Remote Work, Crypto and Enforcement – Top 3 International Tax Trends for 2022
and Beyond

Hi. My name is Renalyn. I’m with HTJ.tax – the international tax firm for 6, 7 and 8 figure investors and entrepreneurs who are living that International Life. Today I wanted to discuss what we think are the top 3 international tax trends that you need to keep in mind as you speak with your advisory teams.

Are you ready?

Let’s find out!

1.The Number 1 trend to watch – Remote Work and Permanent Establishment. Remote work is one of the many trends that were accelerated by the health crisis that started in 2020. Today, the tax consequences of remote working is an issue we face regularly with
many clients. Poorly advised Entrepreneurs and investors are surprised to discover that running a company formed in jurisdiction A – while living in jurisdiction B – may create corporate tax exposure for your company in jurisdiction B. They form a company in a Caribbean jurisdiction for example, and operate it from their home in the US, Europe or Latin America and are confused that their overseas company may be taxed where they live. This is because of a principle called “permanent establishment”. Let’s take a closer look at permanent establishment – Under Article 5 of the OECD Model Tax Treaty, companies can form a Permanent Establishment in a country in one of two ways. First, a company resident in one country may form a permanent establishment by a having “fixed place of business” in another country, which subject to certain exceptions includes a place of management, branch, or an office, among other things. Important to the “fixed place of business” analysis is that the location (a) must be used longer than temporarily and (b) merely needs to be at the disposal of the enterprise, which includes non-exclusive space. Second, a permanent establishment may arise when there is a “dependent agent”. What does this mean? It may arise where a person based in the foreign jurisdiction, acts on behalf of your company and habitually concludes contracts binding on it. Third, certain tax treaties also provide an objective test for a third category of permanent establishment based on performing services in another country for a given period. For example, the US-Canada Income Tax Convention states that even if an enterprise does not have a fixed place of business or dependent agent permanent establishment, a permanent establishment still exists if an individual performs services in either country for more than 183 days per year and accounts for more than fifty percent of an enterprise’s revenue.
So to summarize, your company may be subject to corporate taxes in another jurisdiction when you have a fixed place of business there – even if it is non-exclusive space. Care must also be taken where there is an employee or key decision maker based in another jurisdiction – even if they only work from their home there. Finally, companies need to be mindful of more than just where employees are located when they sign contracts. According to the OECD Model Treaty commentary, a contract may also be deemed concluded for purposes of a dependent agent Permanent Establishment simply by accepting an offer, or by fully negotiating the elements and details of a contract in a way that binds an enterprise. So as you and members of your team do business in various jurisdictions? Get advice from qualified professionals.

2.The Number 2 trend to watch. The IRS and other tax authorities may CONTINUE to seize billions of dollars in virtual assets. The Internal Revenue Service in the US seized $3.5 billion worth of cryptocurrencies during fiscal year 2021. This figure accounted for 93% of all the assets seized by tax enforcement that year, according to an IRS criminal investigation annual report. We are routinely contacted by crypto investors asking for ways to legally avoid paying taxes on large crypto gains. Aside from loss harvesting, moving to Puerto Rico, using charitable remainder trusts, and opportunity zone investments, it is extremely difficult for US exposed persons to legally avoid taxes on crypto gains. Surrendering a US passport and / or US residency may trigger a painful exit tax but it does give access to crypto friendly jurisdictions like Portugal, Singapore, or certain Caribbean jurisdictions. The IRS Criminal Investigation Chief, Mr. Jim Lee is on record as saying that he expects the trend of crypto seizures to continue into 2022. In 2021, the IRS’s criminal unit seized billions of dollars worth of Bitcoin and other virtual currencies connected to cases involving a range of criminal activities, such as wire fraud, money laundering, and of course – tax fraud. That included $1 billion stolen from the Silk Road, an online Bitcoin exchange that was shut down in 2013. The unit also prosecuted a former Microsoft Corp. software developer who used cryptocurrency to hide $10 million that he allegedly embezzled from the company…

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