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Tax residence during the pandemic

The current situation of economic-health crisis caused by the COVID-19 pandemic and the subsequent health restrictions activated on a global scale, starting from the beginning of 2020, have influenced and, at times, changed the way in which so-called international mobility workers.

In this regard, in the renewed guidelines of last January, the OECD confirms that, despite the complexity of the rules and despite their application being aimed at a wide range of people, it is unlikely that the emergency situation caused by the COVID-19 pandemic, may affect the determination of tax residence under international treaties.

The OECD recalls and confirms that, although the starting point for determining the residence of a natural person is national legislation, the latter can only be exhaustive if the person is resident in only one country, while, in all cases in which there is a risk of double residence, reference should be made to the tie-breakers rules, established in article 4 of the OECD Model.

Furthermore, the OECD reiterates the exceptional nature of the pandemic crisis and argues that in the short-term tax administrations and competent authorities will have to consider, for the purpose of assessing residence, a period of time that is not affected by exceptional events such as the pandemic and the resulting health restrictions, but that it is "normal" for the person.

Some countries have provided information and administrative measures on the impact of the COVID-19 pandemic on the application of international treaties for determining the tax residence of individuals. For instance:

UK confirms changes would be made to the SRT (Statutory Residence Test) rules to allow certain non-UK resident individuals to be present in the UK for COVID-19 related reasons, without impacting their tax resident status. Special guidance issued by HMRC suggest that if an individual is unable to leave the UK as a result of closure of an international border or is asked by the employer to return temporarily to the UK as a result of the virus, then days spent here, up to a maximum of 60, will be treated as “exceptional circumstances” and ignored in the day counting exercise for residence. You do have to leave as soon as circumstances allow.

In Ireland where the individual is prevented from leaving the country on their intended day of departure because of COVID-19 this will be deemed to fall under the Force Majeure principle. The individual, who are not able to return to their country of residence as planned, will not be regarded as being present in the State for tax residence purposes from the day after the intended day of departure. The maximum length of time that may be disregarded for residence purposes due to COVID-19 under force majeure circumstances will depend on case-by-case but is subject to a maximum of 30 days permitted in all circumstances, except in the case of an individual whose departure is prevented due to him or her having a confirmed COVID-19 diagnosis

In Italy, the Revenue Agency has clarified the rules for identifying the tax residence in the interpretation of which the period of "forced stay" in Italy must be calculated for the purpose of exceeding 183 days and no cause of force majeure is valid. As well, the work performed in smart working must qualify as territorially relevant in Italy, although they were carried out in the Italian territory only because of the pandemic.


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