Cabin Crew - where are they taxed?

Cabin Crew - where are they taxed?

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I have a client who is a British Citizen working as cabin crew with British Airways (i.e. with a UK employment contract). She has recently married a US citizen and is purchasing a home in New York and applying for a Green Card. The US will be her permanent home. Her BA employment will continue unchanged.

I am currently examining her UK residence status under the SRT and expect that she may be able to clam UK split year non residence, from either the date of her marriage or the purchase of her US home depending on day count and on other connecting factors including the work tie for International Transportation Workers (this information is currently being collated by my client for examination)

If she does not break UK residence then I may look to the Article 4 of the Double Tax Treaty with the US to examine tie break residence if necessary.

I would just like to confirm my understanding of Article 14(3) of the DTT with the US:

1.Am I correct in understanding that the country in which it is established that she is tax resident (whether that be by domestic law or tie break residence) is the country which has the taxing rights over her employment?

2.Am I correct in understanding  that if it is established that she breaks residence in the UK and is resident in the US, then the US will have the right to tax her UK sourced employment income in its entirety and that this is the case regardless of her UK employment contract and her UK workdays (a workday being defined as under the rules of the SRT for establishing work tie)

I understand that BA routinely operate a shadow payroll where 90% of earnings are exempted from UK PAYE obligations upon application from a non UK resident employee. However their literature also states that UK tax will be payable on UK workdays and this seems at odds with the Article 14(3), and has therefore prompted my request for confirmation of my understanding.

Any help welcome. Thank you.

Replies (5)

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By paras007
31st Oct 2013 13:45

Agree

I agree with your analysis.

My guess is that the BA literature possibly tries to apply a blanket approach to all non-residents, however not all treaties will allow workdays to be taxed in the country where performed, as you have just pointed out. Many treaties however will and is possibly the most common treaty position which is maybe why the BA literature plumps for that.

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By aiwalters
31st Oct 2013 15:59

NY State Tax

Don't forget the New York State doesn't recognise the DTA.

Also, the US considers all US Citizens and GREEN CARD holders to be tax resident.

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By m14s4k
01st Nov 2013 16:46

 

 

Thank you  for your comments.  Paars007 -  I think that's helped clear my thoughts. 

Aiwalters -  I believe that NY does in fact recognise the DTT. There may be some taxes that are specifically inadmissable for a tax credit  but the broad principles apply http://www.hmrc.gov.uk/manuals/dtmanual/DT19855B.htm  If its not too much trouble I would really appreciate a pointer to anything confirming that NY does not recognise the DTT in respect of Art 4 and Art 14

Yes the Green Card would trigger US residence and that's why I may need to look at tie break.

Many thanks again for your help.

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By aiwalters
03rd Nov 2013 13:54

New York does not recognise the DTA.

 

The link to the HMRC you quoted shows that the UK will unilaterally allow a tax credit against tax paid to New York; it doesn't mean that New York will allow a tax credit against tax paid to the UK. The only foreign tax credits NY allows are those to Canadian provinces, as per http://codes.lp.findlaw.com/nycode/TAX/22/2/620.

 

Whilst a deduction could be taken on line 9 of schedule IT-201-D for foreign tax paid, this would only reduce income by the tax paid, not reduce tax by tax paid.

For example, if income was $100,000 and UK tax was $30,000, then NY tax would still be due on $70,000. This is very different from a credit, which would reduce NY tax dollar for dollar.

More significantly on a Federal level, it would require the taxpayer to deduct foreign taxes (on schedule A) rather than taking the Foreign tax credit (form 1116), as a NY deduction can only be taken if the federal deduction was also taken, which would usually mean the taxpayer would be worse off than if they'd taken a credit (for reasons explained above).

 

 

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By m14s4k
04th Nov 2013 17:34

thank you

Thank you very much for your assistance. The oportunity to discuss the matter has helped me clear my thoughts. Much appreciated.

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