United States – New Social Security Agreement with Switzerland

United States – New Social Security Agreement wit...

The new Social Security Totalization Agreement with Switzerland replaces the 1980 U.S.-Switzerland social security agreement and accounts for recent changes to U.S. and Swiss laws. This agreement helps to eliminate double social security taxes and “totalizes” benefits for those on international assignment in one country or the other.

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Flash Alert 2014-080

A new Social Security Totalization Agreement (“the Agreement”) between the United States and Switzerland enters into force today.1  The Agreement replaces the 1980 U.S.-Switzerland social security agreement and accounts for recent changes to U.S. and Swiss laws.   

WHY THIS MATTERS

Totalization agreements help to ensure that workers will not pay double social security taxes while on international assignment in one country or the other, which helps to mitigate international assignment costs.  Agreements also provide for coordination of benefits payments for workers who have paid social security taxes in both countries during their careers. 

Notable Coverage/Provisions in the Agreement

The Agreement covers chapters 2 (Tax on Self-Employment Income) and 21 (Federal Insurance Contributions Act (FICA)) of the Internal Revenue Code (the “Code”).  The Agreement does not cover the Net Investment Income Tax which is not a part of FICA. However, the Agreement will apply to the 0.9-percent Additional Medicare Tax payable by certain higher-income taxpayers since this tax is part of FICA.   

Employment/Detached Worker

The provisions with respect to employment are substantially similar to the 1980 agreement. A worker will be covered by the social security system of the country in which he is working. Under the “detached worker” provision, when an employee who normally works for an employer in his home country is temporarily transferred to work in the other country for the same employer (or a foreign affiliate of the employer described in Code section 3121(l)) he will continue to pay social security taxes to his home country. This rule applies only if the employer expects the transfer to last five years or less.

Under the Agreement, if the employee is first sent to work in a third country and then to the host country, the detached worker provision will still apply provided the employee’s service in the third country was subject to mandatory coverage in the home country.   

Self-Employment

The Agreement eliminates dual coverage where the laws of one country consider a person’s work activity self-employment, but the laws of the other consider it employment.  A person who is a resident of the country that considers the work self‑employment will pay social security taxes only under that country’s laws.  If a person is not a resident of the country that considers the work self‑employment, she will pay social security taxes under the laws of the other country. 

Air/Ship Crew Members

The Agreement provides specific rules for crew members of aircrafts and ships. 

  • A member of the flight crew of an aircraft operating between the United States and Switzerland who would otherwise pay social security taxes under the laws of both countries, will pay social security taxes only under the laws of the country in which the company operating the aircraft has its headquarters.  However, if the employee resides in the other country, he will pay social security taxes under the laws of that country.
  • A person employed on a U.S. or Swiss ship and who is covered under the laws of both the United States and Switzerland, will be covered only under the laws of the country whose flag the vessel flies.

FOOTNOTE

1  Donald S. Beyer, Jr., U.S. Ambassador to Switzerland, and Jürg Brechbühl, Director of the Federal Office of Social Security, signed the Agreement on December 3, 2012, in Bern.  See: http://bern.usembassy.gov/event_12032012.html.

For the text of the Agreement, please see the U.S. Social Security Administration website at: http://www.ssa.gov/international/Agreement_Texts/switzrld.html

The information contained in this newsletter was submitted by KPMG LLP’s Washington National Tax practice.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. 

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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