Sending Employees to the USA - Some Tax Pitfalls

With Brexit looming and the likelihood that firms will look more seriously at doing business in what appears to be a broadly favourable business environment under the Trump regime, it is worth pointing out that sending employees to the USA to work with business partners on joint projects may be fraught with tax complexity.

In very simple terms, a person visiting the USA on a short-term business visa who is there for 90 days or more or who earns more than $3,000 whilst there on business will become subject to US Federal Income Tax reporting requirements and, potentially, liable for US tax.

Just some of the possible issues that may arise are set out below.

The US/UK Income Tax treaty provides an exemption for employees who do not spend more than 183 days in the US and are not paid by or on behalf of a US employer and are not paid by a 'permanent establishment' of the foreign employer in the US. This would seem to enable almost all short-term secondments to avoid the problem, but there is a catch – the US Internal Revenue Service (IRS) interprets 'employer' rather differently from the definition used by HM Revenue and Customs. The IRS regards an employer as the person or organisation that controls the employee on a day-to-day basis, not the legal employer where this is different.

In addition, to obtain relief under the treaty, the taxpayer must also apply to the IRS for a 'Taxpayer Identification Number' (TIN) and make returns. Tax should be withheld until the TIN is received.

Lastly, as is common in federations, state law may vary significantly. For example, some states do not recognise the UK/US Income Tax treaty.

The moral is to do your research beforehand and make any necessary preparations.