 member guide

Under DAC 6, private equity firms will have to report certain cross-border transactions to national tax administrations in member states. Invest Europe’s Q&A is designed to answer the most pressing questions from a private equity perspective in order to help members prepare for the implementation of the rules in July.

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