Ireland: Application of USC to Cross-Border Workers
Ireland’s Revenue Commissioners have recently publicly issued three e-Briefs dealing with the Universal Social Charge (“USC”).
International Assignees to Ireland – Application of the USC
Revenue eBrief 81/2011 provides some welcome clarity on the application of the USC for certain “cross border” workers within the European Economic Area (EEA), which includes European Union (EU) member states plus Iceland, Liechtenstein, Norway, and Switzerland.
There has been debate over the rate of USC to be applied where an employee has been posted by his or her employer based in an EEA state to perform employment duties in Ireland for a period of up to 24 months.
Under EU social security regulations, such posted employees remain subject to the social security systems of their home states only. “Posted workers” are entitled to the same social security benefits as apply in their home states while they reside temporarily in Ireland and, as such, are entitled to a full medical card in Ireland.
Certificates A1 (formerly E101) and S1 (formerly E106) which can be obtained from the public bodies based in the home member state are accepted as evidence of entitlement to a full medical card by the Health Service Executive (HSE).
Entitlement to a full medical card affects the rate of USC to be applied in the case of a posted worker. For 2011 and subsequent years, the maximum rate of USC is limited to 4 percent (normally 7 percent).
Revenue had previously not accepted Certificates A1 and S1 as sufficient in order to apply the 4-percent rate of USC. Prior to this eBrief it was Revenue’s view that a full medical card was required, i.e., the holding of certificates A1 and S1 was not sufficient where a full medical card was not obtained.
eBrief 81/2011 confirms that Revenue will accept Certificates A1 and S1 as evidence of entitlement to a full medical card for the purpose of applying the lower 4-percent USC charge.
KPMG Note: Action Required
Due to the uncertainty that existed in 2011, there will be cases where “posted workers” temporarily residing in Ireland were subject to the 7-percent rate of USC. Such employees should make an application to Revenue for a refund to make sure that a maximum rate of 4 percent is applied. From 1 January 2012, where a posted employee holds A1 and S1 certificates, the maximum rate of 4-percent USC should be applied by the employer.
Frontier Workers (Commuters)
Revenue also made reference to employees considered to be “frontier workers.” A “frontier worker” is an employee who is sent to Ireland from another EU member state to perform the duties of their employment. Typically, such employees would commute to Ireland on a weekly basis.
Revenue has stated that, in these circumstances, there is no entitlement to a medical card under EU legislation.
Therefore, the 7-percent USC rate should be applied in cases where the employee is resident in another EU member state and is effectively working in Ireland as a commuter.
Application of the USC to Non-Irish Resident Employees Working in Non-Tax Treaty Countries
Following the introduction of the USC in 2011 (and also income levy in 2009 and 2010), the Revenue view was that non-Irish-resident employees paid by Irish employers were only entitled to an exemption from USC (and previously the income levy) where their duties were being performed in a country with which Ireland has entered into a double taxation agreement (DTA). This appeared contrary to the technical position.
Therefore, where employees were working in non-DTA countries, Revenue was imposing a charge to income levy and USC even though the employment income was outside the scope of Irish income tax.
Revenue eBrief No. 82/2011 now confirms that the tax treaty status of the country of residence of the employee is not relevant for determining the charge to USC and income levy.
On application, Revenue will issue a PAYE Exclusion Order to employers where:
• the employee is not Irish resident for tax purposes, and
• he/she performs employment duties wholly outside of Ireland.
With effect from 2012, where a PAYE Exclusion Order has been obtained in respect of an employee, it is not necessary to withhold income tax or USC. This applies regardless of where the employee resides.
Where a PAYE Exclusion Order is not obtained, PAYE and USC should be withheld by the company.
In view of the previous practice being applied by Revenue, there will be circumstances where USC for 2011 and income levy (2009 and 2010) will have been charged in relation to employees resident and working in non-DTA countries. Employees should therefore make their applications to Revenue for refunds in these circumstances.
These are contained in eBrief 80/11. As indicated by the Minister for Finance in his recent Budget speech (for prior coverage, see Flash International Executive Alert 2011-206, 13 December 2011) USC Regulations have been published and came into force on 1 January 2012. These Regulations set out the manner in which USC is to be deducted from salaries and wages and accounted for under the “Pay as You Earn” (PAYE) system. While there are 35 regulations, the most noteworthy is that the USC will be collected on a cumulative basis and the Revenue Commissioners will determine a rate cut-off point appropriate to an employee for a particular tax year. As with PAYE, they will furnish the employer and employee with a certificate of the rate cut-off points. These will remain in force for subsequent tax years for which an employee’s personal circumstances and the USC rates and bands remain unchanged.