Global Mobility Updates: Irish Revenue Issues New Guidance for Irish and Foreign Employers

Funding of Foreign Payroll Withholding Taxes by Irish Employers

Revenue has recently updated their guidance in cases where Irish employers fund foreign payroll withholding taxes for their employees working in foreign jurisdictions. In these circumstances, employees generally file end-of-year personal tax returns in Ireland to claim a tax credit for the foreign taxes paid by their employer. The employee then pays the tax refund generated from the foreign tax credit claim to their employer.

With effect from 1 January 2023, Revenue now considers any employee who enters into such an arrangement with their employer to be in receipt of a preferential loan until such time as the amounts are repaid to the employer. A preferential loan is a taxable benefit which is within the scope of the PAYE system. The taxable value of a preferential loan is currently 13.5% per annum. 

Employers funding foreign withholding taxes in this manner should ensure that the preferential loan is correctly subject to payroll taxes on a real-time basis.  As the preferential loan will result in additional payroll taxes for employees, employers may wish to consider more tax efficient options for funding foreign payroll taxes, for example, the use of real-time foreign tax credits via the Irish payroll.

Tax Equalisation Arrangements for Employees Assigned from Abroad to Work in Ireland

Revenue has also published new guidance addressing tax equalisation arrangements.

The guidance outlines Revenue’s treatment of tax equalisation arrangements that apply to employees assigned from abroad to work in Ireland under foreign contracts of employment.

The manual also highlights areas of risk that Revenue may review as part of compliance interventions into the operation of the PAYE system by foreign employers with respect to such assignees.

Our View

Given the detailed guidance being issued by Revenue and the extensive data being collected through their real-time reporting, we expect that Revenue interventions in this area will increase.

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