How can the tax obligations of companies change from responses to COVID-19?

Travel restrictions should not impact corporate tax residency

Consistent with recent Australian Taxation Office (ATO) guidance in PCG 2018/9, there is now an expectation that Australians travel to attend foreign board meetings when they are Board members of an overseas incorporated affiliate. 

This becomes an issue for employees and directors that are based in Australia who need to observe the Government’s and/or their group’s travel restrictions which have been put in place to limit the spread of COVID-19. 

If the travel doesn’t take place to attend foreign board meetings then it could risk bringing the foreign entity into the Australian tax net due to Australia’s concept of ‘central management and control’ for our corporate residency test.

The ATO has released guidance that states if the only reason for holding board meetings in Australia, or directors attending board meetings from Australia, is because of impacts of COVID-19, then the Commissioner will not apply compliance resources to determine if the entity’s central management and control is in Australia.

 

Relocation of group employees back to Australia

For foreign companies, the simple act of assisting expatriate employees to return back to Australia to look out for their health and wellbeing could trigger a branch (i.e. permanent establishment) in Australia that has compliance and tax filing obligations.

Consider a scenario where an Australian national has been employed by a group company overseas for the past two years, but they return to Australia and continue their work for the overseas entity from their place of accommodation. These steps are consistent with the group’s disaster recovery and business continuity protocols.

Similar to above, the ATO’s helpful and practical guidance states that the impacts of COVID-19 will not, in itself, result in the foreign company having an Australian permanent establishment. 

If the foreign company did not otherwise have a permanent establishment in Australia before the impacts of COVID-19, and the presence of the employees in Australia is because they are temporarily relocated or restricted in their travel as a consequence of COVID-19, then the Commissioner will not apply compliance resources to determine if the foreign company has a permanent establishment in Australia. 

Other employment tax matters

Situations may arise where employers incur expenditure in order to assist employees that are at risk of becoming subjected to an emergency (including a serious illness or any similar matter). This may be, for example, by way of accommodation, transport, first aid or emergency health care. Such expenditure can generally attract Fringe Benefits Tax (FBT), however there are exemptions which may relieve any such liability where the assistance provided to the employee can be classified as ‘emergency assistance’ for the purpose of the FBT laws.

Furthermore, employers may consider offering employees greater flexibility in their working arrangements, to cater to those who wish to work from home during this time. 

Items such as laptops and certain other work related devices, when used by an employee primarily for work purposes, may be provided by an employer without attracting FBT under certain circumstances. Similarly, if an employee wishes to salary package a device of this nature, provided the salary packaging arrangement is effective and the device meets the eligibility criteria, employers may be able to facilitate such an arrangement without attracting FBT.

 

Conclusion

With the assistance of support and practical statements from revenue authorities, businesses can focus on their operations and doing the right thing for their employees. For further information please refer to the ATO’s website: https://www.ato.gov.au/Individuals/Dealing-with-disasters/In-detail/Specific-disasters/COVID-19/?page=2#COVID_19_frequently_asked_questions

 

 

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