Impact of taxation on the mobile workforce – a cobble web

As good as it may sound, there are various factors one must consider while evaluating the current year’s residential status and declaration of income thereof. As a foreign resident stranded in a country for a period of more than 182 days, one might end up paying taxes in that country. For example, under Indian Tax Laws, a person who stays in India for a period of more than 182 days is treated as a resident in India and is liable to tax in India, excluding the COVID relief period from 22 March 2020 to 31 March 2020, subject to certain conditions.

Some countries have brought about certain measures related to the pandemic, like “exclusion of period of stay in source country due to exceptional circumstances”, introduction of force majeure in residency provisions, etc. No such relief has been given by Indian Government so far for the financial year 2020-21. One may also consider the “Tie Breaker Rule” of the DTAA, which determines the residential status of a person in the case he becomes a resident of both states by virtue of their domestic laws, in order to avoid double taxation.

The OECD, through policy responses to the COVID-19 pandemic, has settled certain apprehensions related to residency provisions (Version 3, April 2020). However, the interplay of domestic laws and relevant DTAAs will have to be evaluated based on the facts and circumstances.

Responding to all the developments taking place globally, the Indian Government recently defined the term “liable to tax” and introduced a concept of “deemed resident” which provides that an Indian citizen who, due to his domicile, was not taxed in any other country will be deemed to be resident in India and thus have an obligation to pay the taxes under the Indian Tax Laws.

The current scenario and probable future scenarios, where most MNCs will be willing to adopt WFH policy, means the tax impact of this policy needs thorough consideration.

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