The Impact of COVID-19 on International Tax

April 14, 2020 | Article

As COVID-19 continues to disrupt our daily lives, many are asking how it will impact their international business.

We've compiled key considerations and resources to assist companies and individuals with international tax and business aspects.

We’ve developed resources to help individuals and organizations with the implications of COVID-19.

For Individuals
Tax Filing & Tax Payment Deadlines
Notice 2020-18 extends many tax deadlines where the original due date was April 15, 2020.

There are several key international tax filings to keep in mind.

Considerations for U.S. citizens living and working abroad
Things to understand:

  • In addition to the extension of time to file, individuals may have additional time to pay tax liabilities due.
  • Permanent or temporary relocations during this time could change your immigration status, tax residency status, and other tax filing positions such as the ability to claim the foreign earned income exclusion for U.S. citizens.
  • Permanent and temporary relocations can have payroll and income tax implications in both the home and host country on items such as reimbursed employee expenses related to employee relocation, family relocation, and quarantined related expenses.
  • Many Americans will soon be receiving the COVID-19 recovery rebate payments based upon the filings of prior year returns. Recovery rebate payments to individuals who were previously or are currently on an international work assignment may be impacted by such work assignments.

What you can do:

  • Review the Tax Filing & Tax Payment Deadlines chart and discuss these benefits and timing of payments with your tax advisor.
  • Discuss with your tax advisors in your home and host countries the various payroll and income tax implications of reimbursed employee expenses related to employee relocation, family relocation, and quarantine-related expenses.
  • Discuss with your immigration attorney how a temporary or permanent relocation from a foreign country may impact your immigration status in the host country. Also, discuss how your immigration status could change in the event of losing your job in the foreign country.
  • Discuss with your tax advisors in both the home and host countries the various income tax implications of a temporary or permanent relocation from a foreign country and how this may impact your tax filing positions and liabilities in each country. Also discuss how your tax status and tax liabilities may change in the event you lose your job in the foreign country.
  • Discuss with your tax advisor the impact of your COVID-19 recovery rebate based upon your international assignment to a foreign country.

Considerations for resident and non-resident aliens living and working in the U.S.
Things to understand:

  • In addition to the extension of time to file, individuals may have additional time to pay tax liabilities due.
  • Permanent or temporary relocations during this time could change your immigration status and tax residency status.
  • Permanent and temporary relocations can have payroll and income tax implications on items such as reimbursed employee expenses related to employee relocation, family relocation, and quarantine-related expenses.
  • Many Americans will soon be receiving the COVID-19 recovery rebate payments based upon the filings of prior year returns. An individual’s recovery payment amount may be impacted by the following issues: 1) Individual previously filed as a nonresident alien; 2) Individual has an Individual Tax Identification Numbers (ITINs) instead of a Social Security number; or 3) Individual did not have a filing obligation in prior years.

What you can do:

  • Review the Tax Filing & Tax Payment Deadlines chart and discuss these benefits and timing of payments with your tax advisor.
  • Discuss with your tax advisors in your home and host countries the various payroll and income tax implications of reimbursed employee expenses related to employee relocation, family relocation, and quarantine-related expenses.
  • Discuss with your immigration attorney how a temporary or permanent relocation may impact your immigration status. Also, discuss how your immigration status could change in the event of losing your job in the U.S.
  • Discuss with your tax advisors in both the home and host countries the various income tax implications of a temporary or permanent relocation and how this may impact your tax filing positions and liabilities. Also, discuss how your tax status and tax liabilities may change in the event you were to lose your job in the U.S.
  • Discuss with your tax advisor the impact of your COVID-19 recovery rebate based upon your situation.

For Companies
Considerations for Foreign Companies with U.S. Business Operations
What you can do:

  • For those U.S. companies with loans from foreign-related parties impacted by the interest limitation of 163(j) in 2019, consider filing the return to request a refund of overpaid estimated payments or amending the return to take advantage of the 50% limitation (up from 30%).
  • For companies with 100 or less employees, adjust estimated payments for 2020 to consider the employee retention credit of 50% of wages.
  • For companies with losses in 2018, 2019 or 2020, consider filing returns to take advantage of the additional net operating loss carryback for five years.
  • Consider the impact of filing deadline changes.

If you have expat employees on assignment who have either been temporarily or permanently relocated:

  • Consider the impact on residency status in both the home and host countries, the tax impact of foreign earned income exclusion for U.S. citizens, as well as other such tax benefits in other countries.
  • Consider the payroll tax implications to the individual and the company of reimbursed employer expenses from temporary and permanent transfers as well as quarantine expenses.
  • Consider the company’s policy and treatment on issues such as fairness and tax equalization. For example, how will a company treat the 2020 non-payment of the COVID-19 recovery rebate based upon an international work assignment and 2018 or 2019 tax filings?

There are several important provisions within the CARES Act.

Considerations for U.S. Companies with Foreign Business Operations
What you can do:

  • Consider whether the business downturn provides an opportunity for:
    • A stock loss deduction on insolvent foreign subsidiaries
    • A bad debt deduction for intercompany loans to insolvent foreign subsidiaries
    • Determining whether such losses can take advantage of the loss carryback five years
  • Review profitability by jurisdiction and alignment with functions and risks
  • Net operating loss carrybacks can have an impact on GILTI and FDII calculations, so be cautious on giving up permanent deductions under Section 250 in favor of an immediate refund.
  • Keep abreast of changes to customs and duties

Stay Up to Date on International Tax Implications
COVID-19 is changing the way we do business. It’s also impacting individuals and businesses around the globe. Relief provided in the U.S. can have different impacts for U.S. citizens living abroad or employees at companies doing business internationally.

The best way to stay on top of this information is to ask questions and do your research. Enlisting the help of a trusted business adviser will help you understand the international implications of this pandemic on you individually and your operation.

Have questions on the impact to you or your international operation?

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