Cross-Border Tax Impact of Travel Restrictions Due to COVID-19 Pandemic

COVID-19 Update

To curb the spread of COVID-19, the United States, the EU and countries around the world have restricted nonessential travel and limited entry to citizens and permanent residents. The duration of the travel restrictions varies, but can be expected to be at least 30 days. If the travel restrictions persist for an extended period or indefinitely, the inability of personnel to travel could have tax consequences related to tax residence for companies operating in more than one country.

Many countries determine corporate tax residence by reference to where a company is managed, whereas others, such as the United States, define tax residence by reference to place of incorporation, which could lead to taxation on worldwide income in multiple countries. As an example, directors and high-level executives who are unable to travel could inadvertently cause a U.S. company to become a tax resident of the country where the director or executive is located, if control of the company is exercised in that country. This is primarily a concern for privately held companies with multinational operations whose leadership may have been displaced by the COVID-19 pandemic.

How Manatt Can Help: We have extensive experience advising U.S. companies about the structuring of cross-border operations and the use of tax credits and double tax treaties to mitigate the effect of competing tax systems in the United States, Europe, Asia, and other regions and countries. We stand ready to advise clients regarding the risks of inadvertent corporate tax residence outside the United States, as well as regarding tax relief measures enacted by the United States to ensure liquidity during this period of economic slowdown.  

For More Information: Contact Robert Duran, partner, Manatt Tax, at rduran@manatt.com or 310.312.4274, or Jeffrey A. Mannisto, partner and leader, Manatt Tax, at jmannisto@manatt.com or 310.312.4212.

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